Seasonal Trends: Three ETFs To Own In August
There is just one day left in July so there is no time like the present to start evaluating ETFs that have a tendency to perform well in August.
August is not the greatest month of the year in which to be long stocks. Over the past 62 years, the S&P 500 rose 35 times during the month of August, making the eighth month of the year the ninth-best in terms of performance for the benchmark U.S. index, according to The Stock Trader's Almanac.
Dismissing seasonal trends as coincidence can be hazardous to a portfolio's health. For example, Benzinga pointed out earlier this year that February marks the beginning of a strong four-month stretch in which to own energy stocks.
ETFs including the iShares U.S. Oil & Gas Exploration & Production ETF (NYSE: IEO) and the Vanguard Energy ETF (NYSE: VDE) honored that trend by turning in solid performances from February through May this year. With August right around the corner, these are some of the ETFs investors should consider.
iShares Nasdaq Biotechnology ETF (NASDAQ: IBB)
Or the Market Vectors Biotech ETF (NYSE: BBH) or any other biotech ETF for that matter. Considering the superior returns offered by biotech ETFs this year, it might be hard to imagine these funds could get any stronger.
Seasonal trends say otherwise. Early August through early March is historically the best time to own biotech stocks. Other options in addition to IBB and BBH include the SPDR S&P Biotechnology ETF (NYSE: XBI) and the First Trust NYSE Arca Biotechnology Index Fund (NYSE: FBT).
Consumer Staples Select Sector SPDR (NYSE: XLP)
There is 14 years worth of data for the sector SPDRs ETFs and one of the most popular, the Consumer Staples Select SPDR (NYSE: XLP), is the best performer in August, according to CXO Advisory Group.
XLP is also the second-best performer among the SPDRs in September, so don't rush to sell the fund on August 31.
ProShares UltraShort Basic Materials (NYSE: SMN)
Putting the ProShares UltraShort Basic Materials on this list is loosely related to XLP. While the staples ETF is the best SPDR in August, the Materials Select Sector SPDR (NYSE: XLB) is the worst. Interestingly, XLB is usually the best SPDR in July and it has been solid over the past month with a gain of 5.6 percent.
XLB is also the worst-performing SPDR this year, though it is still up year-to-date. Investors should note SMN is not the bearish equivalent of XLB. SMN attempts to deliver twice the daily inverse returns as the index tracked by the iShares U.S. Basic Materials ETF (NYSE: IYM).
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