For the average ETF investor, high volatility from a high beta fund might not fall in the ideal risk tolerance range. Nonetheless, for the leverage-hungry trader, ETFs like the Direxion Daily S&P 500 High Beta Bull 3X Shares (HIBL) have delivered returns of over 50% the past month.

HIBL seeks daily investment results, before fees and expenses, of 300% of the daily performance of the S&P 500® High Beta Index. The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments that track the index and other financial instruments that provide daily leveraged exposure to the index or to ETFs that track the index.

The index provider selects 100 securities to include in the index from the S&P 500® Index that have the highest sensitivity to market movements, or “beta” over the past 12 months as determined by the index provider.

The question now is whether there’s more room to run heading into 2021. Applying a relative strength index (RSI) indicator over the YTD chart shows HIBL hasn’t quite run above overbought territory.

One strategy might be to monitor any year-end selling before finding an entry point. Fundamentally, the tailwinds of a forthcoming vaccine should be enough to boost the markets even further, which should also benefit HIBL.

HIBL Chart

High Beta in December

The risk-on sentiment is definitely in full swing. High beta investments, despite their higher volatility, have seen dramatic index performance the past couple of months, surpassing the Russell 2000 in the process.

Per a Schaeffer’s Investment Research article by editor-in-chief Bernie Schaeffer, “the most powerful performance ‘factor’ over the past month hasn’t been the small cap Russell 2000 Index (RUT), but instead ‘high beta,’ or stocks that exhibit greater volatility than a broad market index such as the S&P 500 Index (SPX).”

Furthermore, a technical set-up could be in play for high beta through Christmas.

“On Friday, the high-beta/low-beta ratio chart broke out from the past decade-long resistance level. In the ensuing days, the question then became; will the ratio breach the prior resistance levels once more, or will that area now serve as possible support going forward? We now know that, thanks to Schaeffer’s Senior Market Strategist Matthew Timpane, high-beta/low-beta ratio ‘successfully backtested the breakout on the daily chart at the beginning of the week. Giving high-beta plays the potential to recommence higher into the holiday season,” the article said.

cotw beta ratio

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