Beta is a measure of a fund’s volatility compared to its benchmark, or how sensitive it is to market movements.
A fund with a Beta close to 1 means that the fund will move generally in line with the benchmark. Higher than 1 and the fund is more volatile than the benchmark, so that with a Beta of 1.5, say, the fund will be expected to rise or fall 1.5 points for every 1 point of benchmark movement.
If this Beta is an advantage in a rising market – a 15% gain for every 10% rise in the benchmark –the reverse is true when markets fall. This is when managers will look for Betas below 1, so that in a down market the fund will not perform as badly as its benchmark.