A Historic Beta Run Is Powering this Market Rally

The rally off of the April 9^th lows continues to be fueled by high beta stocks.

This theme has been consistent across market caps, but recently most dramatic in small cap. In Q3, the top quintile beta stocks in the Russell 2000 Index soared 28.4%, while the lowest were up just 6%.

Beta’s outperformance run for the last two consecutive quarters has been historic. Our analysis of US small cap going back to 1986 shows the last two quarters were the third most dramatic 6-month beta outperformance in history – behind only the dot-com bubble and post-financial crisis periods.

This has corresponded with a particularly tough environment for active managers. According to Jefferies, “this year is on pace to see the fewest % of managers beat the index, and trail by the widest margin. The silver lining – when performance has been this bad, active managers tend to beat the benchmark handily over the subsequent 3-, 6-, and 12-month timelines.”