Daily Stock Pick: March 14th, 2022

Stocks gained steam in early trading, recovering some of last week’s losses despite escalating geopolitical tension.  Russia and Ukraine are expected to resume peace talks as the impact of Russian sanctions come into focus.

All eyes will be on the Federal Reserve this week as market watchers await results at the conclusion of the highly anticipated March FOMC meeting.  The 2-day meeting wraps up on Wednesday with a statement from Fed Chair Jerome Powell.  The central bank is widely expected to raise rates one-quarter of a percentage point from zero. Investors will also be watching for shifts in the Fed’s economic forecast in light of the heightened geopolitical turmoil and clues about the frequency of rate hikes in 2022.  

Today we’re focusing on an equity strategy designed to succeed along with shifts in monetary policy and rising rates.  If you want to do more than just defend your precious long-term returns, consider playing offense using this technique as the Fed prepares to embark on the first cycle of rate hikes since 2018.   

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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 Charles Schwab Corp (SCHW), Bank of America (BAC), and PNC Financial Services Group Inc (PNC).

EQRR tracks the performance of the Nasdaq Large Cap Equities for Rising Rates Index.  The goal of the fund 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  $73.24B
• Price / Earnings Ratio   17.61
• Price / Book Ratio  2.39
• YTD Daily Total Return  0.31%
• YTD Return  4.12%
• Yield  1.51%
• Expense Ratio  0.35%
• Net Assets   10.68M
• Number of Holdings  50

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