Trading was muted this morning after the three major indices logged their third straight day of record closes. All eyes will be on the Federal Reserve today as investors await results from the November FOMC meeting. Fed chair J. Powell is expected to address plans for scaling back the Fed’s $120-billion in monthly bond purchases. Investors will also be watching for clues around the first rate hike, which economists say could come as early as June 2022.
While a rate hike may still be on the distant horizon, it wouldn’t hurt to prepare by considering which investments will benefit when rates do eventually rise.
Our stock pick for today highlights a set it and forget it way to help you get ahead of rising rates. 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 that have had a strong tendency to outperform as rates rise. Stocks from the Financials and Basic Materials sectors 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 can 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 50
