High-Beta Risk Remains Top-Performing Equity Factor In 2025

As the trading year heads into its final weeks, so-called high-beta shares remain firmly in the lead for US equity risk factors in 2025, based on a set of ETFs through Tuesday’s close (Dec. 2).

The year-to-date performance for the Invesco S&P 500 High Beta ETF (SPHB) is still well ahead of the rest of the field and the stock market overall, based on the SPDR S&P 500 ETF (SPY). As of yesterday’s close, SPHB’s total return is a sizzling 29.4% vs. SPY’s 17.3%.

SPHB’s bull run this year leaves the rest of the factor field in the dust. The next-best performer: large-cap growth (IVW), which is up 21.9%.

The key takeaway: high risk has paid off in 2025, by a wide margin. SPHB’s portfolio tracks an index that targets a subset of the S&P 500 based on the 100 stocks with the highest sensitivity to market movements, or beta, over the past 12 months via quarterly rebalancing.

Meanwhile, small-cap stocks remain laggards in the factor horse race this year. The weakest of the weak: small-cap growth (IJT), which is up a mild 5.4% year to date.

But hope springs eternal, still, for small caps. A Bloomberg report this week notes: “Traders are placing bullish bets on small-cap stocks even though they have struggled to outperform their larger cohort over the past year.”

Christopher Jacobson, Susquehanna International Group’s co-head of derivatives strategy, outlines the reasoning: “After getting hit in response to more hawkish rate cut expectations, the small caps have been a primary beneficiary of the more recent dovish tilt,” he wrote in a note to clients.