Market pundits have been musing about a potential interest rate cut from the Federal Reserve for a while. But after recent data showed muted inflation, remarks from the central bank in July signaled more openness to a cut. Combine that with weakening job numbers, and policymakers may feel more pressure to act.
As a result, Wall Street has all but baked in a cut of at least 0.25 percentage point to a benchmark rate range of 5% to 5.25% as soon as the Fed’s next meeting in September. That modest cut may not seem particularly meaningful given we were at near-zero rates right after the COVID-19 pandemic, but it’s an important indicator of the path forward at the central bank.
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Among the best exchange-traded funds, or ETFs, you’ll find a good number that are sensitive to interest rates and are thus showing strong short-term momentum. If and when the outlook for the Fed changes, these funds may change, too. But as of August 2024, the news cycle and the investor interest on Wall Street seems to be favoring these top ETFs.
| ETF | Assets under management | Expense ratio |
| Vanguard Real Estate ETF (ticker: VNQ) | $35 billion | 0.13% |
| Invesco S&P MidCap Momentum ETF (XMMO) | $3 billion | 0.34% |
| Invesco S&P SmallCap Momentum ETF (XSMO) | $1.2 billion | 0.39% |
| iShares 20+ Year Treasury Bond ETF (TLT) | $57.5 billion | 0.15% |
| iShares Bitcoin Trust ETF (IBIT) | $21.7 billion | 0.12% |
| iShares Gold Trust (IAU) | $30.1 billion | 0.25% |
| Vanguard S&P 500 ETF (VOO) | $482 billion | 0.03% |
Vanguard Real Estate ETF (VNQ)
Assets under management (AUM): $35 billion Expense ratio: 0.13% annually, or $13 on $10,000 invested
This leading real estate ETF holds about 160 stocks involved in all manner of real estate, including telecom infrastructure play American Tower Corp. (AMT), warehouse operator Prologis Inc. (PLD) and data center operator Equinix Inc. (EQIX) beyond the more conventional residential and office players out there. Real estate is a very capital-intensive business, and thus it’s very sensitive to interest rates. A cut of 25 basis points may not sound like a lot, but if you’re in the real estate sector, it’s tremendously welcome news. Shares of this top ETF are already up about 13% in the past three months in anticipation of a rate cut, building strong momentum as we charge into the close of the year.
Invesco S&P MidCap Momentum ETF (XMMO)
AUM: $3 billion Expense ratio: 0.34%
Large and entrenched companies tend to have easier access to capital and thus less sensitivity to higher borrowing costs. That means mid-cap stocks come with more risk when things are tough, but also more upside when things are going well as they can move faster to make the most of opportunity. XMMO is a leading mid-cap fund with about 80 holdings that represent the top 20% of the S&P 400 MidCap index — the next level of the stock market after the top 500 U.S. corporations in the more popular S&P 500. Holdings include Lennox International Inc. (LII) and Manhattan Associates Inc. (MANH), with all stocks selected based on strong near-term momentum when compared with peers.
Invesco S&P SmallCap Momentum ETF (XSMO)
AUM: $1.2 billion Expense ratio: 0.39%
An even spicier momentum play is this sister fund from Invesco that instead takes the top 20% of the small-cap S&P 600 — the smallest tranche among the 1,500 leading publicly traded corporations on Wall Street. With just under 120 total holdings, this momentum-focused ETF is a tactical way to play the smallest stocks that exhibit the biggest potential right now. Top positions in XSMO include tech service provider Insight Enterprises Inc. (NSIT) and building products firm Boise Cascade Co. (BCC), among others. There’s more risk here, but with this fund up more than the S&P 500 over the past three months, there’s also the potential for more rewards when the momentum works in favor of the small-cap stocks it holds.
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iShares 20+ Year Treasury Bond ETF (TLT)
AUM: $57.5 billion Expense ratio: 0.15%
Don’t want to play the rate cut via equity markets? Then consider this leading bond ETF from iShares. There is generally an inverse relationship between bond prices and bond yields, where the principal value of bonds falls when rates rise and vice versa. That’s because older bonds change in value when compared with new issuances, with the higher interest rate determining value. In other words, if rates start to creep down this year and continue getting lower, then the longer-term bonds in TLT are going to be more appealing than they were in the past. This bond fund has been rising nicely in recent weeks in anticipation of a rate cut, but keep in mind that it is down more than 40% since its 2020 highs, thanks to the previous period of steadily rising rates. If the Fed changes its approach again, the fate of TLT will change, too.
iShares Bitcoin Trust ETF (IBIT)
AUM: $21.7 billion Expense ratio: 0.12%
While the Grayscale Bitcoin Trust ETF (GBTC) was recently highlighted as one of the best-performing ETFs of 2024, IBIT offers a nearly identical approach — but with significant savings on annual expenses. The fund enables investors to access Bitcoin (BTC) within a traditional brokerage account, and to buy it in an affordable way without a digital wallet or some of the tax burdens. With Bitcoin up about 50% on the year and IBIT marking its daily moves pretty faithfully, those who expect crypto to continue its run may want to give this recently minted ETF a look.
iShares Gold Trust (IAU)
AUM: $30.1 billion Expense ratio: 0.25%
While crypto and the tech sector have been all the rage in 2024, don’t overlook gold. That old favorite and go-to alternative asset has slightly outperformed the S&P 500 so far this year due in part to global inflation concerns, and it remains a popular piece of many portfolios right now. There are a host of exchange-traded products that allow investors access to gold without storing gold bullion or trying to exchange physical coins at a pawn shop, but IAU stands out thanks to its sponsorship by leader iShares and one of the lowest expense ratios out there for a gold-backed ETF.
Vanguard S&P 500 ETF (VOO)
AUM: $482 billion Expense ratio: 0.03%
It’s reductive but true: Buying into the leaders that make up the S&P 500 remains one of the best and simplest ways to invest profitably in the long run. Consider that the index is up about 14% this year through Aug. 1 and about 80% in the past five years to average 16% annually. That’s not only a great rate of return, but it also begs the question of whether you think you can really beat that kind of gain on your own. Many folks like to dabble in stocks for fun, and some even get pretty good at picking the occasional winner. But considering the baseline returns of the S&P 500 during this bull market run, if you’re not seeing similar profits lately then consider this cheap and accessible Vanguard ETF rather than chasing the latest fads.
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7 Best ETFs to Buy Now originally appeared on usnews.com
Update 08/02/24: This story was previously published at an earlier date and has been updated with new information.
