Invesco PowerShares brought out two new and unique ETFs last Thursday (5/5/11). PowerShares S&P 500 High Beta Portfolio (SPHB) and PowerShares S&P 500 Low Volatility Portfolio (SPLV) are innovative products that employ quantitative beta-weighting and volatility-weighting as part of the underlying index construction. As with any new investment strategy, you need to understand how these new ETFs will function before putting them in your portfolio.
– PowerShares S&P 500 High Beta Portfolio (SPHB) (SPHB overview) tracks the new S&P 500 High Beta Index, which consists of the 100 stocks from the S&P 500 with the highest sensitivity to market movements, or beta, over the past 12 months. The 100 stocks are weighted proportional to their 12-month beta coefficient at each quarterly rebalancing.
– PowerShares S&P 500 Low Volatility Portfolio (SPLV) (SPLV overview) tracks the new S&P 500 Low Volatility Index, which consists of the 100 stocks from the S&P 500 with the lowest realized daily volatility over the past 12 months. The 100 stocks are weighted inversely proportional to their 12-month realized volatility at each quarterly rebalancing.
Beta & Volatility
Beta is one of the most misunderstood investment terms, and it is often incorrectly assumed to be a word that is interchangeable with volatility. However, that is not the