August can be a tricky month to navigate for the bulls. That might be one reason low-beta ETFs such as the Consumer Staples Select Sector SPDR (XLP) have proven durable in the eighth month of year. It is worth noting that the more intense a January-July rally, the higher the odds are of an August swoon.
“In years when the S&P 500 gained at least 15% through July, there was a decline 44% of the time in August. Use only the post-war data and it’s 58%,” reports Brendan Conway for Barron’s. The first nine trading days of August are usually bearish and although this month got off to a decent start, slack performances by U.S. stocks on Monday and Tuesday could be a sign August will live up to its reputation as being a trying month in which to be long stocks.
An August decline could create an opportunity for investors to scoop up some ETFs that could finish 2013 in strong form. A group of ETFs poised to surge into year-end after a dull August could include biotechnology ETFs, which are coming off stellar runs in July. Amid a flurry of interesting new drug filings, strong earnings reports and positive clinical trial results, biotech ETFs such as the Market Vectors Biotechnology ETF (BBH) and the iShares Nasdaq Biotechnology ETF (IBB) , are among this year’s top-performing non-leveraged sector ETFs. [Biotech ETFs Shine in July]
Citing Ned Davis Research, Barron’s notes technology, biotechnology and large-cap growth are corners of the market that could offer investors strong finishes to 2013. Ned Davis ran a screen based on the following parameters: Interest coverage, return on invested capital, EBIT/assets, net profit margin, free cash flow/enterprise value, and EPS growth/stability, Barron’s reported.
BBH was one of the ETFs that turned up. So was The iShares North American Tech-Multimedia Networking ETF (IGN) . The $233.3 million IGN is home to familiar tech names such as Cisco (CSCO) and Qualcomm (QCOM). IGN is up almost 29% in the past year. [Spotlight on Communications ETFs]
The PowerShares Dynamic Large Cap Growth Portfolio (PWB) was the large-cap play turned up in the Ned Davis screen. Top holdings in the $232 million ETF include MasterCard (MA), Gilead Sciences (GILD), Colgate-Palmolive (CL) and Qualcomm. PWB is up 24.5% in the past year.
PowerShares Dynamic Large Cap Growth Portfolio
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.