With all due respect to the world of high fashion, low
are the new black. Inflows of $900 million
from the start of 2013 through February 19 affirm
Alone, the PowerShares S&P 500 Low Volatility Portfolio
) now has over $4 billion in assets under management. The iShares
MSCI USA Minimum Volatility Index Fund (NYSE:
) and the iShares MSCI Emerging Markets Minimum Volatility Index
) have made their presences felt in the "low vol" ETF arena as
well with $1.76 billion and $1.56 in AUM, respectively.
Bottom line: Investors love low volatility ETFs, but what
about the high beta equivalents? It is a question worth
exploring, particularly if
cyclical sectors take on leadership roles and
lead the broader market higher
Investors willing to take on some added beta should consider
the following three ETFs, all courtesy of Invesco's (NYSE:
) PowerShares unit.
PowerShares S&P Emerging Markets High Beta Portfolio
) The PowerShares S&P Emerging Markets High Beta Portfolio
can be described as the high beta equivalent of the PowerShares
S&P Emerging Markets Low Volatility Portfolio (NYSE:
). For its part, EELV got off to a slow start following its
January 2012, but has since surpassed the much ballyhooed $100
million in AUM total. The fact that EELV has returned almost 17
percent since inception certainly helps.
EEHB is still a small ETF ($2.3 million in AUM). Part of the
reason for that is because as a high beta fund, it can be said
that EEHB needs a sanguine environment for emerging markets
equities in which to thrive. On a related note, the ETF's country
lineup is arguably surprising. An almost 25 percent allocation to
China is not unexpected, but South Korea and Taiwan combine for
nearly 30 percent of EEHB's weight and those are two markets that
are viewed as "lower beta" in the emerging world.
Additionally, EEHB's allocations to Russia (5.5 percent) and
India (3.8 percent) are not that large and those are two higher
beta emerging markets. There are some things to like with EEHB.
An expense ratio of 0.29 percent is decent among emerging markets
ETFs. The fund currently has a P/E ratio of 13.75 and a
price-to-book ratio of just 0.59,
according to PowerShares data
, implying it trades at favorable valuations relative to other
diversified emerging markets ETFs.
PowerShares S&P International Developed High Beta
) Like EEHB, the PowerShares S&P International Developed High
Beta Portfolio has a low volatility cousin in the form of the
PowerShares S&P International Developed Low Volatility
). IDHB is the newer of the two, having debuted a month after its
low volatility counterpart. And like EELV, IDHB has trailed its
low volatility equivalent in terms of attracting assets (IDHB has
about 20 percent of the assets IDLV has).
And like EEHB, IDHB surprises at the country level. As high
beta developed market play, IDHB could lead investors to think
the ETF is heavy on risky markets such as Italy and Spain. In
reality, that is not the case.
In fact, IDHB merits consideration because its exposure to
some of Europe's higher quality markets is significant. For
example, Sweden is the ETF's largest country weight at nearly 15
percent. Germany is third at over 10 percent. Finland, Norway and
Canada, all of which have AAA credit ratings, combine for over 16
percent of IDHB's weight. IDHB has a 30-day SEC yield of 2.54
percent and an annual expense ratio of 0.25 percent, which is
favorable for an international ETF.
PowerShares S&P 500 High Beta Portfolio (NYSE:
) As was recently noted,
SPHB is the high beta equivalent of SPLV
. Given SPLV's success, comparisons here are hard, but it should
be noted SPHB has done pretty well for itself with almost $264
million in AUM.
As SPLV takes the 100 S&P 500 members with lowest
trailing-12 month betas, SPHB takes the 100 highest beta names
over the same time frame. To that end, it is not surprising that
financials account for almost 25.5 percent of the ETF's weight
and four financial services stocks are found among SPHB's top-10
Technology is the next largest sector weight at 20.7 percent.
SPHB is not excessively levered to any of its holdings as 1.64
percent is the largest weight granted to any of the fund's
constituents. Year-to-date, SPHB has impressed with a gain of
10.5 percent, clearly benefiting from U.S. stocks continuing to
hover near all-time highs.
Beyond that, SPHB, which charges 0.25 percent per year, offers
investors a way of getting mid-cap exposure with high beta twist
because mid-cap value and growth names represent over 60 percent
of the ETF's weight.
For more on volatility ETFs, click
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