ProShares: Equity Tips for Rising Rates

September 13, 2022

[This ETF Industry Perspective is sponsored by ProShares.]

 

The ProShares Equities for Rising Rates ETF (EQRR ) is a fund built on a strategy specifically designed to provide relative outperformance during periods when interest rates increase. That’s because its underlying index is:

Built To Outperform As Rates Increase

EQRR's underlying index, the Nasdaq U.S. Large Cap Equities for Rising Rates Index, has significantly outperformed the S&P 500 after the yield on the 10-year Treasury started rising during the summer of 2020.

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Source: ProShares and Bloomberg, 8/4/20-6/30/22. Index information does not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged, and one cannot directly invest in an index. Past performance does not guarantee future results.

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A Rules-Based Approach

EQRR tracks the Nasdaq U.S. Large-Cap Equities for Rising Rates Index, which is built using a rules-based engine designed to target sectors that have outperformed as interest rates climb.

1. Focused On 5 Sectors With Outperformance Potential

The index first targets the five sectors that have had a tendency to outperform when rates rise—those sectors that have demonstrated the highest correlation with the 10-year U.S. Treasury yield over the prior 36 months. The sectors with the highest correlations receive the highest weighting.

Three-year average correlation of S&P 500 sectors to rising 10-year Treasury rates

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Source: Bloomberg, as of 12/31/21. Sectors based on GICS classification within the S&P. For illustrative purposes only. Past performance does not guarantee future results.

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2. Focused On 50 Stocks With Outperformance Potential

The index next targets 10 stocks within each of those sectors that have demonstrated the highest correlation to the 10-year U.S. Treasury yield over the past 36 months. The 10 stocks in each sector are then equally weighted.

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For illustrative purposes only.

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3. Reconstituted Every 3 Months
The index is reconstituted using this rules-based approach on a quarterly basis, allowing sectors and stocks to help keep pace with evolving market conditions.

Go On The Offensive When Rates Rise

EQRR has outperformed the S&P 500 as the 10-year Treasury yield has risen, and sector allocation and stock selection components were both key contributors to the fund's performance.

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Source: FactSet, Bloomberg, 8/4/20-6/30/22. Performance is cumulative. Contribution is annualized.

(For a larger view, click on the image above)

A Compelling Strategy With The Convenience Of An ETF

Equity strategists and portfolio managers have traditionally addressed rising rates environments with a variety of fragmented approaches. EQRR synthesizes these strategies with a rules-driven, sector and stock selection approach that delivers:

  • A focused strategy that includes only those U.S. large-cap sectors and stocks that have demonstrated a tendency to outperform when interest rates rise.
  • A complement to a core equity allocation for a rising rate environment.
  • The ease and convenience of an ETF.

Click here for more information about EQRR and its performance. Download a PDF of this article here.

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Periods greater than one year are annualized.

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by calling 866.776.5125 or visiting ProShares.com. Index performance does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in any index.

Shares bought and sold at market price (not NAV) and are not individually redeemed from the fund. Market price returns are based upon the midpoint of the bid/ask spread at 4:00 p.m. ET (when NAV is normally determined for most funds) and do not represent the returns you would receive if you traded shares at other times. Brokerage commissions will reduce returns. Current performance may be lower or higher than the performance quoted. Standardized returns and performance data current to the most recent month end may be obtained by visiting ProShares.com.

This information is not meant to be investment advice. There is no guarantee that the strategies discussed will be effective. Investment comparisons are for illustrative purposes only and not meant to be all-inclusive.

Any forward-looking statements herein are based on expectations of ProShare Advisors LLC at this time. ProShare Advisors LLC undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Investing is currently subject to additional risks and uncertainties related to COVID-19, including general economic, market and business conditions; changes in laws or regulations or other actions made by governmental authorities or regulatory bodies; and world economic and political developments.

Investing involves risk, including the possible loss of principal. This ProShares ETF is subject to certain risks, including the risk that the fund may not track the performance of the index and that the fund’s market price may fluctuate, which may decrease performance. Please see their summary and full prospectuses for a more complete description of risks. There is no guarantee any ProShares ETF will achieve its investment objective.

The fund is designed 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. As a result, the fund may be more susceptible to underperformance in a falling rate environment. There can be no guarantee that the fund will provide positive returns or outperform other indexes.

The fund concentrates its investments in certain sectors. Narrowly focused investments typically exhibit higher volatility.

Carefully consider the investment objectives, risks, charges and expenses of ProShares before investing. This and other information can be found in their summary and full prospectuses. Read them carefully before investing. Obtain them from your financial
professional or visit ProShares.com.

Nasdaq® is a registered trademark of Nasdaq, Inc. and is licensed for use by ProShare Advisors LLC. ProShares ETFs have not been passed on by Nasdaq, Inc. or its affiliates as to their legality or suitability. ProShares ETFs based on the Nasdaq U.S. Large Cap Equities for Rising Rates Index are not issued, sponsored, endorsed, sold, or promoted by Nasdaq, Inc. or its affiliates, and they make no representation regarding the advisability of investing in ProShares ETFs. THESE ENTITIES AND THEIR AFFILIATES MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO PROSHARES.

ProShares are distributed by SEI Investments Distribution Co., which is not affiliated with the funds' advisor.

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