Fed Rate Cut Boosts Dividend ETFs: SCHD, VYM, and XLU Gain
The Federal Reserve has recently cut its benchmark short-term interest rate, sparking anticipation of potential benefits for certain Exchange Traded Funds (ETFs). Schwab U.S. Dividend Equity ETF (SCHD) and Vanguard High Dividend Yield ETF (VYM) are among those expected to gain, thanks to their low expense ratios and dividend-focused strategies.
The Fed's decision to lower rates by 25 basis points was driven by slowing economic growth, particularly in the jobs sector. This move is expected to boost ETFs that are sensitive to interest rate changes. SCHD, which tracks the Dow Jones U.S. Dividend 100 Index, and VYM, which follows the FTSE High Dividend Yield Index, both have low expense ratios of 0.06%.
Utilities Select SPDR Fund (XLU) is another ETF poised to benefit. With a low expense ratio of 0.08%, it tracks the Utilities Sector Index, which typically performs well in a low-rate environment. While the exact top holdings of SCHD and SPDR S&P 600 Small Cap ETF (SPSM) were not specified, XLU's portfolio usually includes major U.S. utilities like NextEra Energy, Duke Energy, and Southern Company.
The current forecast suggests one to two more rate cuts in 2025, which could further enhance the appeal of these dividend-focused ETFs.
The recent Federal Reserve rate cut has opened opportunities for investors in dividend-focused ETFs. Schwab U.S. Dividend Equity ETF (SCHD) and Vanguard High Dividend Yield ETF (VYM), along with Utilities Select SPDR Fund (XLU), are expected to benefit from this decision. As the Fed continues to monitor economic growth and jobs, further rate cuts in 2025 could provide additional tailwinds for these ETFs.
