EQRR Offers Performance in Rising Rate Environments | ETF Trends

The Labor Department announced that in November, only 210,000 jobs were added on an expectation of 573,000, reports the Wall Street Journal. It further exacerbates the gap between the demand for workers and the number of people that are finding jobs, driving inflationary pressures higher.

The unemployment rate remains low, at 4.2% in November, down from 4.6% in October and drastically reduced from 6.7% this time last year. A different gauge that measures the number of people both unemployed or underemployed and wanting full-time positions from their current part-time ones was 7.8% in November, down from 8.3% in October.

Despite weak job gains, the overall jobs market is seen to be tightening, and Federal Reserve Chair Jerome Powell spoke to this improvement this week as a key reason to accelerate bond stimulus tapering.

“The economy is very strong and inflationary pressures are high, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases…perhaps a few months sooner,” Powell said.

The current taper plan was to be finished in June, and while the Fed hasn’t spoken definitely about if and when interest rate increases would be introduced next year, earlier tapering could have the Fed considering the possibility as early as March.

“We all thought there would be a significant increase in labor supply, and it hasn’t happened,” Powell said on Tuesday. “It’s an issue. What I’m taking on board is that it’s going to take longer to get labor-force participation back. We’re not going right back to the same economy.”

Investing for Rising Rates

The ProShares Equities for Rising Rates ETF (EQRR) offers investors exposure to U.S. large-cap companies that outperform in environments of rising U.S. Treasury interest rates. The fund does so by focusing on sectors that have the highest correlation to the 10-Year U.S. Treasury yield and investing in the top-performing securities within those sectors in rising rate markets.

EQRR seeks to track the performance of the Nasdaq U.S. Large Cap Equities for Rising Rates Index, an index that provides outperformance during periods of rising interest rates against standard large-cap indexes.

The index pulls from a universe of 500 of the largest companies on U.S. stock exchanges and contains the top 50 of those that have a history of outperforming in times of rising interest rates or 10-Year U.S. Treasury yields. Every quarter, the index selects the five sectors that are most sensitive to interest rates at the time based on the correlation between weekly sector performance and the weekly percentage changes in the 10-Year U.S. Treasury yields over the last three years.

The sector that has the highest correlation is given a 30% weighting, the next highest is given 25%, in 5% increments all the way down to the lowest at 10%; the top 10 stocks within each sector that have the highest over and under correlation to interest rate changes are chosen. If there aren’t enough large-cap companies that qualify, mid-cap companies are pulled, and within each sector all securities are equally weighted.

EQRR carries an expense ratio of 0.35% and currently has a 30.56% allocation to financials, 26.07% to energy, 20.01% to basic materials, 14.08% to industrials, and 9.28% to telecommunications.

For more news, information, and strategy, visit the Nasdaq Portfolio Solutions Channel.

Nasdaq Resources & Reports