On September 17, the Federal Reserve cut interest rates by 25 basis points, ending months of debate and market speculation over when the central bank would trim rates down. This marked the first time the Fed lowered rates since December 2024. Many sectors of the market rejoiced once the Federal Reserve opted to trim rates once more. After all, lower borrowing costs can open up more growth opportunities for equities across the cap spectrum. However, not all investment strategies necessarily benefit from lower interest rates. One investment vehicle that can be particularly adversely affected by lower interest rates is money market funds.
Usually, advisors and investors add money market funds to their portfolio as a low-risk means to steadily accrue income. However, when interest rates are lowered, money market funds can likewise see their yields and returns cut down as well. As such, advisors and investors may be looking to move some of their cash out of money market funds, if they haven’t already. After all, Crane Data’s September 2025 Issue notes that nearly $7.6 trillion in cash sits in money market funds right now.
The question is: Where should advisors and investors look to park their cash now? Active fixed income ETFs could offer a particularly potent solution. Here’s why.
The Federal Reserve has made it fairly clear that more interest rates should be expected to come down the line. However, guidance has remained murky as to the timing and frequency of these rate cuts. This is where the flexibility of active management can really make a difference. Active managers can opportunistically reposition their fixed income portfolios to adapt to the current rate environment.
BKUI and BKHY Offer 2 Different Solutions
Within BNY Investments’s ETF library, a couple of different funds offer active takes on fixed income. For instance, advisors still seeking a low-volatility fixed income product might want to look at the BNY Mellon Ultra Short Income ETF (BKUI).
An actively managed fund, BKUI looks to offer compelling yield and low volatility through its disciplined investment process. The fund’s portfolio team uses proprietary research to locate individual sectors that offer compelling outperformance potential. Afterward, BKUI adds individual securities to its portfolio following a top-down macroeconomic analysis.
Alternatively, advisors and investors looking to pursue higher income potential might want to check out the BNY Mellon High Yield ETF (BKHY). Much like BKUI, BKHY is an actively managed product, using an experienced active fund team to navigate the field of fixed income.
When constructing its portfolio, BKHY’s portfolio team uses a proprietary credit model to curate similar risk exposure to the Bloomberg US Corporate High Yield Total Return Index, along with higher outperformance potential. The BKHY team also uses the proprietary model to help find fallen angels, evaluate portfolio weightings, and more.
While the Fed’s future rate decisions may be a bit uncertain, the benefits of active fixed income could never be more clear. These active fixed income funds can offer compelling income, outperformance potential, and flexible risk management, all tied up within the ETF wrapper.
Originally published on ETF Trends
For more news, information, and strategy, visit the Portfolio Strategies Content Hub.
A message from Advisor Perspectives and VettaFi: Discover something new! Click here to register for our upcoming webcasts.
Read more commentaries by VettaFi
