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The Right Way To High Beta

ETF Professor

It wasn't just a good year for stocks in 2019. It was a fine time for high beta names, including those residing in the Salt High truBeta US Market ETF (CBOE:SLT).

The Salt High truBeta US Market ETF, which tracks the Salt High truBeta Index, surged nearly 38% last year, beating the S&P 500 by about 650 basis points. For those looking for a more relevant comparison, SLT topped the S&P 500 High Beta Index by 400 basis points.

SLT's underlying index “estimates to select stocks with the highest sensitivity to the SPDR S&P 500 ETF,” according to New York-based Salt Financial. “The objective is to magnify exposure to the SPY without the use of borrowing or derivatives through systematic stock selection by targeting higher beta securities with greater accuracy.”

Why It's Important

SLT holds 100 stocks on mostly equal-weight basis. Since its directive is to be more sensitive to upward changes in the S&P 500 or the aforementioned SPY, SLT ditches less risky sectors, such as consumer staples, real estate and utilities. The fund, which debuted in May 2018, features exposure to seven of the 11 S&P 500 sectors.

The fund, as of the end of the third quarter, was overweight technology with a weight of 30%. SLT also had a combined allocation of about 39% to financial services and consumer discretionary stocks, also overweight those groups relative to the S&P 500.

SLT's index “seeks to capture 50% more variation than the market in the same direction,” according to the issuer.

What's Next

"We believe our approach helps investors better target risk in their portfolios," said Alfred Eskandar, President and COO of Salt Financial. "With a beta of 1.44 to the S&P 500 in 2019, we’re pleased the fund met its mandate of providing higher sensitivity to the market."

SLT's annual fee of 0.29%, or $29 on a $10,000 investment, compares favorably with the category average.

Salt Financial's other ETF is the Salt Low truBeta US Market ETF (CBOE:LSLT), which debuted last March. That fund, known for its nifty fee scheme which includes a 0% expense ratio, has nearly $11 million in assets under management.

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