Low-volatility ETFs have been extremely popular with risk-averse investors who want to dip a toe back into the stock market. But what about their mirror image, high-beta ETFs?
After years of holding back, investing in fixed-income assets for safety and yield, investors are now shifting into riskier stocks and exchange traded funds. [Mo’ Beta ETFs]
As cyclical sector stocks lead the major indices, S&P Capital IQ analysts point to the PowerShares S&P 500 High Beta Portfolio (NYSEArca: SPHB) as a good play for the risk-on environment. The high-beta ETF is managed by Invesco PowerShares, the same firm behind the hot-selling PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV).
The two ETFs can be thought of as opposites. Beta is a measure of how closely correlated a stock’s returns are to that of the market. The market has a beta of 1.0, and stocks with a beta of more than 1.0 are more volatile than the market. Conversely, SPLV consists of the 100 stocks from the S&P 500 with the lowest realized volatility over the past 12 months.
“We think PowerShares S&P 500 High Beta Portfolio, which earns our highest ETF ranking of Overweight in our multi-factor approach, offers above-average exposure to these sectors, holds many stocks that S&P Capital IQ views favorably and incurs modest costs,” writes Todd Rosenbluth, S&P Capital IQ Director of ETF Research, in a research note. [Low-Volatility ETF]
SPHB tracks 100 stocks from the S&P 500 index that h ave shown the highest betas and holdings are rebalanced quarterly. Top sector allocations include financials, energy, information technology, materials and industrials. Compared to the S&P 500, SPHB leans toward oil & gas exploration & production and semiconductors sub-industries. The fund has a 0.25% expense ratio.
The ETF ranks favorably on S&P’s performance analytics and cost factors, but the analysts warn of potentially elevated risks.