Call of the Wild Fades as High-Beta Stocks Suffer in Worst Start

• MKM recommends selling the shares and buying low-vol stocks

• Ratio of low vol to high beta reaches high since August 2012

By David Wilson

(Bloomberg) – Investors trying to take advantage of U.S. stocks’ worst start to a year in decades would do well to focus on less-risky shares, according to Jonathan Krinsky, MKM Partners LLC’s chief market technician.

The chart below displays the ratio of the Standard & Poor’s 500 Low Volatility Index to the S&P 500 High Beta Index, which rose yesterday to its highest reading since August 2012. The gauge compares stocks that were relatively stable in the last 12 months with those most sensitive to market swings. The chart also shows the S&P 500 for comparison.

Since the year began, the low-volatility index – consisting largely of utilities, phone companies and makers of food, beverages and other consumer staples – has fallen just 4 percent. The high-beta indicator has declined 11 percent, its biggest six-day slump since the S&P 500 set last year’s low in August. The S&P 500 itself lost 5.9 percent.

The ratio is “one of the best depictions of the current environment” for stocks, Krinsky wrote in a report two days ago. The New York-based analyst cited 15 low-volatility shares to buy and 15 others in the high-beta category to sell.

AT&T Inc., Coca-Cola Co., PepsiCo Inc. and Philip Morris International Inc. were among his picks. Eaton Corp., Nucor Corp. and Principal Financial Group Inc. were on his sell list.

Low volatility is the way to go because the outlook for U.S. stocks is turning negative, Krinsky wrote. “These shares still go down in a bear market, but they lose a lot less,” the report said.