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Rates to Remain Higher for Longer? High-Yield ETFs in Focus
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The interest rates in the United States are expected to remain higher for longer. Despite some officials seeking for a 0.25% hike in rates in June due to a solid labor market and signs of economic resilience, the decision to hold rates steady was unanimous, leading to a pause.
The chances of a rate hike in July are pretty high at the current level. And we may see another rate hike in the rest of 2023, resulting in at least two rate hikes each worth 25 bps in the second half of this year. Fed Chair Jerome Powell reiterated this sentiment, accenting the risk of not taking enough action to tame inflation.
The possibility of raising rates at successive policy meetings is quite likely, given the projected momentum of inflation and the health of the job market. Not only this, many market participants believe that rates are likely to remain high for longer in the U.S. economy.
Key Reason Behind This Rationale: A Resilient Economy
Several officials who promoted for a rate hike in June saw the job market as robust and the economy as resilient. With the labor market remaining tight and economic activity showing stronger momentum than expected, they thought so.
Additionally, they noted that inflation had not been falling fast enough, further backing the case for a rate hike. Most officials recognized that inflation remained above the Federal Reserve's 2% target.
June Pause Was to Assess Effects of Prior Rate Hikes
One of the key factors behind the decision to pause was the necessity to allow more time for the effects of previous rate hikes to reflect on the economy. While officials recognized that the full impact of these rate hikes had yet to be observed, they also stated that credit conditions had not meaningfully tightened since early last year. Moreover, the weaker health of the regional banks probably led the Fed to go for a pause in June.
High-Dividend ETFs to Buy?
If rates remain higher for longer, investors may want to know about the ETF options that yield more than 4% to beat the benchmark treasury yields. Below we highlight a few of them.
Xtrackers MSCI EAFE High Dividend Yield Equity ETF (HDEF - Free Report) – Yield 4.67%; One-Month Return: Up 2.6%
The underlying MSCI EAFE High Dividend Yield Index tracks the developed market performance. The expense ratio of 0.20% annually.
Global X SuperDividend U.S. ETF (DIV - Free Report) – Yield 7.37%; One-Month: Up 2.0%
The underlying INDXX SuperDividend U.S. Low Volatility Index tracks the performance of 50 equally weighted common stocks, MLPs & REITs that rank among the highest dividend yielding equity securities in the United States. The fund charges 45 bps in fees.
Xtrackers MSCI All World ex U.S. High Dividend Yield Equity ETF (HDAW - Free Report) – Yield 5.30%; One-Month Return: Up 2.2%
The underlying MSCI ACWI ex-USA High Dividend Yield Index tracks the performance of equity securities in developed and emerging stock markets. Europe takes 49.37% of the fund, followed by Asia (39.64%). The fund charges 20 bps in fees.
Global X SuperDividend ETF (SDIV) – Yield 13.52%; YTD: Up 5.1%
The underlying Solactive Global SuperDividend Index tracks the performance of 100 equally weighted companies that rank among the highest dividend yielding equity securities in the world.The index provider applies certain dividend stability filters. It charges 58 bps in fees.
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Rates to Remain Higher for Longer? High-Yield ETFs in Focus
The interest rates in the United States are expected to remain higher for longer. Despite some officials seeking for a 0.25% hike in rates in June due to a solid labor market and signs of economic resilience, the decision to hold rates steady was unanimous, leading to a pause.
The chances of a rate hike in July are pretty high at the current level. And we may see another rate hike in the rest of 2023, resulting in at least two rate hikes each worth 25 bps in the second half of this year. Fed Chair Jerome Powell reiterated this sentiment, accenting the risk of not taking enough action to tame inflation.
The possibility of raising rates at successive policy meetings is quite likely, given the projected momentum of inflation and the health of the job market. Not only this, many market participants believe that rates are likely to remain high for longer in the U.S. economy.
Key Reason Behind This Rationale: A Resilient Economy
Several officials who promoted for a rate hike in June saw the job market as robust and the economy as resilient. With the labor market remaining tight and economic activity showing stronger momentum than expected, they thought so.
Additionally, they noted that inflation had not been falling fast enough, further backing the case for a rate hike. Most officials recognized that inflation remained above the Federal Reserve's 2% target.
June Pause Was to Assess Effects of Prior Rate Hikes
One of the key factors behind the decision to pause was the necessity to allow more time for the effects of previous rate hikes to reflect on the economy. While officials recognized that the full impact of these rate hikes had yet to be observed, they also stated that credit conditions had not meaningfully tightened since early last year. Moreover, the weaker health of the regional banks probably led the Fed to go for a pause in June.
High-Dividend ETFs to Buy?
If rates remain higher for longer, investors may want to know about the ETF options that yield more than 4% to beat the benchmark treasury yields. Below we highlight a few of them.
Xtrackers MSCI EAFE High Dividend Yield Equity ETF (HDEF - Free Report) – Yield 4.67%; One-Month Return: Up 2.6%
The underlying MSCI EAFE High Dividend Yield Index tracks the developed market performance. The expense ratio of 0.20% annually.
Global X SuperDividend U.S. ETF (DIV - Free Report) – Yield 7.37%; One-Month: Up 2.0%
The underlying INDXX SuperDividend U.S. Low Volatility Index tracks the performance of 50 equally weighted common stocks, MLPs & REITs that rank among the highest dividend yielding equity securities in the United States. The fund charges 45 bps in fees.
Xtrackers MSCI All World ex U.S. High Dividend Yield Equity ETF (HDAW - Free Report) – Yield 5.30%; One-Month Return: Up 2.2%
The underlying MSCI ACWI ex-USA High Dividend Yield Index tracks the performance of equity securities in developed and emerging stock markets. Europe takes 49.37% of the fund, followed by Asia (39.64%). The fund charges 20 bps in fees.
Global X SuperDividend ETF (SDIV) – Yield 13.52%; YTD: Up 5.1%
The underlying Solactive Global SuperDividend Index tracks the performance of 100 equally weighted companies that rank among the highest dividend yielding equity securities in the world.The index provider applies certain dividend stability filters. It charges 58 bps in fees.