EQRR Delivers Performance in Growing Rate Environments

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TThe Ministry of Labor announced that in November, only 210,000 jobs were created out of an expectation of 573,000, reports the the Wall Street newspaper. This further widens the gap between the demand for workers and the number of people who find jobs, increasing inflationary pressures.

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

Despite weak job gains, the overall job market appears to be tightening, and Federal Reserve Chairman Jerome Powell cited the improvement this week as a primary reason for accelerating the reduction in bond incentives.

“The economy is very strong and inflationary pressures are high, so it is appropriate, in my opinion, to consider concluding the reduction in our asset purchases … maybe a few months earlier,” said Powell. .

The current reduction plan was due to be completed in June, and while the Fed has yet to say if and when interest rate hikes will be introduced next year, an early cut could cause the Fed to consider the possibility. from March.

“We all thought there would be a significant increase in the labor supply, and that didn’t happen,” Powell said Tuesday. ” It is a problem. What I understand is that it will take longer to re-establish participation in the labor market. We do not immediately return to the same economy.

Investing for rising rates

The ProShares Equity ETF for Rising Rates (EQRR) provides investors with exposure to large cap US companies that outperform in environments of rising US Treasury interest rates. The fund does this by focusing on sectors that have the highest correlation to the 10-year US Treasury yield and investing in the best performing securities of those sectors in rising rate markets.

EQRR seeks to track the performance of the Nasdaq US Large Cap Equities for Rising Rates Index, an index that outperforms during periods of rising interest rates relative to standard large cap indices.

The index is drawn from a universe of 500 of the largest companies listed on the US stock exchanges and contains the top 50 of those that have historically outperformed in times of rising interest rates or 10-year US Treasury yields. Each quarter, the index selects the five sectors most sensitive to current interest rates based on the correlation between the sector’s weekly performance and the weekly percentage changes in 10-year U.S. Treasury yields over the three last years.

The sector with the highest correlation is given a weight of 30%, the next highest receives 25%, in 5% increments down to the lowest at 10%; the 10 most important stocks from each sector that have the highest over and under-correlation to changes in interest rates are chosen. If there are not enough qualifying large-cap companies, the mid-cap companies are removed and, in each sector, all holdings are weighted equally.

EQRR has an expense ratio of 0.35% and currently has an allocation of 30.56% to financials, 26.07% to energy, 20.01% to basic materials, 14.08% to industrials and 9 , 28% to telecommunications.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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