SPHB: High Beta Underperforming The Low Vol Factor, Near-Term Risks

Is the rally in jeopardy? Stocks are up big from their October 27 low, with small caps and Real Estate still posting strong gains despite a January dip. The recovery may be on a shaky foundation, though, at least according to one indicator. JC Parets pointed out that the S&P 500 (SP500) has been making new highs but the ratio of high-beta stocks to low-volatility equities failed to confirm those highs. That is a concerning trend heading into what can be a dicey stretch on the calendar through mid to late March.

I have a hold rating on the Invesco S&P 500® High Beta ETF (NYSEARCA:SPHB). I see technical risks while the fund has a very high allocation to the Information Technology sector.

SPHB Vs. SPLV Ratio Not Confirming New SPX Highs

According to the issuer, SPHB is based on the S&P 500 High Beta Index. The fund generally invests in the 100 stocks from the S&P 500 Index with the highest sensitivity to market movements, or beta, over the past 12 months. Beta is a measure of relative risk and is the rate of change of a security’s price, per Invesco.

SPHB is a somewhat small exchange-traded fund, or ETF, with just $479 million in assets under management as of January 31, 2024. With a low annual expense ratio of just 0.25%, the ETF features decent share-price momentum, but I will highlight a potential trouble spot on the chart later in the article. The portfolio pays a low 0.75% annual dividend yield, and risk metrics are rather poor given its high standard deviation and active turnover figures. Tracking error is also elevated. Still, liquidity is healthy with SPHB given its average daily trading volume of more than 600,000 shares over the past 90 days. Its 30-day median bid/ask spread is narrow at just a single basis point.

Digging into the portfolio, SPHB plots across the style box. The 2-star, Silver-rated fund by Morningstar has a 25% allocation to mid-cap blend, but there is a healthy percentage of large-cap growth. Its nearly equal-weight approach keeps holdings from growing too large in the fund. As of today, the valuation is reasonable at a 19x multiple, while long-term earnings growth is decent at 11%, so the PEG ratio, under 2, asserts that SPHB is not egregiously overvalued.

SPHB: Portfolio & Factor Profiles

Where we do find risk, though, is with the allocation. Nearly 40% of the fund is housed in the Information Technology sector. While consisting of many high-quality earnings growers, these stocks can turn volatile when macroeconomic conditions grow uncertain. There is no Energy or Utilities exposure, either.

SPHB: Holdings & Dividends

Seasonally, SPHB tends to rally through mid-February but then encounters some volatility toward the end of the first quarter, according to data from Equity Clock. In the fund’s 12-year history, returns have been very strong, but a large chunk of those gains have come in the late October through mid-February period.

SPHB: Mixed Trends For The Balance Of Q1

The Technical Take

With a fair valuation, relative technical issues, and a tech sector-focused allocation, the chart presents possible problems for the bulls. Notice in the graph below that shares have paused right at their previous all-time high notched in late 2021. The $83 mark is key – a rally through it could portend a bullish measured move price objective to near $111 based on the $29 range from the peak to the October 2022 trough under $55. With a rising long-term 200-day moving average, the bulls appear to be in control, and I like how the shorter-term 50dma is rising too, and above the 200dma.

Also take a look at the volume by price profile on the left side of the chart – there is a healthy supply of shares that should provide support on pullbacks. So, it is not an outright bearish view by any means. The fund continues to work off technical overbought conditions from late December 2023 when the RSI nearly touched 90.

Overall, indicators point to a pause in the uptrend in my technical view.

SPHB: Shares Find Resistance At Past Highs

The Bottom Line

I have a hold rating on Invesco S&P 500® High Beta ETF. The tech-focused portfolio trades at a lofty, though fair valuation, while the technicals point to an SPHB pullback.