At the start of 2026, the consensus view among members of the Federal Open Market Committee (FOMC) and investors was that rates would go down this year — at least once, maybe twice.
How things have changed. Instead of one or two rate cuts, we got an interest rate increase in September. According to CME‘s FedWatch survey, interest rate traders expect another one in October.
For investors, it is a complete mindset shift. Whereas nine months ago you may have been tweaking and resetting your portfolio for a falling-rate environment, now you have to shift gears and think about tweaking again to navigate a rising-rate environment.
If you are considering moves at the margins in light of the recent interest rate trends, consider these two exchange-traded funds (ETFs), both of which should thrive in a rising-rate environment.
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1. ProShares Equities for Rising Rates ETF
The ProShares Equities for Rising Rates ETF (EQRR -0.51%) was made for this type of environment. It tracks the Nasdaq U.S. Large Cap Equities for Rising Rates index, which was custom-built for ProShares and this ETF.
The index features stocks from sectors that have historically outperformed during rising-rate environments and have demonstrated the highest correlation with the 10-year U.S. Treasury yield over the prior 36 months. Correlation with the 10-year Treasury means the stocks are more likely to rise when interest rates do.
ProShares Trust – ProShares Equities For Rising Rates ETF
Today’s Change
(-0.51%) $-0.44
Current Price
$84.68
Key Data Points
AUM
$37M
Dividend Yield
1.02%
Expense Ratio
0.35%
Top Holdings
MPC
4.24%
VLO
4.09%
ZS
3.33%
The five sectors with the highest correlations are energy, financials, communications, industrials, and consumer discretionary.
Then, the index includes the 10 large-cap stocks within each of those sectors that have the highest correlation to the 10-year Treasury yield over the prior three years. The sectors with the highest correlations receive greater weight in the portfolio. It is reconstituted every three months to make sure it keeps up with rate movements.
Currently, the top three holdings are Marathon Petroleum, Valero Energy, and Zscaler.
The performance has been strong. The ETF is up 31% year to date, and it has averaged a 19% return over the past three years and a 14% return over the past five years. In 2022, the year rates rose seven times, the ETF was flat, while the S&P 500 was off 19% and the Nasdaq Composite was down 33%. That’s good downside protection.
2. iShares Core High Dividend ETF
The iShares Core High Dividend ETF (HDV -0.18%) has also performed well in past rising-rate environments. In 2022, for example, it finished the year up 7%.
This is an all-cap fund that screens stocks for company quality and financial health, and then includes the 75 highest-yielding stocks from that pool. The company quality screens are based on Morningstar’s “Economic Moat” rating system, in which
companies are assigned a moat rating of “none,””narrow,” or “wide” based on various screens to determine their competitive strength and financial health.
This helps the fund perform well in rising-rate environments. The dividend income helps boost total returns, while the quality screens seek out stocks that have strong earnings, returns, and liquidity to ride out difficult markets.
iShares Trust – iShares Core High Dividend ETF
Today’s Change
(-0.18%) $-0.05
Current Price
$28.28
Key Data Points
AUM
$15B
Dividend Yield
8.94%
Expense Ratio
0.08%
Top Holdings
XOM
9.10%
CVX
6.93%
ABBV
6.68%
The top three holdings at present are ExxonMobil, Chevron, and AbbVie.
The ETF is up 16% year to date, trading at about $28 per share. It has a three-year average annualized return of 16% and a five-year average annualized return of 12%.
Both of these ETFs would be solid options for investors looking for some balance in their portfolios during a period of rising interest rates.
