The Federal Reserve raised interest rates in September, reversing the rate-cut expectations investors held at the start of 2026. Interest rate traders now expect another hike in October, and two ETFs built for rising-rate conditions stand out as a result.
Investors spent early 2026 positioning for one or two interest rate cuts this year. Instead, the Federal Open Market Committee raised rates in September. CME's FedWatch survey now points to another increase in October.
That shift forces a change in approach. Portfolios built nine months ago for falling rates now need retuning for the opposite environment. Two exchange-traded funds are built for exactly that setup.
ProShares Equities for Rising Rates ETF
The ProShares Equities for Rising Rates ETF (EQRR) tracks a custom Nasdaq index of large-cap stocks from the sectors with the highest correlation to the 10-year Treasury yield over the prior 36 months: energy, financials, communications, industrials, and consumer discretionary. Each sector's weight in the index depends on the strength of that correlation, and the portfolio rebalances every three months to track rate movements.
Marathon Petroleum, Valero Energy, and Zscaler are currently the fund's top three holdings. The ETF is up 31% year to date, with a three-year average annual return of 19% and a five-year average of 14%. In 2022, when the Fed raised rates seven times, EQRR finished flat while the S&P 500 fell 19% and the Nasdaq Composite dropped 33%.
iShares Core High Dividend ETF
The iShares Core High Dividend ETF (HDV) takes a different route to the same goal. It screens an all-cap universe for company quality using Morningstar's Economic Moat ratings, then selects the 75 highest-yielding stocks that pass the screen. ExxonMobil, Chevron, and AbbVie sit at the top of its holdings list.
The fund's dividend income adds to total returns, while its quality screens favor companies with strong earnings and liquidity that can hold up in weaker markets. HDV finished 2022 up 7% during that year's run of rate increases. It is now up 16% year to date, trading near $28 per share. Its three-year average annual return stands at 16%, and its five-year average at 12%.
Both funds trace their track records to a market environment now back in play, giving investors two distinct ways to adjust for a Fed that is raising rates rather than cutting them.
Source: The Motley Fool
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