What does a mutual funds beta coefficient measure?
This modern portfolio theory statistic measures a mutual fund’s volatility relative to a broad benchmark, commonly the S&P 500 index. Although betas are normally associated with stocks, they are also used for bonds. Beta is typically calculated on the basis of monthly returns over the past three years. A mutual fund that seesaws in perfect sync with the market has a beta of 1.0. Portfolios that are more volatile relative to the S&P 500, such as aggressive-growth funds, have betas greater than 1.0; more conservative investments, such as utility funds, have coefficients of less than 1.0. Beta readings for gold, international, and other mutual funds that move independently of the S&P 500 are not meaningful, so it’s wise to check the standard deviation along with beta when you’re examining volatility. Both are found in AAII’s “Individual Investor’s Guide to the Top Mutual Funds” and at Morningstar.com.
