Bryan Armour: Interest rate cuts appear to be on the horizon. Morningstar’s Senior US Economist Preston Caldwell predicted the first cut of 25 basis points will occur during the Federal Reserve’s meeting on Sept. 17, 2025. He expects another 25-basis-point cut during the Fed’s meeting in December.
Fed fund’s futures tell a similar story. The CME’s 30-day Fed fund’s futures prices reflect an 85% chance of a rate cut in September with the likeliest outcome of 50 basis points of total cuts come year-end. That 50 basis points is mostly priced into the market, so don’t expect major price changes if the likeliest outcome prevails.
Interest rate predictions are helpful but subject to change. Top of mind for the Fed is inflation and employment. The Fed’s expected interest rate path could change as new economic information reveals itself. Everything points to 25 to 75 basis points of rate cuts by year-end, but even that wider range is uncertain. Where we land at this point in 2026 and beyond becomes even less predictable, but current futures prices and our current estimate reflect a steady diet of rate cuts for the next couple years.
Investors can seek to understand the expected path, but must acknowledge what’s already priced in and the potential for significantly different outcomes. With that said, I’ll turn to three great ETFs to buy before the Fed cuts interest rates without going all-in on estimates.
3 Great ETFs to Buy Before the Fed Cuts Interest Rates
- iShares Total Return Active ETF BRTR
- Avantis US Small Cap Value ETF AVUV
- iShares Advantage Large Cap Income ETF BALI
My first pick is a pure play on active bond management. iShares Total Return Active ETF, ticker BRTR, benefits from having Chief Investment Officer Rick Rieder at the helm, alongside the strong supporting cast he’s built. The team uses BlackRock’s deep resources to synthesize meticulous research and identify big trends. That means investors can stop watching Fed meetings and outsource their bond portfolio to some of the best managers in fixed income.
BRTR utilizes a vast toolkit to achieve its objectives. It starts with an investment-grade portfolio, then makes opportunistic trades into riskier high-yield and emerging-markets debt. It combines bottom-up analysis with top-down macro trends that leads it to search for relative value, while also quickly cutting risk when the market outlook turns gloomy. Overall, the strategy has made prudent use of a broad and complex toolkit to take advantage of various markets and to earnestly manage risk, producing a strong record since Rieder took over in 2010. Investors can be forgiven if they leave interest rate policy guesswork to him.
The second ETF on my list is Silver-rated Avantis US Small Cap Value ETF, ticker AVUV. This ETF is a contrarian strategy that is best suited for investors without income needs. Small-cap value stocks are particularly sensitive to borrowing costs and may see a resurgence if rates fall.
This fund hunts the small-cap universe for stocks that are cheap and profitable, an attractive duo of factors. Both have historically been tied to market-beating returns, and they tend to excel at different times, with the positive effect amplified in the small-cap market. Balancing the two should keep the fund competitive in most market environments.
A broad portfolio and a low fee make it easy for investors to target the rate-sensitive small-value corner of the style box.
Income doesn’t have to come from bonds. Investors seeking high income and stock-market-like returns can pick up yield in their stock sleeve with Silver-rated iShares Advantage Large Cap Income ETF, ticker BALI. This may not seem like an obvious play ahead of rate cuts, but it works for two reasons. First, lower interest rates make it easier for companies to earn profits by lowering borrowing costs and increasing consumer spending. And second, future bond yields will decrease as rates are cut.
The iShares team targets 7.0% to 7.5% yield and then 0.9 beta to the S&P 500. It achieves this by combining stocks, options, and futures in one portfolio. The stock sleeve optimizes its portfolio of 100 to 250 stocks around an income-generating dividend rotation model, the firm’s quantitative signals, and strict market-relative constraints. The options sleeve sells call options to produce income, and the future sleeve delta hedges their option sleeve with S&P 500 futures, which removes the return ceiling typical of covered call ETFs.
This strategy best serves investors that need income. Taking 7.0% to 7.5% in income each year comes with a hefty tax bill. That said, investors can use BALI to replace lost bond income in their stock sleeve.
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