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The Best Sector ETFs For April: Looking For A Rebound

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The Best Sector ETFs For April: Looking For A Rebound
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April is here, and if past precedent holds true to form, that could be good news for investors who are long U.S. stocks. Over the past 20 years, the S&P 500 averaged an April gain of 1.8 percent while finishing higher 75 percent of the time, according to EquityClock.com.

In terms of percentage gains, April is the third-best month of the year for the S&P 500, while April is tied with November and December for the best monthly win rate. The S&P 500 finished the first quarter with a loss of 1 percent, so it could use a strong April. So could the sector exchange traded funds that historically perform well in the fourth month of the year.

Start with the sector SPDR ETF that is usually the second-best April performer: the Energy Select Sector SPDR (NYSE: XLE). XLE, the largest energy ETF by assets, is in dire need of an April rebound.

Betraying Its Reputation

The energy sector's historical period of seasonal strength starts in late January and lasts through early May. Additionally, XLE is usually the second-best of the sector SPDR ETFs for three consecutive months: February, March and April, according to CXO Advisory.

Investors would not know it judging by XLE's 6.1-percent year-to-date decline, a performance that makes it one of the worst-performing sector ETFs through the first three months of 2018. XLE's two largest components, Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX), are two of the 15 members of the Dow Jones Industrial Average that are down at least 5 percent year-to-date.

Potentially adding to XLE's seasonal woes: after April, the ETF does not rank among the two best sector SPDRs in any month until February rolls around again.

Industrial Interest

The Industrial Select Sector SPDR (NYSE: XLI) is usually the best sector SPDR ETF in April, averaging a gain of over 3 percent, according to CXO. As is the case with XLE, XLI could use an April rally, as the largest industrial ETF finished the first quarter lower by 1.4 percent.

April is the only month where XLI ranks as the best-performing SPDR, but it is second-best in November and December, according to CXO. Like XLE, XLI is home to some of the Dow's worst year-to-date offenders. XLI holdings Caterpillar Inc. (NYSE: CAT), General Electric Co. (NYSE: GE) and 3M Co. (NYSE: MMM) are each down at least 5 percent this year.

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