No April Fool's Antics: The Best Sector ETFs For April

Markets Benzinga

Happy April Fool's Day, but there will be no chicanery here. Nor should there be, because April is one of the best months of the year for U.S. stocks. In fact, the fourth month of the year ties with October as the best month for the S&P 500 with an average gain of 2.1 percent over the past 20 years.

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Investors willing to be more tactical at the sector level might be able to do better than 2.1 percent this month, particularly if history holds true for some sector exchange-traded funds that usually show some spring (no pun intended) in their steps in April.

No Pranks Here

Coming off a March gain of 4.4 percent, The Industrial Select Sector SPDR Fund (XLI) is a sector ETF to consider in April. XLI, the largest ETF tracking industrial stocks, is usually the best performer among the nine established sector SPDR ETFs from State Street. Since 1999, the first full year of trading for the sector SPDRs, XLI has notched an average April gain of about 3.5 percent, according to CXO Advisory.

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The industrials sector has historically performed well in the middle of the economic cycle and underperforms in recessions. The mid-point of the economic cycle is defined by slowing profits and rising rates. US corporate profits peaked since the financial crisis and have been decelerating for the last couple of quarters, while the Fed raised rates in December. Despite a hardly noticeable early cycle phase, the long economic cycle is aging and weve quietly reached the mid-point, said State Street's Michael Arone in a recent note.

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XLI is off to a fine start this year after being a laggard. On a similar note, there is the Energy Select Sector SPDR (ETF) (XLE). XLE, the largest energy ETF, is usually the second-best of the SPDRs in April with an average gain of over three percent, according to CXO Advisory.

Interestingly, April represents the fourth consecutive month in which XLE is one of the top two SPDRs on a historical basis and the third consecutive in which the giant energy ETF is the second-best SPDR. XLE gained 6.6 percent in March.

Underscoring how strong the S&P 500 usually is in April, the worst SPDR this month is usually the Consumer Staples Select Sect. SPDR (ETF) (XLP). However, XLP, the largest consumer staples ETF, usually posts a gain of more than 2 percent in April.

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