Best Sector ETFs for December: A Repeat Offender

December arrives Thursday, and with it comes visions of a Santa Claus rally on Wall Street. While it remains to be seen whether Santa delivers for investors this year, December's reputation as a good month for equities is well-deserved.

Over the past two decades, the S&P 500 has posted an average December gain of 1.3 percent, making the 12th month of the year the fifth best in terms of performance for the benchmark U.S. equity index, according to EquityClock.com. Over those 20 years, the S&P 500 has finished higher in December by 70 percent, a win rate topped by just two other months — April and November.

As is the case with the other 11 months, December brings sector-level opportunity, a theme highly suitable for exchange-traded funds. In fact, one of December's best-performing sector ETFs is a fund that also has a knack for delivering solid November gains. That ETF is the Materials Select Sector SPDR XLB.

Santa's Materials

Since 1999, the first full year of trading for the sector SPDR suite, XLB has been the best-performing member of that group in December, with an average gain of nearly 3 percent, according to CXO Advisory data. That after November, a month in which XLB is also, historically, the best-performing sector SPDR. December is one of three months in which XLB, the largest materials ETF by assets, is either the best or second-best sector SPDR ETF.

Year-to-date, XLB is the third-best SPDR, trailing only its energy and industrial counterparts. Now things get interesting because, according to CXO data, the Health Care SPDR (ETF) XLV is usually the second-best SPDR in December. Interesting because with a 2.5 percent year-to-date loss, XLV is easily one of the worst-performing members of the sector SPDR lineup in 2016.

XLV usually posts a December gain of just over 2 percent. If history repeats, that would go a long way toward helping the widely followed healthcare ETF at least finish the year flat.

On The Naughty List

As for the sector SPDR ETFs to avoid in December, none average negative returns in the last month of the year, but the Technology SPDR (ETF) XLK only manages modest December upside, according to CXO data.

That is to say XLK is the worst-performing sector SPDR in December. The Consumer Staples Select Sect. SPDR (ETF) XLP is, historically, the second-worst sector SPDR in December, but that situation could worsen this year if the Federal Reserve raises interest rates in December. That move is likely to pressure, as speculation to that effect already has, rate-sensitive staples stocks and ETFs.