An Equity ETF Specifically Targeting a Rising Rate Environment

On a quarter-by-quarter basis, the underlying index will target the five most interest rate sensitive industry sectors out of the original universe based on the correlation of weekly sector performance to weekly percentage changes in 10-year U.S. Treasury yields over the prior three-year period. The sector with the highest correlation will have a 30% position in the index, followed by 25% for the second highest, 20% for the third highest, 15% for the fourth highest and 10% for the fifth highest.

“It’s a quantitative rules based strategy that selects both sectors and then stocks within those sectors that have historically had a high correlation to rates,” Kirwan said.

The ETF currently has a 24.3% tilt toward financials, followed by 22.0% energy, 15.3% basic materials, 13.9% industrials, and 8.4% technology.

Each sector will hold 10 stocks for inclusion, with each stock exhibiting the strongest correlation of over performance compared to the increase in 10-year U.S. Treasury yields based on a weekly observation over the past three years. If there aren’t enough large-cap stocks that meet the requirement, then the index may include top ranked mid-cap stocks.

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