Investors seemed like they were raring to kick off the first trading session of the new year this morning as optimism around the economy’s ability to withstand surging infection rates fueled a pre-market rally. Reopening stocks led the way in early morning gains.
This year, inflation and monetary policy are likely to be key themes, as multiple rate hikes are expected to help cool the rise in consumer prices. Today we’ll focus on an investment that’s designed to grow as monetary policy shifts come to fruition. The investment also makes an excellent complement to traditional large-cap equity investments. Read on to learn how this fund adds an essential layer to a well-diversified portfolio.
The ProShares Equities for Rising Rates ETF (EQRR) is the first equity ETF specifically designed to outperform traditional U.S. large-cap indexes during periods of rising interest rates. It targets sectors that have had the highest correlations to 10-year U.S. Treasury yields, and within those sectors, the stocks have had a strong tendency to outperform as rates rise. Stocks from the Financials sector and Basic Materials sector account for the largest portion of the fund’s holdings. Currently, the fund’s top holdings are State Street Corp. (STT), Bank of America (BAC), and Truist Financial (TFC).
EQRR tracks the performance of the Nasdaq Large Cap Equities for Rising Rates Index. The fund’s goal is to provide relative outperformance, as compared to traditional U.S. large-cap indexes, such as the S&P 500, during periods of rising U.S. Treasury interest rates.
The index takes the 500 largest listed U.S. stocks and selects the five U.S. large-cap sectors that have demonstrated the highest correlation to weekly changes in 10-Year U.S. Treasury yields over the last three years. The index then identifies the top ten stocks in each sector that have the highest correlation of relative performance – compared with 500 of the largest listed U.S. stocks – to changes in the 10-year yields. The process is repeated quarterly to maintain a portfolio of 50 stocks. EQRR serves well as a protective measure when rates rise and also Can be used to complement traditional large-cap equity investments.
ProShares Equities for Rising Rates (EQRR)
- Weighted Average Market Cap $75.59B
- Price / Earnings Ratio 24.36
- Price / Book Ratio 2.17
- YTD Daily Total Return 29.25%
- YTD Return 40.7%
- Yield 1.51%
- Expense Ratio 0.35%
- Net Assets 7.85M
- Number of Holdings 51
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