Market Overview

Best Sector ETFs For November: Let's Get Cyclical

Best Sector ETFs For November: Let's Get Cyclical

November is here, and if the eleventh month of the year lives up to its historical reputation, equity market bulls should be pleased. Over the past two decades, the S&P 500 has posted an average November gain of 1.7 percent, making the second-best month of the year for stocks, behind April and October, which are tied for first place.

Over those 20 years, the S&P 500's November win rate is 75 percent, tying it with April for the best S&P 500 winning percentage over that time period.

As is the case with the other 11 months of the year, some sectors lead in November while others lag. Leading up to November, defensive, low beta sectors are often in style. That changed this year, thanks to speculation regarding the Federal Reserve potentially raising interest rates in December.

Historically, XLB Is November's Best Performer

Higher interest rates can benefit cyclical sectors, and as luck would have it, some exchange-traded funds tracking cyclical sectors are among the best performing sector ETFs in November. Going back to 1999, the first full year of trading for the sector SPDR ETFs, the best performer in November is the Materials Select Sector SPDR (NYSE: XLB).

XLB, the largest materials ETF by assets, posts an average November gain of nearly 3 percent, according to CXO Advisory data.

XLB has been a solid performer among the sector SPDR ETFs this year, returning 9.1 percent, an advantage of 320 basis points over the S&P 500. Dow Chemical Co (NYSE: DOW) and Dow component E I Du Pont De Nemours And Co (NYSE: DD) combine for about 23 percent of XLB's weight.

Other Cyclical Sectors Set To Succeed

Keeping with the theme of cyclical sectors performing well in November, CXO data reveal that, on a historical basis, the Industrial Select Sector SPDR Fund (NYSE: XLI) is the second-best performer among the sector SPDRs this month with an average November gain of just over 2 percent.

XLI, the largest industrial ETF, is home to such storied companies as Dow components General Electric Company (NYSE: GE), 3M Co (NYSE: MMM) and Boeing Co (NYSE: BA). XLI has impressed this year as well with a 9.7 percent gain.

Worst Performers

Still, investors should be mindful of the fact that the cyclical theme in November is not a free lunch. The two worst-performing members of the SPDR suite this month are track cyclical sectors. According to CXO data, the Financial Select Sector SPDR Fund (NYSE: XLF) averages a modest November loss while the Energy Select Sector SPDR (ETF) (NYSE: XLE), this year's best-performing sector SPDR, ekes out a hardly noticeable November gain, on average.

Disclosure: Todd Shriber owns shares of XLF.


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