ProShares on Tuesday rolled out the ProShares Equities for Rising Rates ETF (EQRR), which the company claims is the first U.S. equity exchange-traded fund focused squarely on outperforming traditional large-cap indexes in a rising interest rate environment.
According to the Bethesda, Md.-based ETF provider, EQRR’s underlying index tracks the Nasdaq U.S. Large Cap Equities for Rising Rates Index and employs a methodology that starts with the 500 largest listed U.S. stocks and selects the five U.S. large-cap sectors that have most recently demonstrated the highest correlation to weekly changes in 10-year U.S. Treasury yields.
It then identifies the top 10 stocks in each sector that have the highest correlation of relative performance—versus 500 of the largest listed U.S. stocks—to changes in the 10-Year yield. Stocks in sectors with a higher correlation to rising rates have a heavier weighting in the index.
This process is repeated quarterly to maintain a portfolio of 50 stocks. The resulting portfolio aims to provide relative outperformance compared to traditional large-cap indexes during periods of rising U.S. Treasury interest rates.
The fund’s expense ratio is 0.35 percent.
EQRR is the equity cousin to two existing ProShares fixed-income ETFs—the ProShares Investment Grade—Interest Rate Hedged (IGHG) and ProShares High Yield—Interest Rate Hedged (HYHG) funds—focused on hedging against higher interest rates.
Those two ETFs have clicked with investors: IGHG has garnered $342 million in assets since its inception in November 2013 and HYHG has attracted $151 million since it launched in May 2013.