Low volatility stocks are better than those with high betas, right?
Completely and utterly wrong.
High betas are costlier because as not-very-many point out - convexity or gamma is important!
When the S&P is doing well the high beta index has a beta of 1.84 and when it's doing badly, 1.81. A +0.025 spread.
It's a small difference, but shows that the high beta index expands and contracts just the way you want it to.
It's naturally hedging away downside vol, and absorbing it on the upside.
How does low vol turn out?
Its beta is 0.65 when things are tanking and 0.64 when doing well (-0.01).
Multiply that by about three, and that small difference is larger than the high beta difference!
In many walks of life, it's up to you to choose your poison, but better choose with both eyes open, eh?