4 Sector ETFs To Benefit From 3-Year Lower Rates

In the FOMC meeting concluded on Sep 17, the Federal Reserve Chair Jerome Powell maintained a dovish stance for a longer period. It kept U.S. interest rates near zero and pledged to keep rates at lower levels until the end of 2023.

The central bank will not increase rates until labor market conditions return to “maximum employment,” and inflation rises to 2% and “is on track to moderately exceed 2% for some time.” As such, it will continue to purchase at least $80 billion a month in U.S. Treasuries and $40 billion a month in mortgage-backed securities to make market movements smooth and “foster accommodative financial conditions.”

Though the U.S. economy has bounced back faster than expected, the central bank warned that its full recovery is still far away and that it will continue to face risks due to the ongoing pandemic.

Lower Rates: A Boon

Low rates are a boon for high-yield sectors such as utilities and real estate as well as the dividend-paying securities. When interest rates remain low, these sectors, which are generally known for the income they generate, gain momentum. Utilities offer solid dividend payouts and excellent capital appreciation over the longer term while real estate is required to distribute at least 90% of taxable income to its shareholders annually in the form of dividends.

Homebuilders will also get a boost as low rates will encourage people to buy more homes and make refinance cheaper. Overall, lower interest rates will keep borrowing cost down, thereby resulting in higher consumer spending and a rise in economic activities. This will, in turn, increase profitability across various segments.

Meanwhile, gold mining stocks will also get a boost, given that these are leveraged plays on the underlying metal. Lower rates will continue to weigh on the dollar against the basket of currencies, raising the metal’s attractiveness as it does not pay interest like fixed-income assets.

In such a scenario, investors could make a play on these sectors which should continue to trade smoothly in the wake of expected three years low rates. Below we have highlighted some ETFs and stocks that could be excellent plays for investors.

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