ProShares EQRR: A Rising Rates Play with Enhanced Income Potential

The ProShares Equities for Rising Rates ETF (EQRR) has positioned itself as a compelling option for income-focused investors in an environment of rising interest rates. With its recent dividend increase and a portfolio strategy aligned with sectors that historically thrive during rate hikes, EQRR offers a unique blend of yield and sector-specific exposure.

Dividend Growth Signals Stability Amid Rate Rises

EQRR declared a dividend of $0.2990 per share for its Q2 2025 distribution, payable on July 1. This follows a $0.341 per share payout in April, marking a consistent quarterly distribution schedule. While the trailing twelve-month (TTM) yield of 2.19% may not top the Financial Services sector's highest dividend payers, it comfortably exceeds the average of the bottom 25% of U.S. dividend stocks (0.612%).

The fund's dividend growth rates underscore its reliability. Over the past year, the growth rate is 2.48%, while a 15.62% five-year growth rate highlights its long-term income-generating potential. For investors seeking steady cash flows, this consistency is a key advantage, especially as central banks globally continue to normalize rates.

Sector Exposure: Targeting Rate-Sensitive Sectors

EQRR's strategy hinges on selecting sectors and stocks with the highest historical correlation to U.S. Treasury yields. The ETF invests in the top five sectors from the Nasdaq U.S. Large Cap Index that have shown the strongest alignment with 10-Year Treasury yields over the prior three years. Within these sectors, it picks the top ten stocks likely to outperform during rising rate environments.

The fund's top holdings as of June 2025 reveal a clear focus on energy, consumer staples, and industrials. These sectors are historically less sensitive to rate hikes and often benefit from economic expansion and inflation expectations. Key holdings include:

1. Marathon Petroleum Corp (MPC) - 3.35% of the portfolio
2. Dollar General Corp (DG) - 3.23% of the portfolio
3. Valero Energy Corp (VLO) - 3.02% of the portfolio
4. EOG Resources Inc (EOG) - 2.79% of the portfolio
5. Walmart Inc (WMT) - 2.78% of the portfolio

Energy stocks like Exxon Mobil (XOM) and EOG Resources dominate the portfolio, reflecting the sector's cyclical nature and sensitivity to higher rates. Meanwhile, consumer staples companies such as Walmart and Sysco Corp (SYY) provide defensive exposure, shielding investors from volatility. Industrials like United Airlines (UAL) and Coterra Energy (CTRA) further anchor the portfolio to sectors that benefit from rising economic activity.

Why EQRR Stands Out Now

1. Yield Advantage: With a 2.19% TTM yield and quarterly distributions, EQRR offers better income potential than many broad-market ETFs. Its expense ratio of 0.35% keeps costs low, boosting net returns.
2. Rate-Sensitive Strategy: As the Federal Reserve continues its rate normalization path, sectors like energy and industrials are poised to outperform. EQRR's rebalancing process ensures it stays aligned with these trends.
3. Diversification: The fund's 50-stock portfolio, spread across five sectors, reduces concentration risk while maintaining focus on rate-driven opportunities.

Performance Context and Risks

While EQRR's NAV of $59.59 as of June 2025 reflects a 3.81% return over six months, its -0.04% one-year return underscores the challenges of timing in volatile markets. Investors should note that the ETF's success hinges on sustained rate hikes and economic growth. A prolonged downturn or unexpected rate cuts could pressure its holdings.

Investment Takeaway

For income investors willing to embrace sector-specific risk, EQRR presents a timely opportunity. Its dividend yield, combined with a portfolio tilted toward rate-sensitive sectors, positions it to capitalize on current macro trends. While past performance doesn't guarantee future results, the fund's methodology and recent dividend trends suggest it's a viable tool for those seeking both yield and growth in a rising rate environment.

Consider EQRR if:
- You prioritize income and are comfortable with equity volatility.
- You believe the Federal Reserve will continue tightening, benefiting rate-sensitive sectors.
- You want diversified exposure without committing to individual stocks.

Stay tuned for its Q3 dividend announcement in late September, which could further signal the fund's income trajectory.