Market Overview

It Might Be Time For This Type Of Volatility ETF

It Might Be Time For This Type Of Volatility ETF

For investors focusing on dedicated, equity-based volatility exchange-traded funds, “low” has been the name of the game this year. However, that trend could be starting to change amid a significant recent influx of new assets to the PowerShares S&P 500 High Beta Portfolio (PowerShares Exchange-Traded Fund Trust II (NYSE: SPHB)).

Index, Holdings

SPHB, which turned five in May, tracks the S&P 500 High Beta Index. That index is essentially the opposite of SPLV's underlying index. SPHB's benchmark holds the 100 S&P 500 stocks with the “highest sensitivity to market movements, or beta, over the past 12 months,” according to PowerShares.

Related Link: This ETF Is Worth The Price Of Admission

Here's a fun fact that speaks to the efficacy of the rotation into the high beta trade via SPHB: Over the past three months, the high beta ETF is up 4.1 percent while its low volatility equivalent, the PowerShares S&P 500 Low Volatility Portfolio (PowerShares Exchange-Traded Fund Trust II (NYSE: SPLV)), is down 5.5 percent. The S&P 500 is lower by 1.3 percent over the same period.


SPHB has the look of a value ETF with financial services and energy names dominating the ETF, combining for over 61 percent of its weight.

“Such sector exposure is positive in light of recent developments. The yield on the 10-year Treasury note has moved higher since the end of the third quarter to 1.8% from 1.6% and the Federal Reserve’s minutes indicate a near-term rate hike is likely. Higher bond yields have caused, and could continue to cause, investors to rotate away from income-oriented sectors such as consumer staples and utilities,” said CFRA Research in a note out Monday.

SPHB's third-largest sector weight is 13.7 percent weight to technology. Combine that with the ETF's financial services and energy exposure, and SPHB's holdings are well-positioned to deliver solid earnings growth.

“Meanwhile, according to Capital IQ consensus estimates for 2017, S&P 500 energy earnings are projected to triple, while financials and technology sectors should each exhibit double-digit growth of about 13 percent,” according to CFRA.

The research firm has an Overweight rating on SPHB.

Over the past month, SPHB added nearly $224 million in new assets, according to issuer data, representing a sizable portion of its $444.2 million in assets under management.

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