High Time for Low Beta?

With markets¹ hitting fresh highs, and risks lurking in the form of potential Federal Reserve tapering, the spread of the Delta variant of COVID-19 and increasing geopolitical tensions, is it time to evaluate whether you need low beta strategies in your portfolio?

Higher beta strategies have generally benefited investors in recent years as the market grinded higher in all but a few brief periods. But defensive, low beta strategies, such as Reaves’ Long Term Value Strategy², may also play a vital role in investors’ portfolios, compounding returns over time, but with less volatility.

In the current market environment, we believe such strategies may serve three key investor groups:

• Those carrying high levels of cash who have been concerned about entering the stock market. A strategy with low volatility may be a good way to introduce these investors back into equities.
• Those worried about future returns from their fixed income portfolio. We have written about this in a recent investment brief; low rates portend much lower returns for fixed income today than in previous decades. As such, investors may benefit from replacing a portion of their bond allocation with defensive equities that could achieve higher returns, but without moving out too far on the risk spectrum.
• Those who have become overweight technology and other growth stocks and want to lower the overall risk level in their portfolio.

Lower Beta, Longer Term

We believe low beta and low volatility is a key feature of Reaves’ strategies. The tables below put both of those statistics in perspective for our Long Term Value Strategy. The first table shows the strategy’s beta for various periods ended 6/30/21, relative to the S&P 500 Index³. For comparison, we also show the S&P 500 Global Infrastructure Index⁴ and Russell 1000 Value Index’s⁵ beta relative to the S&P 500.

Table 1.

The second table shows our standard deviation over the same period, which was considerably lower than the S&P 500, S&P 500 Global Infrastructure Index and Russell 1000 Value Index: 

Table 2.

Want to Learn More? To learn more about our defensive strategies, and the types of companies we invest in, we encourage you to read our investment brief: