How to position your investment portfolio for lower rates, according to experts

It could be time to rethink popular portfolio strategies for a lower interest rate environment.

The Federal Reserve’s half-percent rate cut on Wednesday marked the first time in more than four years it moved to lower the benchmark interest rate. According to VanEck CEO Jan van Eck, investors should start thinking about how the changing macro environment will affect their investments in the year ahead.

“Investors should look at their equity book and say, ‘How should I construct that to ride through the cycle of the next year?’” he told CNBC’s “ETF Edge” last week. “Just buying the S&P alone is a dangerous strategy right now.”

The S&P 500 closed 1.4% higher on the week, while the small-cap Russell 2000 finished up 2.1%. J.P. Morgan Asset Management’s Jon Maier suggests the latter index’s outperformance can last as rates fall.

“We’re going to be in an easing cycle, so small-cap companies are going to be benefited by lower interest rates,” the firm’s chief ETF strategist said.

But it’s not just equity strategies that experts suggest revisiting. Investors may begin to cut back their cash holdings, too. While the average return on the 100 largest money market funds still sits above 5%, according to Crane Data as of Friday, Maier expects to see some of that money flow back into bonds.

“Fixed income is this area that is just seeing a tremendous amount of flows right now because of the rate environment, and that likely will continue,” he said. “About six and a half trillion dollars in money market funds, much of that will flow into either longer-duration fixed income, or some in other areas of equities.”

With rates finally beginning to fall, van Eck points to the federal deficit as the next potential challenge for markets. He sees reason to stick with some popular portfolio hedges amid broader repositioning.

“Can the government continue to stimulate the economy and spend so much more than they’re taking in in tax receipts? Our answer is that’s going to cause a lot of uncertainty. Gold and bitcoin are great hedges for that,” said van Eck.

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