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Ride Market Rally With High-Beta ETFs & Stocks

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After a volatile January, Wall Street has been showing strong momentum this week with the S&P 500 and the tech-heavy Nasdaq Composite Index scaling new highs.

Solid corporate earnings and expectations of a large stimulus by U.S. President Joe Biden’s administration have rekindled the appeal for the riskier assets. The stronger-than-expected results so far in the fourth quarter have led analysts’ to raise their estimates for the coming quarters. Earnings growth for Q4 has turned modestly positive, following three-straight quarters of decline, thanks to impressive results from the tech sector leaders.

Additionally, signs of a healing labor market, continued optimism surrounding new vaccines, widening reach of vaccination, and easing restrictions are also driving the stock higher (read: 6 Hot ETFs That Could be Investors' Darling in February).  

While every corner of the market is enjoying this ascent, high-beta ETFs and stocks seem a perfect bet at present.

Why High Beta?

Beta measures the price volatility of stocks or funds relative to the overall market. It has a direct relationship to market movements. A beta of more than 1 indicates that the price tends to move higher than the broader market and is extremely volatile, while a beta of less than 1 indicates the stock price or fund is less volatile than the market.

That said, high-beta stocks seek to capitalize on consistent growth with market-beating returns. This is because when markets soar, high-beta stocks experience larger gains than the broader market counterparts and thus, outpace the rivals. However, these exhibit a higher level of volatility.

Given this bullishness, investors could find the following ETFs and stocks as intriguing options:

ETF Picks

We have chosen ETFs that are not confined to a specific sector or industry but offer exposure to the broader stock market.

Pacer Lunt Large Cap Alternator ETF (ALTL - Free Report)

This ETF is a strategy-driven, large-cap ETF that seeks to track the investment returns of an index that alternates exposure between low-volatility and high-beta stocks in the S&P 500 Index.

Zacks Rank: NA
Beta: 2.87
AUM: $54.7 million
Expense Ratio: 0.60%

LeaderShares Equity Skew ETF (SQEW - Free Report)

This is also an actively managed ETF that employs a contrarian strategy seeking to buy underperforming asset classes and/or factors and sell outperforming asset classes and/or factors based on quantitative research.
Zacks Rank: NA
Beta: 2.17
AUM: $69.4 million
Expense Ratio: 0.75%

Invesco S&P SmallCap 600 Pure Value ETF (RZV - Free Report)

This fund provides pure exposure to the small-cap stock that exhibit strong value characteristics by tracking the S&P SmallCap 600 Pure Value Index (read: Red-Hot Small-Cap ETFs to Bet on as Biden Takes Over Office).

Zacks Rank: #3 (Hold)
Beta: 1.74
AUM: $180 million
Expense Ratio: 0.35%

Invesco S&P MidCap 400 Pure Value ETF (RFV - Free Report)

This product offers exposure to the mid-cap stocks that exhibit strong value characteristics by tracking the S&P Midcap 400 Pure Value Index.

Zacks Rank: #3
Beta: 1.67
AUM: $80.1 million
Expense Ratio: 0.35%

Invesco S&P 500 High Beta ETF (SPHB - Free Report)

This fund offers exposure to stocks with the highest sensitivity to market movements, or beta over the past 12 months. It follows the S&P 500 High Beta Index.

Zacks Rank: N/A
Beta: 1.62
AUM: $623.4 million
Expense Ratio: 0.25%

Stocks Picks

We have chosen stocks with a top Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of B or better along with high beta. You can see the complete list of today’s Zacks #1 Rank stocks here.

QEP Resources Inc.

This leading independent energy company is engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids.

Zacks Rank: #2
VGM Score: A
Beta: 5.32
Market Cap: $758.1 million

Diebold Nixdorf Incorporated (DBD - Free Report)

The company provides connected commerce solutions to financial institutions. It provides automatic teller machines, financial and point of sale services.

Zacks Rank: #2
VGM Score: A
Beta: 3.44
Market Cap: $1.07 billion

Adient PLC (ADNT - Free Report)

This is one of the world’s largest automotive seating suppliers (read: 2020 US Auto Sales Slip to 1970s Level: ETFs, Stocks in Focus).

Zacks Rank: #1
VGM Score: B
Beta: 3.31
Market Cap: $3.36 billion

Herc Holdings Inc. (HRI - Free Report)

This company is a full-line equipment-rental supplier in commercial and residential construction, industrial and manufacturing, refineries and petrochemicals, civil infrastructure, automotive, government and municipalities, energy, remediation, emergency response, facilities, entertainment and agriculture.

Zacks Rank: #1
VGM Score: B
Beta: 3.11
Market Cap: $1.96 billion

Boot Barn Holdings Inc. (BOOT - Free Report)

The company operates as a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories.

Zacks Rank: #1
VGM Score: A
Beta: 2.79
Market Cap: $1.67 billion

Bottom Line

Given the bullish backdrop, high-beta products will continue to generate outsized returns in the coming weeks and are suitable for risk-tolerant investors, given their volatile nature.

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