#interest-rate-sensitivity

#interest-rate-sensitivity

The GMO U.S. Quality ETF ( NASDAQ:QLTY) has attracted $3 billion since launching in November 2023 by focusing on companies with exceptional returns on capital. That strategy delivered 20.5% returns over the past year by concentrating on profitable technology leaders like Microsoft ( NASDAQ:MSFT) and Meta Platforms ( NASDAQ:META), outpacing the S&P 500 ( NYSEARCA:SPY) by roughly 500 basis points. Yet Reddit investors increasingly debate whether valuations have stretched too far entering 2026.

The Macro Factor: Small-Cap Tech Valuation Reset The biggest macro driver for PSCT is the repricing of small-cap technology stocks as interest rate expectations find their footing. After years of compression driven by rising rates, small-cap tech valuations are finally resetting. Many of PSCT's holdings operate in capital-intensive segments like semiconductors, networking equipment, and contract manufacturing. These businesses benefit from lower financing costs and improved access to capital for expansion.

When bond investors chase yield, they often overlook the engine that drives total returns: price appreciation from interest rate movements. The iShares MBS ETF (NYSEARCA:MBB) demonstrates this dynamic perfectly. While its 4% yield attracts income seekers, the fund has benefited from mortgage-backed securities price movements in recent periods. What MBB Actually Does MBB provides exposure to agency mortgage-backed securities, the bonds backed by Fannie Mae, Freddie Mac, and Ginnie Mae. These aren't the risky subprime mortgages from 2008. They carry implicit or explicit government guarantees, eliminating credit risk. What remains is interest rate sensitivity and prepayment risk.