What does Beta Creep refer to in investment terms?

Beta Creep refers to the phenomenon where the beta of an investment gradually increases over time, often due to heightened competition within a market or sector. Beta, a measure of an asset's volatility relative to the market, can change as the business environment evolves. As companies face increased competition, they may adopt strategies that increase their operational risks, leading to a higher beta. This means that the asset becomes more sensitive to market movements, implying that it could generate higher returns but also come with greater risk.

Understanding Beta Creep is crucial for investors as it highlights the changing dynamics of risk associated with their investments over time. This concept emphasizes the importance of regularly monitoring and reassessing the risk profiles of assets in a portfolio, especially in competitive industries where market conditions can significantly influence an asset's risk and return characteristics.