What Is a High Beta Index?

A high beta index is a basket of stocks that exhibits greater volatility than a broad market index such as the S&P 500 Index. The S&P 500 High Beta Index is the most well-known of these indexes. It tracks the performance of 100 companies in the S&P 500 that are the most sensitive to changes in market returns.

Beta is the amount of volatility or systematic risk an asset exhibits compared to the market as a whole. Besides the flagship large-cap index, 澳洲幸运5官方开奖结果体彩网:Standard and Poor's offers a♕ number of high beta variations for small-cap, mid-cap and other market indexes. 

High Beta Index Explained

Hi꧙gh beta index companies exhibit greater sensitivity than the broader market. Sensitivity is measured by the beta of an 𝓀individual stock. A beta of 1 indicates the asset moves in line with the market. Anything less than 1 represents an asset less volatile than the market, while greater than 1 suggests a more volatile asset.

For example, a beta of 1.2 means the asset is 20% more volatile than the market. Conversely, a beta of 0.70 is theoretically 30% less volatile than the market. Beta is measured against a widely followed index such as the 澳洲幸运5官方开奖结果体彩网:S&P 500 Index. 

Gaining exposure to a high beta index requires an investment vehicle such as an 澳洲幸运5官方开奖结果体彩网:exchange traded fund (ETF). The Invesco S&P 500 High Beta ETF (SPHB) is a widely traded asset that tracks volatile assets in the broader market. The ETF has underperformed the underlying S&P 500 Index since its inception. Financial companies constitute nearly 30% of the fund's assets, with Discover Financial Services (DFS), Lincoln National Corp (LNC) and Invesco (IVZ) among its largest holdings.

Limitations of a High Beta Index

Contrary to popular belief, high beta or volatility doesn't necessarily translate into greater returns. For many years, the High Beta S&P 500 Index has underperformed its underlying benchmark. This occurred during a period of unyiꦏelding improvement in the br🍒oader market.

Instead, research shows that low volatility stocks tend to earn greater risk-adjusted returns than high volatility stocks. The reason low beta tends to outperform can be attributed to investment 澳洲幸运5官方开奖结果体彩网:behavioral biases, such as the representative heuristic and overconfidence. In addition, sector selꦅection and other fundamental criteria play an important role in the volatility and performance of a hig෴h beta index.