Income Diversification Can Ease Anxiety Over Rate Cuts

The U.S. Federal Reserve today implemented an interest rate cut of 25 basis points. The question remains: Just how aggressive will they be the rest of the year and beyond? That may cause anxiety for fixed income investors who have long been accustomed to higher yields in an environment of persistent, sticky inflation.

“A majority of the FOMC is now targeting two further cuts this year, indicating that the doves on the committee are now in the driver’s seat,” said Simon Dangoor, head of fixed income macro strategies at Goldman Sachs Asset Management. “We think it would take a significant upside surprise in inflation or labor market rebound to take the Fed off its current easing trajectory.”

One of the best ways to ease anxiety in a rate-cutting environment is to seek ETFs that focus on income diversification. However, not just any ETF will do. More specifically, look to active ETFs.

Getting Actively Involved

The active strategy allows for dynamic adjustment of holdings to suit current market conditions. It does so irrespective of what the Fed does with interest rates. Active ETFs tap into the experience and expertise of portfolio managers. Those managers can seek diversified income opportunities to maximize yield, as well as return potential, across a variety of sectors and geographies. Additionally, the fund’s managers can add to holdings that are showing upside. On the other hand, they can also reduce holdings in order to minimize the downside.

Active ETF launches have been outpacing their passive peers this year. That speaks to the direction that providers are taking in the ETF marketplace. With a number of these funds also offering competitive expense ratios, it’s another reason why active ETFs are attracting attention.

An All-Weather Solution

As mentioned, one way to ease the anxiety is to diversify income sources, which is exactly what the Thornburg Multi Sector Bond ETF (TMB) can do, in the convenience of a dynamic, active ETF wrapper. Despite the looming market uncertainty, it’s a reminder that it’s best to put cash to work as opposed to keeping it unattended on the sidelines. TMB is an option worthy of consideration. Its income diversification and active management allows the fund to thrive in any market environment. That makes it an all-weather fixed income solution.

“If investors are looking to put some sidelined cash to work in the fixed income markets, we see this period as a great opportunity relative to the last 15 years,” noted Thornburg in a blog post. “The potential for enhanced returns is decidedly more present.”

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