A Year-End Rally Could Jolt These ETFs Higher
With the start of a new month comes the opportunity for investors to evaluate those ETFs that have established track records of solid performance in December. The pickings are ample as the last month of the year is usually one of the best for stocks with S&P 500 rising in 16 of the previous 20 Decembers. Before getting too excited, it should be noted that the Stock Trader's Almanac points out the stocks lose some of their December zest in presidential election years.
As has been duly noted, seasonal trends work in favor of the investors that acknowledge those trends. For example, energy stocks usually decline in November. What did the Energy Select Sector SPDR (NYSE: XLE) do last month? It fell 1.22 percent.
Keep that type of concept in mind when shopping for December winners. The list can start with the following ETFs.
PowerShares DB Gold Double Short ETN (NYSE: DZZ) This will be the ninth December in which the SPDR Gold Shares (NYSE: GLD) has traded. Over the previous eight, the world's second-largest ETF by assets has a decidedly mixed track record having risen on four occasions while having tumbled four times.
With that type of breakdown it is clearly hard to endorse a bullish position in gold as a short-term December trade. However, those that are committed to GLD or an equivalent fund such as the iShares Gold Trust (NYSE: IAU) for the long-term can consider the PowerShares DB Gold Double Short ETN as a short-term hedge against a long gold position. In an ideal scenario, DZZ will rise this month and investors will be deep enough in the money to hold the ETN until next year to stave off 2012 short-term capital gains.
PowerShares Dynamic Media Portfolio (NYSE: PBS) The PowerShares Dynamic Media Portfolio has been one of the better-performing sector funds this year with a gain of almost 25.5 percent. That shows the ETF has lived up to the hype of being a play on election year advertising and the release of some marquee films.
Sitting on a gain of 25.5 percent, it might appear that PBS is ripe for some year-end profit taking, but that may not be the case. First, fund managers that are up on media stocks will likely look to push the tax consequences of those winning positions out to to 2013. Second, the media sector has posted an average gain of over three percent over the past 20 Decembers while outperforming the S&P 500 nearly two-thirds of the time, according to Bloomberg.
iShares Dow Jones U.S. Medical Devices Index Fund (NYSE: IHI) As Bloomberg noted, December is usually quite kind to health care equipment names. The sub-sector posts an average gain in the last month of the year of nearly 3.6 percent and has outpaced the S&P 500 in more than 72 percent of the previous 20 Decembers.
Savvy short-sellers will let unknowing bulls run the iShares Dow Jones U.S. Medical Devices Index Fund higher this month there are ominous clouds on the horizon for the medical device industry. As Benzinga has previously reported, Obamacare contains punitive, GDP-draining tax on IHI constituents that could prompt the loss of tens of thousands of jobs while crimping the profits of the ETF's holdings.
The tax becomes effective in January and has already resulted in preemptive layoffs from some of IHI's holdings. In other words, medical device may honor their seasonal tendency to rise in December. Just do not bet on the good times lasting too far into 2013.
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