Thursday, June 14, 2012

Beta Factor Proxy Portfolios

I just discovered some new long/short beta ETFs: BTAH and BTAL.  One goes long high beta, short low beta, equal dollar weighted, equal sector weighted; the other is the opposite.  That is, they both are 'factor mimicking' portfolios on  beta, one the inverse of the other.   They use the top 1000 stocks in the Dow Jones US index as their universe, and pick the extremum 200 as their holdings for longs and shorts.  They don't trade much (~20k shares per day), and they might have some technical issues trying to target the top 200 each month, but I wish them well.

As per sector neutrality, I think that's overkill, but I know lots of people like it.  That is, you miss a lot of the essence of the beta factor by neutralizing sector weightings.

If these existed for twenty years we wouldn't have any doubt about the shape of the Security Market Line.


Mercury said...

What happens if none of those 200 names are in a particular (out of 10 GIC?)sector? How do you equal weight that?

Or are they actually treating each sector as a separate universe (taking the high and low beta names within each) and the ETF is an aggregate of 10 separate portfolios?

Eric Falkenstein said...

They target the same dollar exposure by sector as in the market, and then within that, go long and short betas. Nonetheless, the high beta average around 1.9, and the low betas around 0.65, so they get a good beta spread.

Anonymous said...

1.92% gross expense? I'll pass, thanks.