Market Overview

Two Sector ETF Ideas For February

Two Sector ETF Ideas For February

February is here, and with the arrival of the second month of the year comes renewed optimism that this month will bring better things to equity investors than January brought. As is the case with the arrival of each new month, sector-level opportunity also arrives; February usually brings opportunity with what may be considered some surprising sector exchange-traded funds.

Is February A Good Month For Energy?

February marks the start of what is, historically, the energy sector's strongest period of the year. Since 1999, the first full year of trading for State Street's sector SPDR suite, the Energy Select Sector SPDR (ETF) (NYSE: XLE) has been the best-performing member of that group during the month of February. According to CXO Advisory data, XLE, the largest equity-based energy ETF by assets, averages a February return of 2 percent.

Related Link: It Might Finally Be Time For Industrial ETFs

XLE investors could sure use a repeat of that trend this February, as the ETF is down 3.5 percent year-to-date. That is a concerning start to the year for XLE after the ETF lost 8.7 percent in 2014 and 21.5 percent in 2015, making it the worst-performing SPDR in each of those years.

Oil Weakness And Investor Reactions

Oil's ongoing weakness is not chasing investors from oil ETFs. In fact, that continuing weakness is emboldening some to keep betting on an oil rebound. XLE has added over $389 million in new assets this year, good for the third-best total among the sector SPDR ETFs.

Other Historical High Hitters For SPDR

February's second-best SPDR, on a historical basis, is the Materials Select Sector SPDR (NYSE: XLB), which averages a second-month return of about 1.5 percent, according to CXO data. XLB investors could really use a repeat of that theme, because XLB is down nearly 11 percent to start the year, making it the worst of the nine legacy sector SPDR ETFs.

Although XLB and XLE have had their share of struggle in recent years, it is worth noting that the pair are frequently featured among the various months' two best sector ETFs. For example, XLE is historically the second-best SPDR in March, April and May, according to CXO data. XLB is the best of the nine established SPDRs in November and December.

Sectors That Typically Perform Less Well In February

As for the sector SPDRs to avoid in February, that dubious distinction belongs to the Select Sector Financial Slct Str SPDR Fd (NYSE: XLF) and the Utilities SPDR (ETF) (NYSE: XLU), both of which average February losses in excess of 1 percent, according to CXO data.

Disclosure: Todd Shriber owns shares of XLF.

Image Credit: Public Domain

Posted-In: CXO AdvisoryLong Ideas News Sector ETFs Intraday Update Markets Trading Ideas ETFs Best of Benzinga


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