High Beta ETFs & Stocks For Market-Beating Returns

Wall Street has been on the second-longest bull run in U.S. history with no signs of slowdown, and dodged all the ills of economy and politics. After logging the eighth consecutive quarter of gains — the longest quarterly win in 20 years — the Dow Jones continued its winning streak to start the fourth quarter. On the other hand, the S&P 500 extended its winning streak to seven days, its longest since May.

This suggests strength in the stock market that is backed by rounds of upbeat economic data. Manufacturing activity, as measured by the Institute for Supply Management, reached a 13-year high in September while non-manufacturing activity or the service sector expanded to the highest level since August 2005. Additionally, auto sales strongly rebounded in September posting the best month of the year, following the eighth consecutive month of decline (read: 5 ETFs to Buy on 13-Year High Manufacturing Activity).

Further, renewed hopes of tax cuts by the end of the year have led to increased optimism. Trump has proposed the biggest U.S. tax overhaul in three decades. Added to the strength is the solid expectation for Q3 earnings. Per Zacks, total Q3 earnings for the S&P 500 index are expected to be up 3.2% from the same period last year while it is expected to rise 5.5% according to Thomson Reuters research (read: 6 ETFs Set to Win on Trump's Tax Reform).

While every corner of the market is enjoying the ascent, high beta stocks and ETFs are outperforming.

Why?

Beta measures the price volatility of the stocks or funds relative to the overall market. It has direct relationship to market movements. A beta of more than 1 indicates that the price tends to move higher than the broader market and is extremely volatile while a beta of less than 1 indicates that the price of the stock or fund is less volatile than the market.

That said, high beta stocks seek to capitalize on continued growth with market-beating returns. This is because when markets soar, high beta stocks experience larger gains than the broader market counterparts and thus, outpace their rivals. However, these exhibit a higher level of volatility.

Given the bullish fundamentals and strong earnings expectations, investors could find the following ETFs and stocks intriguing options in the current scenario:

ETF Picks

Through our database, we have chosen five ETFs that have high beta, a favorable Zacks ETF Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and AUM of at least $50 million to ensure better tradability and liquidity.

ALPS Medical Breakthroughs ETF (SI:SBIO)

This small cap centric fund targets companies with one or more drugs in Phase II or Phase III FDA clinical trials and follows the Poliwogg Medical Breakthroughs Index (read: Should You Keep Your Portfolio Healthy with Biotech ETFs?).

Zacks Rank: #3
Beta: 1.86
AUM: $132.4 million
Expense Ratio: 0.50%
5-Day Performance: 3.80%

Consumer Discretionary Select Sector SPDR Fund XLY

This fund offers exposure to the broad consumer discretionary sector by tracking the Consumer Discretionary Select Sector Index.

Zacks Rank: #3
Beta: 1.73
AUM: $11.6 billion
Expense Ratio: 0.14%
5-Day Performance: 1.40%

Fidelity Nasdaq Composite Index Tracking Stock ONEQ

This ETF tracks the Nasdaq Composite Index, which is a widely recognized, market cap-weighted index that looks to track the performance of over 3,000 NASDAQ-listed stocks.

Zacks Rank: #2
Beta: 1.37
AUM: $1.3 billion
Expense Ratio: 0.21%
5-Day Performance: 1.13%

First Trust Dow Jones Select MicroCap Index Fund (AX:FDM)

This fund targets micro-cap stocks by tracking the Dow Jones Select Microcap Index (read: Three Reasons to Bet on Small Cap ETFs Now).

Zacks Rank: #3
Beta: 1.33
AUM: $87.1 million
Expense Ratio: 0.60%
5-Day Performance: 1.12%

First Trust Large Cap Core AlphaDEX Fund (V:FEX)

This product follows the NASDAQ AlphaDEX Large Cap Core Index and offers exposure to the large-cap segment of the broad U.S. market.

Zacks Rank: #3
Beta: 1.31
AUM: $1.5 billion
Expense Ratio: 0.61%
5-Day Performance: 1.63%

Stocks Picks

For stocks, we have chosen those that have a top Zacks Rank #1 or 2 and a VGM Style Score of B or better along with high beta.

Quorum Health Corporation (NYSE:QHC)

The company provides hospital and outpatient healthcare services in the United States.

Zacks Rank: #2
VGM Style Score: A
Beta: 8.61
Market Cap: $156.97 million
5-Day Performance: 18.71%

HubSpot Inc. (NYSE:HUBS)

This company is an inbound marketing software platform that helps companies to attract visitors to their websites, convert visitors into leads, and close leads into customers.

Zacks Rank: #2
VGM Style Score: B
Beta: 2.42
Market Cap: $3.11 billion
5-Day Performance: 17.33%

Meritor Inc. (NYSE:MTOR)

This company is engaged in designing, developing, manufacturing, marketing, distributing, selling, servicing, and supporting integrated systems, modules, and components to original equipment manufacturers and the aftermarket for the commercial vehicle, transportation, and industrial sectors worldwide (read: ETF & Stocks to Buy on Rebounding September Auto Sales).

Zacks Rank: #1
VGM Style Score: A
Beta: 2.30
Market Cap: $2.30 billion
5-Day Performance: 1.03%

Corcept Therapeutics Incorporated (NASDAQ:CORT)

This pharmaceutical company is engaged in the discovery, development and commercialization of drugs for the treatment of severe metabolic, psychiatric and oncologic disorders.

Zacks Rank: #2
VGM Style Score: B
Beta: 2.12
Market Cap: $2.19 billion
5-Day Performance: 4.38%

ON Semiconductor Corporation (NASDAQ:ON)

This company is a supplier of broadband and power management integrated circuits and standard semiconductors used in numerous advanced devices ranging from high-speed fiber optic networking equipment to the precise power management functions found in portable electronics (read: Here's What Investors Need to Know About Soaring Semiconductor ETFs).

Zacks Rank: #1
VGM Style Score: A
Beta: 2.01
Market Cap: $7.79 billion
5-Day Performance: 6.84%

Bottom Line

Given the bullish trends, high-beta products will continue to generate outsized returns in the coming weeks and is suitable for risk-tolerant investors given its volatile nature.

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HubSpot, Inc. (HUBS): Free Stock Analysis Report

Meritor, Inc. (MTOR): Free Stock Analysis Report

SPDR-CONS DISCR (XLY): ETF Research Reports

FIDLTY NDQ CMP (ONEQ): ETF Research Reports

FIRST TR-DJ MIC (FDM): ETF Research Reports

ALPS-MED BRKTH (SBIO): ETF Research Reports

FT-LRG CAP COR (FEX): ETF Research Reports

Corcept Therapeutics Incorporated (CORT): Free Stock Analysis Report

Quorum Health Corporation (QHC): Free Stock Analysis Report

ON Semiconductor Corporation (ON): Free Stock Analysis Report

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Zacks Investment Research