A recent article from the NY Times Business section titled, “When the performance looks a little too good“, got our ETF engines thinking. We put together a screen of high and low Beta ETFs which reflects a key point in the article that, “The extreme outperformance of speculative stocks could make them vulnerable to another market shock.” Seems pretty simple, which we like.
According to the article:
The stocks in the highest quintile for quality — including Wal-Mart — produced an average gain of 66 percent…or roughly 85 percentage points less than those in the bottom fifth with an average stock market return of 152%. That is the biggest disparity over the first nine months of any bull market since 1970.
A good example of this is XLP SPDR-Consumer Staples of which Wal-Mart’s weight is ~10%. XLP’s 6 month beta vs. the S&P is .466 and since the March lows has gained a paltry ~37% Vs. KOL Market-Vectors Coal ETF Six Month beta vs. the S&P 500 0f 2.09 and a gain of 192% since the march lows. WOW!
So, as an investor monitoring your portfolio, you may want to sell ETFs with high Beta and look for opportunity in low beta ETFs. Remember, this is a buy low and sell high world.
The funds selected in our screen show their 6 month beta vs the S&P 500 with Avg volumes over 150k. Click High and Low Beta ETFs to view the screen.