November starts Friday and with the arrival of the month of Thanksgiving comes the start of the strongest six-month period in which to own stocks, that being November through April.
There are seasonal opportunities over the course of those six months and perhaps some sector-level surprises as well. Historical data indicate the industrial and materials sectors have tendencies to outperform during the November through April span.
Those probably aren't the groups many investors would guess, but hey, don't fight the trend.
“According to Sam Stovall, Chief Investment Strategist at CFRA, the S&P 500 Materials sector advanced 9.3% on average during the seasonally strong six-month period ended April and outperformed the broader S&P 500 Index 69% of the time,” CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth said in a recent note.
Here are some industrial and materials ETFs to consider over the next six months.
Industrial Select Sector SPDR (XLI)
The largest industrial ETF, the Industrial Select Sector SPDR XLI deserves some credit. Up more than 23% year to date, XLI has been steady in the face of controversy and weakness pertaining some of its marquee holdings, including Dow components Boeing BA, Caterpillar CAT and 3M MMM.
Historical data confirm industrials are sturdy over the next six months.
“Stovall further noted that the S&P 500 Industrials sector climbed 9.1% and outperformed 62% of the time,” said Rosenbluth.
XLI is already off to a good start with an October gain approaching 5%, which was built amid slack earnings reports from 3M and Caterpillar.
Invesco S&P 500 Equal Weight Materials ETF (RTM)
As noted above, materials stocks are stellar during the upcoming six months, but adding the equal-strategy to the mix can be a winning idea. The Invesco S&P 500 Equal Weight Materials ETF RTM is the way to accomplish data.
Data provided by Rosenbluth show that when using the S&P 500 Equal-Weight Index as the benchmark, the outperformance of materials stocks in the November through April period rises to 75% with an average gain of 10.7% compared to 69% and 9.3% on the cap-weighted S&P 500.
RTM tracks the S&P 500 Equal Weight Materials Index and none of its holdings exceed weights of 4%.
Invesco S&P SmallCap Industrials ETF (PSCI)
With small-cap stocks having a tendency to gain some momentum during the best six-month stretch, the Invesco S&P SmallCap Industrials ETF PSCI is an industrial ETF to consider. This fund targets the S&P SmallCap 600 Industrial Index and holds 91 stocks.
Over the past three years, PSCI has topped the S&P SmallCap 600 Index by almost 1,100 basis points.
“Stovall explains that like white-water rafting, sometimes it’s best to let the market take you where it wants to go,” said Rosenbluth. “History shows that investing in cyclical sectors from November through April has been rewarding. Just make sure you know what you own.”
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