Checking In: Juiced Beta

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The S&P 500 and the Dow Jones Industrial Average just wrapped up their best January performances since 1997 and on that basis, there is an excellent chance the S&P 500 will finish 2012 higher than where it started. Indeed, it looks as though the
January Effect was at play
. Along those lines, the iShares Russell 2000 Index Fund
IWM
is up 5.4% to start the year. Not too shabby, but investors willing to embrace a bit more beta would have enjoyed better returns with the Russell 2000 High Beta ETF
SHBT
. The Russell 2000 High Beta ETF, which made its debut in May 2011, has gained almost 7.5% to start the new year as investors have dabbled a little bit more with the risk on trade than they did most of last year. Thinly traded, SHBT is home to 224 stocks and an expense ratio of 0.3%. On its own, the Russell 2000 is a high beta index, but SHBT ups that ante by creating "a target portfolio is created by adding the next highest beta stocks until the target portfolio has a total capitalization of 35% of the Russell 2000 Index. The Index then selects a portfolio of up to 400 stocks of the Russell 2000 Index as its constituents to optimally track the returns of the target portfolio while managing turnover and neutralizing exposure to other factors, such as volatility and momentum," according to the ETF's factsheet. All of that results in an ETF with a median market cap of almost $570 million and a beta of 1.72 versus the Russell 2000. Impressive when remembering a beta of around one is considered high. SHBT offers exposure to seven sectors, but producer durables, materials and technology combine for almost 71% of the fund's weight. Volatility ETFs have become a
popular new frontier for issuers
. And the term beta itself has become widely known over the past several to legions of investors. Remembering that beta is a historical measure of the volatility or systematic risk of a stock and how it relates to the market
as a whole
. No, there's no getting around the fact that SHBT has low volume. Really low volume. That said, the fund's utility lies in the fact that stock-picking among Russell 2000 constituents can be tricky and when the risk on trade is on, SHBT has already shown it can be a winner.
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Posted In: Long IdeasNewsBroad U.S. Equity ETFsShort IdeasSpecialty ETFsNew ETFsSmall CapPre-Market OutlookMarketsTrading IdeasETFsChecking InRussell Investments
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