# High Beta Index

## What Is a High Beta Index?

A high beta index is a basket of stocks that exhibits greater volatility than a broad market index such as the S&P 500 Index. The S&P 500 High Beta Index is the most well-known of these indexes. It tracks the performance of 100 companies in the S&P 500 that are the most sensitive to changes in market returns.﻿﻿

[Beta](https://www.investopedia.com/terms/b/beta.asp) is the amount of volatility or systematic risk an asset exhibits compared to the market as a whole. Besides the flagship large-cap index, [Standard and Poor's](https://www.investopedia.com/terms/s/sp.asp) offers a number of high beta variations for small-cap, mid-cap and other market indexes.﻿ 

## High Beta Index Explained

High beta index companies exhibit greater sensitivity than the broader market. Sensitivity is measured by the beta of an individual stock. A beta of 1 indicates the asset moves in line with the market. Anything less than 1 represents an asset less volatile than the market, while greater than 1 suggests a more volatile asset.

For example, a beta of 1.2 means the asset is 20% more volatile than the market. Conversely, a beta of 0.70 is theoretically 30% less volatile than the market. Beta is measured against a widely followed index such as the [S&P 500 Index](https://www.investopedia.com/terms/s/sp500.asp). 

Gaining exposure to a high beta index requires an investment vehicle such as an [exchange traded fund](https://www.investopedia.com/terms/e/etf.asp) (ETF). The Invesco S&P 500 High Beta ETF ([SPHB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=sphb)) is a widely traded asset that tracks volatile assets in the broader market. The ETF has underperformed the underlying S&P 500 Index since its inception.﻿﻿﻿ Financial companies constitute nearly 30% of the fund's assets, with Discover Financial Services ([DFS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=dfs)), Lincoln National Corp ([LNC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=lnc)) and Invesco ([IVZ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ivz)) among its largest holdings.﻿﻿﻿

## Limitations of a High Beta Index

Contrary to popular belief, high beta or volatility doesn't necessarily translate into greater returns. For many years, the High Beta S&P 500 Index has underperformed its underlying benchmark.﻿﻿﻿ This occurred during a period of unyielding improvement in the broader market.

Instead, research shows that low volatility stocks tend to earn greater risk-adjusted returns than high volatility stocks. The reason low beta tends to outperform can be attributed to investment [behavioral biases](https://www.investopedia.com/terms/b/behavioralfinance.asp), such as the representative heuristic and overconfidence. In addition, sector selection and other fundamental criteria play an important role in the volatility and performance of a high beta index.

> **Article Sources**
>
> 1.  S&P Dow Jones Indices. "[S&P 500 High Beta Index](https://www.spglobal.com/spdji/en/indices/strategy/sp-500-high-beta-index/#overview)." Accessed Nov. 15, 2020.
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> 2.  Invesco. "[Invesco S&P 500 High Beta ETF](https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Institutional&ticker=SPHB)." Accessed Nov. 15, 2020.
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> 3.  Invesco. "[SPHB - Invesco S&P 500 High Beta ETF: Fund Holdings](https://www.invesco.com/us/financial-products/etfs/holdings?audienceType=Institutional&ticker=SPHB)." Accessed Nov. 15, 2020.
>     
> 4.  S&P Dow Jones Indices. "[S&P 500 High Beta Index - Factsheet](https://www.spglobal.com/spdji/en/idsenhancedfactsheet/file.pdf?calcFrequency=M&force_download=true&hostIdentifier=48190c8c-42c4-46af-8d1a-0cd5db894797&indexId=5475130)," Page 2. Accessed Nov. 15, 2020.