Volatility Equities Chart

Is the High-Beta Train on the Right Track for Long-Term Investors?

03 October 2025

1 min read

High-Beta Stocks Have Surged, but Quality Stocks Have Staying Power

Factor returns are calculated as the relative performance of the top-quintile cohort vs. the bottom-quintile cohort within the S&P 500.
As of September 30, 2025
Source: Bloomberg, Piper Sandler and AllianceBernstein (AB)

US equity markets have been on a roll in recent months, but what’s been fueling the gains? Market returns have been driven by riskier stocks, while quality has taken a back seat. While the runaway high-beta train might give investors an exciting ride, it might not be the best mode of transport for a longer investment journey.

Since early April, the US stock market’s surge has been driven by high-beta stocks, a relatively risky group. Meanwhile, stocks with higher-quality features have lagged behind. These include stocks that rank high on dividend yield, dividend growth and shareholder yield (i.e., companies that consistently return capital via dividends and share buybacks).

Thrill Rides Don’t Last Forever

The short-term ride may be thrilling, but will it last? Longer-term data tell a different story. Over the last 20 years, higher-quality stocks have been much more resilient than high-beta stocks. The top quintile of stocks with high shareholder yield and high dividend growth have returned 57.3% and 61.7% more than the lowest quintile, respectively, over the last two decades; the highest-beta stocks have returned 10.9% less than their lowest quintile peers.

Current risks warrant caution. Considering the lofty valuations of the S&P 500 and other US indices, as well as risks such as stubborn inflation and geopolitical tensions, we believe higher-volatility stocks may be more vulnerable to a sharp pullback than higher-quality stocks. Expectations of more Fed interest-rate cuts could also prompt a rebound in these capital return–oriented stocks, in our view. In a world facing disruption on many fronts, companies with resilient business models and disciplined capital returns courtesy of thoughtful management teams could reassert themselves as quiet outperformers for patient investors with a long time horizon.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.

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