Market Overview

Sector ETFs For March: The Meek Shall Inherit The Month

Sector ETFs For March: The Meek Shall Inherit The Month
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March is here and with the arrival of the third month of the year comes the start of what is, historically, the best two-month stretch year for stocks. That is right, the S&P 500's historical March/April performance slightly nudges the index's November/December showing.

As is the case with the other 11 months of the year, some sectors and the corresponding exchange-traded funds perform better during the month than others. What is potentially interesting about sector ETFs in March 2016 is that the sector SPDR ETFs that have historically bullish March performances are among this year's worst performing sector ETFs.

Related Link: This Sector ETF Is A Value Proposition

Will Historical Precedents Power Through?

Start with the Select Sector Financial Slct Str SPDR Fd (NYSE: XLF). The largest financial services ETF has rebounded nicely off its February low, but XLF is still down 7.5 percent year-to-date. However, March is often kind to the ETF. Since 1999, the first full year of trading for the sector SPDR suite, XLF has posted an average March gain of just over three percent. That makes XLF the best of the nine established SPDRs, according to CXO Advisory data.

Adding to the near-term problems for U.S. bank stocks and ETFs like XLF is that when the sector climbed last year as investors were betting on the Federal Reserve raising interest rates, the group became expensive on valuation.

Speaking of problems, the Energy Select Sector SPDR (ETF) (NYSE: XLE) is usually the second-best SPDR in March, posting a third-month gain of almost 3 percent, according to CXO data. After ranking as the worst performing SPDR in each of the past two years, XLE is down just 1.4 percent this year.

Energy ETFs also face dividend issues, and those issues are not pleasant. Last year, when the energy sector was the worst performing group in the S&P 500, energy stocks accounted for the bulk of the negative dividend actions in the benchmark U.S. equity index.

As for the sector SPDRs to avoid this month, CXO data indicate that dubious distinction belongs to the Materials Select Sector SPDR (NYSE: XLB) and the Consumer Discretionary SPDR (ETF) (NYSE: XLY).

However, “avoid” is a strong term because in a testament to how strong stocks are in March, XLY averages a gain of over 2 percent this month, while XLB's average March gain is about that much.

Disclosure: Todd Shriber owns shares of XLF.

Image Credit: Public Domain

Posted-In: Long Ideas Sector ETFs Education Top Stories Markets Trading Ideas ETFs General Best of Benzinga


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