ProShares launches US equity ETF for rising rates

Jul 25th, 2017 | By | Category: Equities

Dive deeper into ESG & Impact investing at our upcoming breakfast briefing on Wednesday 28th March 2018 at The South Place Hotel, London, with presentations from Equileap, FTSE Russell, MSCI and UBS - REGISTER NOW

ProShares has launched the ProShares Equities for Rising Rates ETF (Nasdaq: EQRR), the first US equity ETF designed to outperform traditional large-cap indices, such as the S&P 500, in a rising interest rate environment.

ProShares launches US equity ETF for rising rates

The ProShares Equities for Rising Rates ETF is designed to outperform the broad US large-cap market in periods of rising interest rates.

The fund tracks the Nasdaq US Large Cap Equities for Rising Rates Index. The index methodology starts with the 500 largest listed US stocks by market capitalization and selects the five US large-cap sectors that have recently demonstrated the highest correlation to weekly changes in ten-year US Treasury yields.

It then identifies the top ten stocks in each sector that have the highest correlation of relative performance—versus 500 of the largest listed US stocks—to changes in the ten-year yield. Stocks in sectors with a higher correlation to rising rates have a heavier weighting in the index – 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%. Stocks within each sector are assigned equal weights. The index is rebalanced quarterly.

The five sectors to which the ETF is currently tracking, from largest to smallest, are financials, energy, materials, industrials and information technology.

“EQRR is for investors who expect rising interest rates and want to outperform traditional large-cap indices as rates go up,” said Michael L. Sapir, co‑founder and CEO of ProShares Advisors. “EQRR takes those sectors most positively correlated with interest rates, then within those sectors invests in the companies that have tended to outperform during periods of rising rates.”

While the index’s historical back-testing shows outperformance relative to the broad US large-cap market during periods of rising rates, the fund may not outperform, and may indeed even underperform, when rates are falling.

The fund has a total expense ratio (TER) of 0.35%.

Investors also looking to protect the fixed income portion of their portfolio from rising interest rates may wish to look at the ProShares Investment Grade Interest Rate Hedged ETF (Bats: IGHG) which has $340 million in assets under management (AUM) and a TER of 0.30%, or the ProShares High Yield Interest Rate Hedged ETF (Bats: HYHG) which has AUM of $150m and a TER of 0.50%.

Tags: , , , , , , , , ,

Leave a Comment