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New ETFs Track Higher-Volatility International Stocks

tlydon@globaltrend.com (Tom Lydon)

Invesco PowerShares plans to expand its lineup of so-called high-beta ETFs with two new funds expected to list Friday. The ETFs are designed to invest in the market’s more volatile stocks, which introduces risk.

The pair will give investors high-beta strategies for emerging and international developed markets. Last summer, the provider launched high and low-beta products.

Beta is a measure of a stock’s sensitivity to moves in the broad market. A stock with a beta below 1 is less volatile than the market, while a beta over 1 means it is more volatile.

“PowerShares Global Factor-Driven ETFs represent a new way for investors seeking to manage equity exposure by using specific factor weighted ETFs as building blocks,” Ben Fulton, Invesco PowerShares managing director said. “Investors are seeking a more tactical approach to investing and we believe the PowerShares Global Factor-Driven ETFs can provide an efficient means to capitalize on bull markets by adding beta to their portfolio, while having the flexibility to reduce risk in flat or bear markets by adding low volatility strategies to their portfolio.”

The new high beta strategy funds are:

  • PowerShares S&P Emerging Markets High Beta Portfolio (NYSEArca: EEHB - News)
  • PowerShares S&P International Developed High Beta Portfolio (NYSEArca: IDHB - News)

The PowerShares Global Factor-Driven ETF line-up currently has about $1.3 billion in assets under management, reports ETF Digest. [ETF Chart of the Day: Low Volatility, High Beta]

One of the high-beta funds that debuted in May is the PowerShares S&P 500 High Beta ETF (NYSEArca: SPHB) . The idea of the fund is to give investors an easy investment alternative to gain exposure to volatile, high-beta stocks which perform well in growing markets. Of course, it could underperform when the stock market is weak. [New Beta Volatility ETFs From PowerShares]

“Beta is a measure of both risk and market sensitivity, so it captures both correlation to the market and its proportional risk. As such, in a rising market, high-beta stocks outperform, and in a falling market, they underperform,” Morningstar says in an analyst report on the ETF. However, it notes high-beta stocks have historically lagged the market on a risk-adjusted basis.

PowerShares S&P 500 Low Volatility ETF (NYSEArca: SPLV) maintains the opposite goal of SPHB, and was a winner among the new ETFs last year in terms of asset gathering. The fund could appeal to investors seeking a more conservative strategy for equities. [Meet 2012's New ETFs]

Tisha Guerrero contributed to this article.