Displaying items by tag: beta

(Chicago)

Small cap prices usually expand and contract more quickly than large caps do. This happens both in downturns and upswings. However, in this coronavirus rally, that has not held up, as small caps are faltering while their larger peers soar. For instance, the Russell 2000 is trailing the Russell 1000 so far this year. “This latest rally is very much a capitalization story — the big players were the ones that held their own”, says SEI investments. Another portfolio manager added “The secular growth force that comes from mega-cap tech stocks doesn’t appear to be replicable in the rest of the market”.

FINSUM: Small caps tend to lack the scale that would allow them to thrive even as the economy falls, which means there haven’t been as many winners as there were in large caps.

(New York)

The market’s outlook grew significantly dimmer yesterday. The Fed made clear that investors should not expect a rate cut in a July, which took the wind out of equity investors’ sails. With that in mind, here is a list of ten stocks that should help investors win in a downturn. The theme here is “low volatility” stocks, or stocks with less risk that should outperform the market in a choppy environment. The list: Aflac, Amdocs, American States Water, Atmos Energy, DTE Energy, Duke Energy, McDonalds, NextEra Energy, OGE Energy, WEC Energy Group.

FINSUM: Given the Fed’s reversal from what the market thought was its stance yesterday, right now does seem like a good time for low volatility stocks.

(New York)

Low volatility stocks aren’t behaving the way they are suppose to right now, but that is what makes them interesting. Stocks chosen because of their generally low volatility tend to perform poorly in up markets as their low beta means they underperform benchmarks. But the nature of this year’s rally has defied that idea. Stocks are up 18% this year, but there are still many worries about the economy, the combination of which has given a big boost to otherwise boring stocks. Even during the losses of May to June, low vol stocks barely lost anything even though the market plunged.

FINSUM: There are a number of low vol funds like USMV and SPLV which are good choices for this area. These stocks seem like they have found a sweet spot in the current market environment.

(New York)

Bank stocks have had somewhat of a rough time this year. Like the rest the of the market they have been subject to turbulence. However, Barron’s says that clear sailing might lay ahead, as the stocks are looking less risky and likely to have more gains. The reason why is that bank stocks have been showing less and less beta lately, meaning they are trading at less relative volatility to the market than previously. This will lower their cost of capital and keep things steadier as rates rise, which will be bullish for performance. According to one research analyst, “Higher rates will have a positive impact on earnings, loan growth appears to be picking up, and we expect further regulatory relief”.

FINSUM: Given that higher rates improve net interest margins for banks, and the fact that there is significant regulatory relief occurring, we are feeling optimistic.