Blog

Sibling Rivalry: SPLV & SPHB

March 14, 2012
Share:

Mounting signs of a recovering economy make me wonder if it’s time to view defensive plays as a way of getting left behind.

I understand why last year investors piled into the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV), a low-volatility play on the S&P 500 Index. After all, Shakespeare would recognize 2011’s equity returns: full of sound and fury signifying nothing.

SPLV now has $1.56 billion in assets, but perhaps its moment has passed.

Equity volatility, as measured by the CBOE Volatility Index, continued its downtrend this week, with another big drop on Monday.

More broadly, a steady if unspectacular stream of positive economic indicators—most recently this week’s retail sales data—points to recovery, if not outright expansion.

If all this is true, is SPLV’s overshadowed sibling, the PowerShares S&P 500 High Beta Portfolio (NYSEArca: SPHB), due for its time in the sun? It’s worth a look. Here are returns since the market’s most recent nadir on Oct. 4 of last year:

SPHBvsSPYvsSPLV_10.4.11

SPHB has screamed back at 36.6 percent while SPLV has delivered 15.2 percent. I’ve got the SPDR S&P 500 (NYSEArca: SPY) in there too, splitting the difference at 24.3 percent, as you might expect from a beta-one fund

Looking further back to May 5, the inception date of both funds, returns are again widely dispersed, but with SPHB’s on the losing end.

The two ETFs diverged most dramatically three months after launch, when the August 2011 downgrade of U.S. Treasurys roiled markets. PSHB in particular nose-dived while SPLV merely dipped.

SPHB is still struggling to catch up to SPLV after this downturn, with returns since inception of -9.1 percent, while SPLV has gained 10.3 percent.

SPHB vs SPY vs SPLV: Inception

SPHB’s history of returns is too short to support rigorous regression, but visually it does indeed look like the fund delivers what it promises: high beta.

It’s worth noting that SPHB juices up returns without resorting to leverage. While leverage has its place, funds with double- or triple-exposure, or even inverse funds, can have undesirable side effects over longer periods, as my colleague Devin Riley made clear in a recent blog.

My biggest concern on SPHB isn’t about beta or leverage, but instead about the nature of its basket.

 

ETF.COM CHANNELS

Learn why commodity ETFs are an essential part of a diversified portfolio with our Commodity ETFs channel.

Learn why bond ETFs are an essential part of a diversified portfolio with our bond ETF channel.

ETF DAILY DATA

The oil and gold ETFs saw notable inflows on Thursday, Feb. 11.

Inflows into 'SPY' led the way for SSgA on Thursday, Feb. 11.

ETF.COM ANALYST BLOGS

By Sumit Roy

Traders lost billions buying these exchange-traded products.

By Dave Nadig

For all the hype, here’s an example of an ETF working just as it should.

By Matt Hougan

Here's why you should attend the largest ETF conference in the world next month.

By Dave Nadig

Barclays built in a premium to this exchange-traded note, so back away.

ETF INDUSTRY PERSPECTIVE

By Jane Leung

A new way to hedge for currency risk in your international investments.

By Heidi Richardson

Opportunities in Germany and the eurozone.

By Shirish Malekar

How to protect your portfolio with liquid alts.