Safe bets reward investors, but will it last?

Published Wed, Feb 11 201511:19 AM ESTUpdated Wed, Feb 11 20151:19 PM EST

A sharp reversal in rates this month is helping cyclical stocks gain traction, as low-beta names, or so-called safe stocks, take the back seat. Contrary to previous bull markets, the gains in the past 12 months have been propelled by lower volatility, according to Markit, a provider of financial information, but that is starting to change. Over the past year, stocks with the least historical market-adjusted volatility outperformed the S & P 500 by more than 10.5 percent. In comparison, the shares in the highest-beta group trailed the market in 10 of the last 13 months, underperforming the Markit US Total Cap universe by more than 12 percent, the report said. Read More Does the devil pick the best stocks? How sin can pay But a change this month hearkens back to the makeup of the rally in 2013, when high-beta names catapulted the market to new highs. Back then, high-beta names outperformed the broader universe by more than 4 percent, according to Markit. The change in sentiment has led investors to pile into low-beta ETFs in the tune of $6 billion since the second quarter of last year, when the trend started to gain traction. Beta is a common measure of a stock's volatility in relation to the market. High-beta stocks are often considered riskier, but provide a potential for bigger returns, or losses, while low-beta names are regarded as more conservative bets. The largest fund which tracks low-beta names, the PowerShares S & P 500 Low Volatility Portfolio ETF , is up 18 percent in the past 12 months, compared to a gain of 14 percent for the SPDR S & P 500 ETF , and an increase of 7 percent for the iShares Russell 2000 ETF . The largest holdings in PowerShares low-volatility ETF are Wal-Mart , Stericycle , Macerich , Vornado Realty Trust and McDonald's . An expectation of an earlier rate hike from the Federal Reserve over the last month is causing a more turbulent market and in turn, more volatile names to outperform. Read More Higher rates about to wreck these stocks The PowerShares S & P 500 High Beta Portfolio ETF is down on the year, but up almost 3 percent in the last month. It's top holdings include Harman International , Biogen , TripAdvisor and Amazon.com . The Dow Jones utility average, whose members have high dividends and low beta, was leading for most of 2015, but is now down 3 percent this month. Both the S & P and Russell 2000 are up about 3 percent, respectively.

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Brendan McDermid | Reuters

A sharp reversal in rates this month is helping cyclical stocks gain traction, as low-beta names, or so-called safe stocks, take the back seat.