3 ETFs for a Higher-for-Longer Interest-Rate Environment

Ryan Jackson: Eleven interest-rate hikes between March 2022 and May 2023 helped pull US inflation under control. Now, after nearly two years and two rate cuts, it’s becoming clear that the path down the interest-rate ladder won’t be quite as steep as the ramp up.

The Federal Reserve projected just two more rate cuts in 2025, potentially signaling the start of another “higher for longer” interest-rate regime. Here are three highly rated ETFs that should hold their own in that kind of environment.

3 ETFs for a Higher-for-Longer Interest-Rate Environment

1. TCW Flexible Income ETF FLXR
2. WisdomTree US LargeCap Dividend ETF DLN
3. iShares MSCI USA Momentum ETF MTUM

Let’s start with TCW Flexible Income ETF, ticker FLXR, an actively managed bond ETF that sits in the multisector bond category. It carries a Bronze Morningstar Medalist Rating and charges a competitive 0.40% fee.

This mutual fund-turned-ETF has a wide mandate. The experienced group that runs it gravitates toward the strengths of TCW as a whole: allocating along and within securitized debt and corporate credit. Securitized debt represented more than 60% of the portfolio entering 2025, and corporate bonds, many of which ranked as non-investment-grade, shaped about one fifth of the portfolio.

That profile historically brought more credit risk than traditional core or core-plus bond funds. However, FLXR’s heavier dose of short-term bonds means it’s less sensitive to interest-rate changes than most peers. When climbing interest rates roiled bonds in 2022, this ETF shed 8.7%. That beat the Morningstar US Core Bond Index by about 4.4 percentage points and ranked among the top third of the multisector peer group.

Moving into equities, how about WisdomTree US LargeCap Dividend ETF? It trades under the ticker DLN, earns a Silver Medalist Rating, and charges just 0.28% per year.

This index tracker puts a clever spin on a proven strategy. It weights 300 of the market’s largest dividend payers by their cash dividends and gives the highest-quality, highest-momentum stocks an extra 50% bump. Dividend weighting protects the fund from overpriced stocks and pushes the fund into the large-value category. Meanwhile, the quality and momentum considerations dial back exposure to companies that may be cheap for good reasons. Balance is everything in this broad portfolio.

The high-quality dividend stocks that make up this portfolio generally navigate high interest rates well. Familiar Magnificent Seven companies headline the portfolio, but reliable franchises like Johnson & Johnson JNJ, Pepsi PEP, and Walmart WMT crack the top 10. That helped the fund rank among the top 20% of large-value funds from 2022 through 2024, a period that featured a little bit of everything—including high rates.

Let’s close out today with the Bronze-rated iShares MSCI USA Momentum ETF MTUM.

This fund aims to maximize its exposure to the momentum effect, a proven risk factor with a long track record of market-beating returns. Capturing momentum requires constantly changing. As the market’s leading stocks evolve, this portfolio must, too. So, although MTUM sat in the large-blend category entering 2025, its short lookback period can pull it all over the Morningstar Style Box.

So, why can this fund work in a higher-for-longer rate environment? The key is not “higher” but “longer.” This fund thrives in consistent market regimes, where the recent winners keep winning and losers keep losing. That explains how the fund held up better than the Morningstar US Large-Mid Index in 2022 when the bright spots were rare but steady throughout. Plus, this fund charges just a 0.15% fee—an edge no matter the environment.

Watch 3 ETFs Full of Wide-Moat Stocks for more from Ryan Jackson.