Are High-Beta Funds the Next Low-Volatility ETFs?
May 8th at 12:44pm by John Spence
Low-volatility ETFs have performed very well in 2013 on the strength of defensive sectors although the tide may be turning with cyclical stocks taking the lead recently.
Risk-averse investors and performance-chasers have been pumping money into PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) and iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV) this year.
However, their “high-beta” mirror images could be poised to outperform in the second half of the year. [Mo’ Beta: Why Low-Volatility ETFs are Lagging]
The $279 million PowerShares S&P 500 High Beta Portfolio (NYSEArca: SPHB) is comprised of the 100 stocks from the S&P 500 with the highest sensitivity to market movements, or beta, over the past year.
Conversely, SPLV holds the 100 stocks from the S&P 500 with the lowest realized volatility over the past 12 months. [Have Low-Volatility ETFs Overstayed Their Welcome?]
SPHB, the high-beta fund, is tilted toward cyclical sectors such as technology, financials, energy, industrials and materials. [High-Beta or Low-Volatility ETFs?]
SPLV, the low-volatility ETF, focuses on defensive sectors such as consumer staples and utilities. These stable, dividend-paying sectors have led the way in 2013 but the trend may be reversing to favor cyclicals. In other words, defensive sectors may be overbought and overvalued. [Some Sector ETF Charts Pointing to a Cyclical Rotation]
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