SPHB Vs. SPLV—Which Beta Is Smarter?


Almost exactly a year ago, I blogged that markets could be poised for recovery and that a high-beta play would likely leave a low-volatility vehicle in the dust.

I got it half right. I'm happy to report that one year later almost to the day, the S&P is testing new highs.

But the vehicle I recommended to play this gain was a bit of a clunker; namely, the PowerShares S&P 500 High Beta ETF (NYSEArca:SPHB).

I opined that a high-beta SPHB would beat the wildly popular PowerShares S&P 500 Low Volatility (NYSEArca:SPLV) if the market went up.

The tale of the tape proves me wrong. Emphatically.

Here's a chart of total net asset value for the past 12 months (March 14, 2012 through March 13, 2013, Bloomberg data).

I've also got the SPDR S&P 500 (NYSEArca:SPY) in there to represent the market.

1 Yr With SSO

SSO's relationship to SPY is a lot more intuitive than that of SPHB. Sure, the levered fund gave a wild ride, but it didn't dip down as far as SPHB. What's more, SSO provided strong upside when the market trended positive while SPHB wallowed.

Experts on geared funds likely wouldn't recommend holding SSO for a year without rebalancing, but the point is that a simple geared product provided a better high beta play than SPHB for the period, despite the June 2012 dip.

Here are some quick snapshots of other periods, starting with a view from inception-May 4, 2011-of SPHB and SPLV.

Since 10.3.2011 With SSO

Those with strong sector views that coincide with SPHB's sector allocations might find it appealing as a one-stop sector play.

But as a broad strategy for someone with sector-agnostic bullish views, SPHB is harder to recommend considering its recent performance next to its mild-mannered sibling, SPLV.

So I eat crow, with a side of humble pie. It turns out that getting it half right looks a lot like getting it wrong.

At the time this article was written, the author held no positions in the securities mentioned. Contact Paul Britt at pbritt@indexuniverse.com.

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Copyright ® 2013 IndexUniverse LLC . All Rights Reserved.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: SPHB , SPLV , SPY , SSO



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