The Federal Reserve cut rates again on Dec. 10, but signaled it may be slowing down on further cuts. Three board members voted against the cut, reflecting an unusual split on where the Fed sees the economy going. In announcing the new rates, Chairman Jerome Powell said that tariffs are keeping inflation higher than economists would like to see. That sentiment is making the Fed cautious, though President Trump is pushing for even lower rates. For now, the most likely scenario is one more interest rate cut in 2026 and another in 2027.
Whatever happens, investors may be anticipating a prolonged low-rate era, which means many are thinking about income investments. While some will seek dividend-growing stocks, high-yield exchange-traded funds (ETFs) are perfect low-cost plays that are diversified across many companies. Here are three that we think are great options to buy and hold on to.
1. Schwab U.S. Dividend Equity ETF (SCHD)
This large fund’s goal is to track as closely as possible the Dow Jones U.S. Dividend 100 Index. This index aims to mirror the performance of high-dividend U.S. stocks, selected for fundamental strength relative to their peers.
Top holdings include Merck & Co. (MRK), Amgen Inc. (AMGN), Cisco Systems Inc. (CSCO) and AbbVie Inc. (ABBV).
- YTD return = 1.59%
- NAV = $27.68
- Expense ratio = 0.06%
- Assets under management = $72 billion
2. State Street SPDR S&P Dividend ETF (SDY)
This fund seeks to provide results that correspond generally to the S&P High Yield Dividend Aristocrats Index, which screens for companies that have consistently increased their dividend for at least 20 consecutive years.
Top holdings include Verizon Communications (VZ), Realty Income Corp. (O), Target Corp. (TGT), and Chevron Corp. (CVX).
- YTD return = 7.06%
- NAV = $141.39
- Expense ratio = 0.35%
- Assets under management = $20.2 billion
3. PIMCO 0-5 Year High Yield Corporate Bond Index Exchange-Traded Fund (HYS)
Managed by the fixed-income experts at PIMCO, this fund seeks to provide total return that corresponds to the BofA Merrill Lynch 0-5 Year US High Yield Constrained Index. The fund offers exposure to the short maturity segment of the corporate bond sector, “whose returns historically have been in line with equities but with approximately half the volatility,” according to PIMCO.
- YTD return = 0.6%
- NAV = $94.87
- Expense ratio = 0.56%
- Assets under management = $1.5 billion
Why This Matters
Facing a lot of market uncertainty and low interest rates, investors should consider income investments. High-yield ETFs are a way to benefit from dividends while paying low management fees and expenses.
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