A Large-Cap ETF Worth the Risk | ETF Trends

Key Takeaways

  • Invesco S&P 500 High Beta ETF (SPHB) earns a CFRA five-star rating based on its strong performance record, appealing holdings and its modest expense ratio.
  • The fund is currently heavily weighted to the Consumer Discretionary, Energy and Information Technology sectors that have historically performed well between November and April.
  • CFRA expects SPHB to outperform its U.S. equity ETF peers over the next 9 months.

Fundamental Context

The CFRA Focus ETF for November is Invesco S&P 500 High Beta ETF (SPHB). The fund earns a five-star rating from CFRA, based on a combination of its risk, reward, and cost attributes and using portfolio-level and fund-specific analysis. Rather than solely relying on past performance to offer a star rating on U.S. equity ETFs, CFRA also offers a forward-looking of the stocks inside and the fund’s costs. While the fund incurs elevated risk, we believe it is positioned to outperform the broader U.S. equity category in the nine months ahead. In contrast, the ETF is rated a two-star by Morningstar, which relies solely on its past performance.

The index behind SPHB holds the 100 stocks in the broader S&P 500 with the highest beta, or sensitivity to market movements, in the past 12 months. The index is slated to be rebalanced and reconstituted in late November, but looking at its ETF holdings SPHB currently is heavily weighted to Information Technology (39% of assets vs. 28% for S&P 500 Index), Consumer Discretionary (20% vs.13%) and Energy (16% vs. 2.9%), while underweighted to Health Care (2.8% vs. 13%) and Communications Services (4.4% vs. 11%). In addition, the ETF did not hold any Consumer Staples or Utilities stocks, which combined represent 8% of the S&P 500 Index.

CFRA has Buy or Strong recommendations of many of the SPHB’s positions including Applied Materials (AMAT), Caesars Entertainment (CZR), Devon Energy (DVN), Diamondback Energy (FANG), KLA Corp (KLAC), NVIDIA (NVDA), and Penn National Gaming (PENN).

During the seasonally strong November through April period when the S&P 500 Index was up 7.6% between 1991 and 2020, the more cyclical Consumer Discretionary (up 11%), Information Technology (9.8%), and Energy (8.8%) were among the best performing sectors. In contrast, the more defensive Communications Services, Consumer Staples, Health Care, and Real Estate all lagged behind the broader market.

SPHB has recently been more popular than lower-risk sibling Invesco S&P 500 Low Volatility ETF (SPLV). In the one-year period ended October 26, SPHB pulled in $820 million of ETF assets, while SPLV incurred $2.1 billion of net outflows. SPHB recently had $1.5 billion in assets and is one fifth the size of the $7.9 billion SPLV. SPHB rose 82% in the past year, significantly outperforming the 36% gain for SPDR S&P ETF (SPY) and the 19% for SPLV. SPHB charges a modest 0.25% expense ratio and tends to trade closely in line with its net asset value, which provides cost benefits for its shareholders.

While consolidating in price since early June, demand trends for SPHB have begun to strengthen in recent weeks, according to Lowry Research, a CFRA Business. This should be viewed as a positive as SPHB is attempting to break out above the $78.75 level. Furtherm the ETF’s price remains above its rising 20- and 150-daily moving averages, increasing the probabilities for a breakout ahead.

CFRA believes SPHB is positioned to outperform the broader U.S. equity ETF category in the nine months ahead due its strong reward potential.

Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.