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Highlights on High Beta

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Direxion recently launched the Direxion Daily S&P 500® High Beta Bull and Bear 3X Shares – HIBL and HIBS. These leveraged ETFs seek daily investment results, before fees and expenses, of 300%, or 300% of the inverse (or opposite), of the performance of the S&P 500® High Beta Index. Why should traders care?

The S&P 500® High Beta Index provides concentrated exposure to 100 stocks in the S&P 500® Index with the highest sensitivity, or beta, over the last 12 months, which may lead to magnified market movements. And since leveraged ETF traders are always looking for the most bang for their trading buck, the concentration of high beta constituents in this index offers a new way to bet on some of the fastest moving stock in the broader S&P 500® Index.

The construction of the index leads to increased exposure in names that carry heightened sensitivity in daily moves relative to the broader market. The methodology also results in a natural overweight to more cyclically sensitive and higher-beta sectors within the equity market, such as Technology and Energy. While volatility and beta are not necessarily the same, they are both derivatives of the change in price in a given underlying security.

How is Beta, or Sensitivity Measured?

Beta, or sensitivity is measured using the slope of the regression line of the security’s trailing past-year (252 trading days for the US) price returns versus the daily price returns of an S&P 500 benchmark index over the same period, both measured in U.S. dollars. Constituent stocks are assigned index weights proportional to their beta.

How is the Index Constructed?

There are two steps in the creation of the index. The first is the selection of the companies; the second is the weighting of the index constituents.

Constituent Selection: Using trailing daily price changes over the previous year, the S&P 500 constituents’ betas are calculated. Constituents are then ranked in descending order of their betas. The top 100 securities form the index. S&P 500 constituents with fewer than 252 days of daily price history are not included in the eligible universe.

Constituent Weightings: At each rebalancing, the weight, w, for each index constituent i is set proportional to its beta as follows:

where:

  • S&P 500 High Beta Index: N = 100
  • S&P MidCap 400 High Beta Index: N = 80
  • S&P SmallCap 600 High Beta Index: N = 120
  • S&P BMI International Developed High Beta Index: N = 200
  • S&P BMI Emerging Markets High Beta Index: N = 200


Is This All Greek to You? Here’s an Example of High Beta in Action.

Consider a stock like NVIDIA (NASDAQ: NVDA), for example.  NVIDIA has a large weight in the S&P 500® High Beta basket. The chart below shows the rolling 90-day volatility comparison to another large cap utility stock, Duke Energy (NYSE: DUK), over a 5-year period.

It’s clear that over time, a basket of stocks with high sensitivity, similar to NVIDIA, offers traders access to the type of short-term returns that leveraged ETF traders seek, when searching for a bold trade on large cap stocks.

Source: Bloomberg Data.  As of 11/29/2019.

Which Direction on High Beta?

Whether you’re a bull or a bear, you know that TRADING is different than investing. But the opportunity to take advantage of short-term trends is only won, if you get the direction right.

Direxion‘s Daily S&P 500® High Beta Bull and Bear 3X Shares Leveraged ETFs are  powerful tools built to help you:

  • Magnify your short-term perspective with daily 3X leverage
  • Go where there’s opportunity, with bull and bear funds for both sides of the trade; and
  • Stay agile – with liquidity to trade through rapidly changing markets

Related Leveraged ETFs:

These leveraged ETFs seek investment results that are 300% of the return of its benchmark index for a single day. Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by an ETF increases the risk to the ETF. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investment.

CUSIP Identifiers have been provided by CUSIP Global Services, managed on behalf of the American Bankers Association by Standard and Poor’s Financial Services, LLC, and are not for use or dissemination in any manner that would serve as a substitute for a CUSIP service. The CUSIP Database, ©2011 American Bankers Association. “CUSIP” is a registered trademark of the American Bankers Association.

Shares of the Direxion Shares are bought and sold at market price (not NAV) and are not individually redeemed from a Fund. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 pm EST (when NAV is normally calculated) and do not represent the returns you would receive if you traded shares at other times. Brokerage commissions will reduce returns. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Some performance results reflect expense reimbursements or recoupments and fee waivers in effect during certain periods shown. Absent these reimbursements or recoupments and fee waivers, results would have been less favorable.

The “S&P 500® High Beta Index” is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by Rafferty. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Rafferty. Rafferty’s ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500® High Beta Index.

Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. The ETFs are non-diversified and include risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geography which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Each Fund does not attempt to, and should not be expected to, provide returns which are three times the performance of their underlying index for periods other than a single day. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Aggressive Investment Techniques Risk, Liquidity Risk, Counterparty Risk, Intra-Day Investment Risk, and risks specific to high beta investing. High Beta investing entails investing in securities that are more sensitive to changes in the market, and thus are more volatile based on historical market index data.  Additional risks include, for the Direxion Daily S&P 500® High Beta Bull 3X Shares, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily S&P 500® High Beta Bear 3X Shares, risks related to Shorting and Cash Transactions, and Daily Inverse Index Correlation/Tracking Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.

Distributor for Direxion Shares: Foreside Fund Services, LLC.

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