Best Sector ETFs For January: Looking For Leadership

On a historical basis, January is not as kind to U.S. equities as many investors believe it to be, but after a rough fourth quarter, the S&P 500 is starting 2019 on a strong note.

Following Monday's gain, the benchmark U.S. equity gauge is up about 1.8 percent to start the new year.

What To Know

Perhaps surprisingly to some investors, the S&P 500 has averaged negative January returns over the past two decades, meaning sector-level opportunities can be limited in the first month of the year. In fact, the bulk of the sector SPDR exchange traded funds have averaged negative January performances since 1999, the first full year of trading for the sector SPDR suite.

The other side of that story is given January's dubious reputation, finding sector ETFs with winning traditions in the first month of the year is not difficult.

The Health Care Select Sector SPDR XLV, the largest health care ETF by assets, averages a January gain of just over 1 percent, making it the best-performing sector SPDR ETF in the first month of the year, according to CXO Advisory data.

That data point goes back to 1999, but over the past decade, XLV has been even stronger in January. During the previous 10 Januarys, XLV finished higher 80 percent of the time with an average gain of 1.42 percent.

XLV returned 6.3 percent last year as health care was the best-performing sector in the S&P 500. The health care ETF has traded slightly lower to start 2019.

What's Next

The Technology Select Sector SPDR XLK, the largest technology ETF, is usually the second-best sector SPDR in January. XLK averages a gain of just under 1 percent in the first month of the year, according to CXO data.

XLK's ability to replicate past January bullishness is already being challenged this year after Apple Inc. AAPL after the iPhone maker offered weaker-than-expected guidance for its most recently completed quarter. That after the stock tumbled 30 percent in the fourth quarter.

Microsoft Corp. MSFT and Apple combine for 34.66 percent of XLK's weight. The tech ETF is flat to start 2019.

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