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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.
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%
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 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.
The company provides connected commerce solutions to financial institutions. It provides automatic teller machines, financial and point of sale services.
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.
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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Ride Market Rally With High-Beta ETFs & Stocks
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.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>