Understanding High Beta ETFs
Written by David Fabian, October 31st, 2017
One important dynamic of portfolio construction and risk management is understanding how your stocks fluctuate in relation to the broader market. This factor is often referred to as “beta,” which is essentially the historical volatility of a stock or fund in relation to a benchmark such as the S&P 500 Index.
The higher the measured beta of your holdings, the greater price fluctuations they will have in comparison to the benchmark. A high beta score doesn’t necessarily mean that your investments will outperform on the upside or underperform on the downside. It simply means they have exhibited characteristics of outsized moves or over-reactions in the past.