Best Sector ETFs For December: An Interesting Mix

Markets Benzinga

December is here and with the arrival of the last month of the year usually comes some solid performances for U.S. equities. Over the past 20 Decembers, the S&P 500 has averaged a gain of 1.5 percent and a win rate of 75 percent, according to EquityClock.com.

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The S&P 500's average gain of 1.5 percent in December means this month is tied with November as the fourth-best month of the year for the benchmark U.S. equity gauge. After climbing more than 0.8 percent Thursday to another record, the S&P 500 enters December up 18.3 percent year-to-date.

Like any other month, December brings sector-level opportunities, trades that are often best expressed with exchange-traded funds Confirming December's bullishness, historical data indicate that since 1999, the first full year of trading for the original nine sector SPDR ETFs, none of those funds average a December loss.

December's Best

Confirming that cyclical sectors often work well later in the year, the Materials Select Sector SPDR (XLB), the largest materials ETF, is the best-performing SPDR in the last month of the year. XLB averages a December gain of nearly 2.5 percent, according to CXO Advisory data.

XLB is up nearly 20 percent and hit a record high on Thursday. The $4.4 billion XLB holds just 25 stocks and tracks the Materials Select Sector Index.

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The second-best SPDR in December, usually is the Health Care Select Sector SPDR (XLV). XLV, the largest health care ETF, averages a December gain of just over 2 percent, according to CXO data. Up nearly 21 percent year-to-date, XLV is the second-best of the sector SPDR ETFs this year, trailing only its technology counterpart.

December Laggards

Knowing that December is usually kind to stocks and that none of the sector SPDRs average a loss in the 12th month, it's hard to say this month is bad for certain sectors. Still, some sector SPDRs are prone to lag.

For example, the Consumer Staples Select Sector SPDR (XLP) averages a December gain of just about half a percent, according to CXO. That makes XLP the second-worst-performing sector SPDR in December.

Perhaps surprisingly, the Technology Select Sector SPDR (XLK), this year's best-performing sector SPDR, is usually the worst SPDR in December, averaging a negligible gain.

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