The Two Best Sector SPDR ETFs For January
A disappointing December is now in the books for U.S. stocks. “Disappointing” because the S&P 500 usually rises in the final month of the year; over the past two decades, the benchmark U.S. index posted an average return of 1.5 percent in December, according to EquityClock.com.
That trend did not hold up in 2015, as the S&P 500 lost 1.4 percent in the final month of the year. Now January is here— a month with a reputation for being good to stocks, though that bullishness could be overstated. Over the past 20 years, the S&P 500's average January return is just 0.2 percent, according to EquityClock data.
Investors willing to get tactical with sector exchange-traded funds could find larger rewards in the first month of 2016, and those rewards could come courtesy of some familiar ETFs. Among State Street's nine sector SPDR ETFs, the historical leader in January is the Health Care SPDR (ETF) (NYSE: XLV).
Historical Leader And Largest Healthcare ETF
XLV, the largest healthcare ETF by assets, has posted an average January gain of just over 1 percent going back to 1999, the first full year of trading for the Sector SPDR suite, according to CXO Advisory. Entering this past Thursday, XLV was up 7.8 percent in 2015, making it the third best of the nine SPDRs in 2015.
Despite some volatility at the hands of the biotech sector, which accounts for over 20 percent of XLV's weight, the healthcare ETF had a solid 2015. XLV is also home to three of the 16 members of the Dow Jones Industrial Average that posted positive returns in 2015 – Johnson & Johnson (NYSE: JNJ), Pfizer Inc. (NYSE: PFE) and UnitedHealth Group Inc (NYSE: UNH).
Fun fact about XLV: Although healthcare stocks have been on a tear for over five years now, January is just one of two months where XLV is one of the two best SPDRs, according to CXO Advisory. June marks the other month when the healthcare ETF is the second best of the nine SPDRs.
The Historical Second Best Of January
Speaking of second best, that is the January reputation enjoyed by the Technology SPDR (ETF) (NYSE: XLK). XLK, which was the fourth best of the nine SPDRs in 2015, averages a January gain of less than 1 percent.
Apple Inc. (NASDAQ: AAPL) is XLK's largest holding at a weight of 14.2 percent, so if the iPad maker rebounds in 2016 as some investors are betting it will and that rebound starts early in the year, that will be good for XLK.
The largest technology ETF would also benefit if the ebullience surrounding the FANG stocks carries into 2016 as half of the FANG quartet – Facebook Inc (NASDAQ: FB) and Google parent Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) – combine for over 16 percent of XLK's weight.
Disclosure: Todd Shriber owns shares of JNJ.
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