Market Overview

4 Sector ETFs To Mull Over In February

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4 Sector ETFs To Mull Over In February

February is here and after a trying end to January, some market participants may not be excited about the arrival of the second month. The month may be known for romance, but on a historical basis, it's not great for stocks.

Although February resides in the strongest six-month period in which to own stocks, the S&P 500 has averaged a loss of 0.3% in the second month of the year over the past two decades.

Of course, there will be sector-level opportunities this month, but buyer beware. Using the original nine sector SPDR exchange traded funds as gauges, a fair amount of those well-known ETFs average losses in February.

With that in mind, here are some of the sector SPDRs to keep up with this month.

Energy Select Sector SPDR (XLE)

With oil coming off its worst January performance in 30 years, sending the Energy Select Sector SPDR (NYSE: XLE) lower by 11%, it may seem surprising that XLE is being included. That may be a sign that investors ought to resist historical trends this month.

The reason being is that the energy's sector best seasonal stretch starts in February and XLE is usually the second-best among the original nine sector SPDR ETFs this month, according to CXO Advisory.

The largest equity-based energy ETF has averaged a February gain of just over 1% since its first full year of trading in 1999, according to the research firm.

See Also: 3 Nifty Apple ETFs

Materials Select Sector SPDR (XLB)

The Materials Select Sector SPDR (NYSE: XLB), like XLE, presents a potential riddle for investors in February. According to CXO data, XLB is usually the best-performing SPDR in February, averaging a gain of 1.5%.

However, the largest materials ETF, like its energy counterpart, is combing off a brutal January in which it lost almost 6.2%.

In other words, if January trends linger into this month, trusting either XLB or XLE to live up to historical billing in February could be trying on investors.

Utilities Select Sector SPDR (XLU)

It's interesting that in a month where the S&P 500 averages a loss that a defensive sector, such as utilities, would also be a historical loser. However, the Utilities Select Sector SPDR (NYSE: XLU) does average a modest February loss, making it the second-worst SPDR in the second month of the year.

However, this is a script that could be flipped this year because XLU enjoyed a banner January, jumping almost 7%. Perhaps more importantly, XLU's components are entirely focused on the U.S., meaning no coronavirus/China exposure.

Financial Select Sector SPDR (XLF)

The Financial Select Sector SPDR (NYSE: XLF) is usually the worst of the sector SPDR ETFs in February, averaging a decline of just over 1%, according to CXO data. That makes February one and the first of four months in which the largest financial services ETF places as one of the two worst sector SPDRs.

Like XLU, XLF's components have heavy domestic focuses and that could be a benefit if the coronavirus continues commanding headlines.

Disclosure: The author owns shares of XLF.

 

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