Glossary
What is beta?
Updated Reviewed quarterly
Beta measures how much a fund's return moves relative to a benchmark (usually the broad equity market). A beta of 1.0 means the fund moves in lockstep with the market; 1.2 means 20% more sensitive (more volatile); 0.7 means 30% less sensitive. Beta is a measure of volatility against a benchmark, not a measure of risk overall.
Reading beta. A semiconductor sector ETF (SMH, SOXX) might have a beta of 1.4 vs the S&P 500 — when the market rises 10%, the semi ETF tends to rise about 14%; when the market falls 10%, the semi ETF tends to fall about 14%. A defensive utility or bond fund might have a beta of 0.3 — it moves a fraction as much. A pure broad-market index ETF (VOO) has a beta near 1.0 against its own benchmark by definition.
Beta is not risk. A fund with beta 1.0 is not "the same risk" as the market — it can still lose all its value if it concentrates in failing companies. Beta only measures movement relative to a chosen benchmark over a chosen window. It says nothing about default risk, liquidity risk, or tail risk.
How beta is calculated. Statistically: beta = covariance(fund, benchmark) / variance(benchmark), measured on historical returns (usually monthly over 3-5 years). The window matters — a fund's beta can change materially across windows. Published "beta" figures on fund fact sheets are typically backward-looking 3-year monthly.
For NZ investors. Beta is most useful when comparing similar funds (e.g. two US growth ETFs vs the S&P 500). It's less useful comparing across asset classes (a bond fund's beta vs the equity market is near zero, but that doesn't mean bonds are low-risk).
Where you'll see this term
