Smart investors are always considering risk/reward scenarios. As, in does taking on elevated risk lead to greater rewards?
Obviously, there are times when elevated risk carries rewards (returns) that merit taking on that risk, and there are times when that doesn’t happen. Put the Invesco S&P 500 High Beta Portolio (SPHB ) in the “reward is worth the risk” camp.
SPHB tracks the S&P 500 High Beta Index, which “consists of the 100 stocks from the S&P 500 Index with the highest sensitivity to market movements, or beta, over the past 12 months. Beta is a measure of relative risk and is the rate of change of a security’s price,” according to Invesco.
Following a solid performance on Monday, SPHB is up more than 38% year-to-date and resides near all-time highs. The Invesco exchange traded fund is CFRA Research’s focus ETF for the month of November.
“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,” said CFRA Research’s Todd Rosenbluth in a note out Monday. “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.”
Investors should note that beta and volatility are two different metrics. That said, SPHB has been more volatile than the S&P 500 on an annualized basis over the past three years. However, the Invesco ETF is rewarding investors for taking on that added risk, returning 122.8% over that period compared to 83.6% for the S&P 500.
“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,” added Rosenbluth. “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.”
SPHB holds 99 stocks, more than 59% of which hail from the technology and consumer discretionary sectors. Just over 41% of the fund’s holdings are classified as growth stocks, while another 31.25% are value equities.
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