ProShares Fund Targets Rising Rates

New ETF hones in on stocks that benefit from rising interest rates.

ETF.com
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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

Today ProShares is rolling out an ETF designed to exploit equities that benefit from a rising interest rate environment. The ProShares Equities for Rising Rates ETF (EQRR) will target 50 large-cap companies that have historically outperformed during periods of rising interest rates.

EQRR comes with an expense ratio of 0.35% and lists on the Nasdaq exchange.

The fund tracks the Nasdaq U.S. Large Cap Equities for Rising Rates Index, which selects its companies from the 500 U.S.-listed stocks with the highest market capitalizations. In this case, interest rates are defined by 10-year U.S. Treasury yields.

The fund is designed to outperform in periods of rising interest rates; consequently, it likely won't do as well during periods of falling rates.

“Chances are, if it’s doing what it’s supposed to, it will not outperform—[rather] it will underperform—during a falling-rates period. It comes with the territory,” said ProShares Managing Director Steven Cohen. 

Rate Sensitivity

Stocks are selected from the five sectors showing the strongest correlation to 10-year U.S. Treasury yields over a three-year period using weekly performance; in other words, those exhibiting the most interest rate sensitivity.

From there, the methodology weights the five sectors based on their correlations—the sector with the highest correlation is weighted at 30%, second-highest at 25%, third-highest at 20%, fourth-highest at 15% and fifth-highest at 10%.

Within each sector, the 10 stocks with the most highly correlated performance to 10-year Treasury Yields are selected and equal weighted. If a sector does not have 10 stocks that meet the criteria, midcap stocks can be used to fill in the shortfall, the fund's prospectus said.

The fund, according to Cohen, serves as a complement to ProShares' two interest-rate-hedged bond ETFs, the ProShares Investment Grade-Interest Rate Hedged ETF (IGHG) and the ProShares High Yield-Interest Rate Hedged ETF (HYHG). Those funds have $342 million and $152 million, respectively, in assets under management. 

Contact Heather Bell at [email protected]

 

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