Low Beta Stock for your Portfolio – How to stay calm and go fish spa in a bear market
Last week at our VIC SGX gathering, I presented the concept of low Beta stock as a defensive strategy in a bear market.
Beta is kind of like volatility. It's simply a trailing measure of how a stock or portfolio moves in relation to stocks as a whole. "Beta is just a measure of the risk of a stock or your portfolio or a fund relative to the risk of the overall market."
Figure 1a: A fund that has low beta of 0.69 vs the index, Figure 1b: A fund that has a high beta of 1.7 vs the index
For instance if the market gains 1%, a high-beta equity would be expected to rise more. The opposite is true for a down day, with high-beta stocks suffering more than their steady counterparts during down periods
Where do you get Beta information for Singapore Stocks?
For SG Stocks, you can get the information from www.sgx.com through stockfacts. Generally I used a paid subscription from www.shareinvestor.com as it allows me to gauge Beta together with their R-squared value which tells me the quality of the fit. An R-squared of 1.0 would mean that the model fit the data perfectly and low R-squared score means the Beta is probably not so relevant. For low Beta stock selection, i would first look for stocks that have a low 500 day Beta with a high R-squared value to confirm that this stock is less volatile compare to the STI. Then the usual selection criteria for income generating stocks applies.
Figure 2: Graphically showing the difference between a low R-squared value vs a High R-squared value.
Fund Managers have been using Beta to assess the risk of their fund portfolio for a long time, now you are equipped with the same knowledge to do so for your own value investing portfolio!
Happy Investing! With a Low Beta portfolio in a bear market you can:
Master Trainer, Value Investing College