Wednesday, July 13, 2016

Low Volatility vs High Beta

The ETF's SPLV(low volatility) and SPHB(high beta) are showing where some divergences in the market are.  Investors in SPLV have outperformed their SPHB counterparts by nearly 10% YTD. That is pretty impressive.

Generally the names held in the low volatility ETF have a beta lower than the market average. Or in other words if the market moves up or down 1% any given day, these holdings will move up or down 0.8%. The high beta(as the name implies) is the opposite.  These names might move 1.20% up or down on that same day.

Generally its perceived that low volatility is filled with more stable(earnings stability), less economically sensitive companies, and less technology. And you guessed it that high beta names would contain the exact opposite with less stable(earnings stability), more economically sensitive, and more technology.

A review of the holdings in each ETF shows that to be true for the most part. Although I could cherry pick a few names if I really wanted to.  Either way it's just interesting to see how different market components have been performing versus each other.

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