(January 22, 2013) — Shares showing “high beta” characteristics outperformed their less volatile counterparts last year, but relatively large short interest in these stocks have posed questions over whether it is time for investors to move out.
As market participants grew more confident of a global financial recovery, investors holding risky, relatively volatile stocks – so-called “high beta” companies – outperformed in the United States and Europe, a note from data monitor Markit said today.
The term refers to the covariance between a share price return and that of a reference index.
“Overall, high beta shares [in the Russell 3000] have outperformed their low beta peers in five of the last six months, with an average outperformance of 2% a month,” the note said.
European shares acted in the same fashion. “On a cumulative basis, the high beta shares of the QSG Developed Europe universe have outperformed their low beta peers by 18.5% over the last year,” Markit said.
Some fear this outperformance may not last though. Markit said the high beta stocks experienced higher levels of attention by short-sellers.
The number of shares on loan to these market participants has increased since the beginning of 2013, despite equity markets experiencing a sustained rally due to increased confidence in the global economy.
However, respondents to the Bank of America Merrill Lynch monthly survey of investor sentiment last week continued to show favour towards these stocks.
“Following the resolution of the US fiscal cliff, sentiment has surged. Half of investors now tell us that they would sell government bonds to buy higher-beta stocks, which is consistent with increasing growth and inflation expectations, and with our call for a ‘Great Rotation’ to start in 2013,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
For the full Markit report, click here.