EXCLUSIVE: Fed's Tepid Cut Outlook Reshapes Portfolios, Here's How Smart Money Plays Defense

As the Federal Reserve signals a one-and-done approach to rate cuts in 2025, investors are being forced to rethink what "safe" really means.

According to Violeta Todorova, Senior Research Analyst at Leverage Shares, market participants face a complicated mix of "slowing growth, rising inflationary pressures, geopolitical tensions, and structural changes in the global demand for U.S. Treasuries."

"Historically viewed as a volatility hedge, Treasuries are facing a credibility test," Todorova told Benzinga. She also noted that recent tariff-induced volatility has triggered a selloff in U.S. government bonds, clouding their reliability.

Investors worried about long-term U.S. debt and diminishing foreign demand might consider international bond ETFs: iShares International Treasury Bond ETF IGOV or the SPDR Bloomberg International Treasury Bond ETF BWX for broader fixed income exposure.

Equity Picks: AI, Defense, Energy

On the equity side, Todorova sees sector fundamentals taking the lead. "Sectors with pricing power or those benefiting from structural tailwinds (e.g., AI, defense, energy infrastructure) may be better positioned," she said.

For exposure, investors might look at the Global X Robotics & Artificial Intelligence ETF BOTZ, the iShares U.S. Aerospace & Defense ETF ITA or the Alerian MLP ETF AMLP.

When it comes to staying defensive but not missing upside, Todorova suggests a diversified approach: "The best way to stay defensive while still participating in potential upside is to maintain broad diversification, focusing on quality and resilience."

Think dividend-paying large caps via the Vanguard Dividend Appreciation ETF VIG or defensive plays like the Utilities Select Sector SPDR Fund XLU and the Health Care Select Sector SPDR Fund XLV.

One final piece of advice: "Resist the urge to time the market or make aggressive moves in response to headlines." Sound familiar?

That's because seasoned investors already know — cool heads often prevail.

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