Buy 5 High-Beta ETFs That Still Offer Value
The S&P 500 Index is currently trading at a forward P/E of 20.3X, which is higher than five-year and 10-year average. With holiday season approaching, investors can try these high-beta...
The S&P 500 so far had a stellar year, up almost 20%. After the astounding gains, thoughts of a correction in the market or overvaluation concerns are justified.
The S&P 500 Index is currently trading at 20.3 times forward earnings, according to FactSet data, above the average ratio of 18.3 during the past five years and 16.4 over the past 10.
Longtime activist investor Carl Icahn recently said that the market over the long run will certainly ‘hit the wall’ because of money printing, as quoted on CNBC.
How About High-beta ETFs?
Despite the overvaluation concerns, ongoing tailwinds to the market rally can’t be ignored. The S&P 500 logged its best week since July last week. Banking earnings came in upbeat while retail sales data for the month of September also came in estimate-beating. Both news validate the fact that consumers are “flush and spending,” as quoted on CNBC. This should result in an upbeat earnings season, which should drive stocks further.
Total Q3 earnings for the S&P 500 index are expected to be up 29.4% from the same period last year on 14.1% higher revenues. The growth rate has started going up as more companies are reporting better-than-expected results.
Then we have stepped in the all-important fourth quarter. The late October-December period embraces the key holiday season, which puts the spotlight on the performance of retailers. As loads of sales-boosting events — Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quartile, the sector generally sees a sales boost (read: 5 ETFs to Play the Key Events in Fourth Quarter).
Against this backdrop, high-beta ETFs are expected to gain handsomely. Beta is directly related to market movement. Notably, high-beta funds tend to rise or fall more than the stock market and are thus more volatile.
A beta that is greater than 1.0 is likely to be more volatile and gainful. When markets soar, high-beta funds experience larger gains than the broader market counterparts and thus outpace their rivals.
But investors who are worried about overvaluation might want to look for some value quotient in their investments. We highlight below a few ETFs that have a beta greater than 1.0, P/E (36 months) below 20.3 times of SPDR S&P 500 ETF Trust SPY and three-months price gains of at least more than the S&P 500 (up 3.7%).
Health Care Select Sector SPDR ETF XLV
P/E: 18.16x; Beta: 0.77x; Zacks Rank #1 (Strong Buy)
Vanguard High Dividend Yield ETF VYM
P/E: 18.20x; Beta: 0.91x; Zacks Rank #2 (Buy)
Invesco Dynamic Food & Beverage ETF PBJ
P/E: 18.20x; Beta: 0.91x; Zacks Rank #2
Invesco Dynamic Large Cap Value ETF PWV
P/E: 16.09x; Beta: 0.97x; Zacks Rank #3 (Hold)
SPDR S&P Insurance ETF KIE
P/E: 11.63x; Beta: 0.97x; Zacks Rank #3
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Health Care Select Sector SPDR ETF (XLV): ETF Research Reports
Invesco Dynamic Large Cap Value ETF (PWV): ETF Research Reports
Vanguard High Dividend Yield ETF (VYM): ETF Research Reports
SPDR S&P Insurance ETF (KIE): ETF Research Reports
Invesco Dynamic Food & Beverage ETF (PBJ): ETF Research Reports
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Zacks Investment Research