The Fed Just Raised Interest Rates: These 2 ETFs Could Be the Smartest Buys Right Now

Following a September rate hike and market expectations for another increase in October, the article argues investors should reposition for a rising-rate environment rather than anticipated 2026 cuts. ProShares Equities for Rising Rates ETF (EQRR) is up 31% year to date and returned 19% annualized over three years, while iShares Core High Dividend ETF (HDV) is up 16% YTD; both outperformed in 2022, when rates rose seven times. The recommendation is a tactical portfolio-allocation idea, emphasizing rate-correlated sectors and quality dividend payers.

Analysis

The investable signal is not “rising rates” per se but the driver of higher yields. An inflation/term-premium shock favors refiners MPC and VLO through nominal fuel pricing and inventory effects, while a growth-driven yield increase would weaken crack spreads and make their apparent rate beta unreliable. EQRR’s quarterly, backward-looking correlation methodology also creates momentum and concentration risk: its current energy exposure is likely doing more of the work than its rate sensitivity.

HDV is not a clean rising-rate hedge. Its yield support competes directly with Treasury income as real yields rise, creating valuation pressure on slower-growth defensive holdings; its resilience depends disproportionately on energy cash flows and dividend durability at XOM/CVX rather than the ETF’s quality screen. The more important second-order beneficiary of persistently elevated short rates is CME: higher benchmark rates support interest income on customer collateral, although this is partly offset if volatility and trading volumes normalize.

Near term, a further hawkish repricing can sustain energy/refiner leadership for weeks, but the 1-3 month catalyst is whether breakeven inflation rises alongside nominal yields. For 6-18 months, restrictive policy raises recession and demand-destruction risk, which is adverse to refiners and cyclicals even if yields remain high. Consensus is too quick to extrapolate 2022-style factor returns: the trade fails if yields rise because growth expectations improve, or if a credit event forces a rapid bull steepening and renewed easing expectations.

Key Decisions for Investors

• Prefer a 1-3 month long MPC / short HDV pair rather than buying EQRR outright: MPC has direct operating leverage to refining economics, while HDV retains duration-like valuation exposure. Target a 10-15% relative move; exit if U.S. gasoline cracks fall more than 20% from entry or 10-year breakevens decline materially.
• Maintain XOM or CVX as the lower-beta energy expression, but avoid adding after yield-driven rallies unless Brent and product cracks confirm. Use a 6-12 month horizon; reassess on a downward revision to dividend/FCF outlook or a sharp deterioration in global demand indicators.
• Add CME on pullbacks as a 6-18 month rates-volatility compounder, conditional on evidence that elevated collateral balances and transaction volumes persist into the next earnings report. Thesis is falsified by declining average daily volume plus a material fall in net interest revenue guidance.
• Do not initiate a standalone EQRR position without checking current sector weights, assets under management, and liquidity. Treat it as a tactical hedge only if inflation expectations—not merely nominal Treasury yields—are moving higher; otherwise its historical correlation screen may lag the regime change.