5 Sector ETFs for Bountiful Returns in November
After a dismal October, U.S. stocks rallied at the start of November and will likely continue their strong trend throughout the month. This is especially true as November is historically the best month of the year. The news of the Fed keeping the interest rates steady in the latest FOMC meeting has bolstered further optimism in the stock market.
In order to tap the bullishness, we have highlighted one ETF from each of the five sectors that could make a great play for investors. All these ETFs and stocks have a top Zacks Rank #1 (Strong Buy) or 2 (Buy). The ETFs are Vanguard Information Technology ETF VGT, Consumer Discretionary Select Sector SPDR Fund XLY, Financial Select Sector SPDR Fund XLF, iShares U.S. Industrials ETF IYJ and SPDR S&P Retail ETF XRT.
Fed Holds Steady
The Fed voted to hold interest rates at their highest range in 22 years at the conclusion of its latest policy meeting and investors bet that the central bank may be done hiking. The Fed upgraded its assessment of the economy to "strong" in the third quarter from "solid" in September. "Recent indicators suggest that economic activity expanded at a strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation remains elevated."
Solid Economy
The world's biggest economy emerged stronger than expected in the third quarter, defying all the challenges, including the war in Ukraine and the Middle East, as well as persistently higher interest rates. This is especially true as the economy expanded at the fastest pace in nearly two years, with GDP rising 4.9% annually, more than twice of 2.1% growth in the second quarter. The solid GDP growth came on the back of an increase in consumer spending, higher inventories, strong exports, higher residential investment and government spending (read: 5 ETFs to Bet on Highest GDP Growth in Nearly 2 Years).
Strong Historical Trends
According to the Stock Trader's Almanac, the S&P 500 has gained an average of 1.7% in November since 1950. In fact, November marks the start of the best six months for U.S. equities. Since 1945, the S&P 500 has climbed an average of 6.8% in the November through April period, according to Sam Stovall, chief investment strategist at CFRA.
Seasonality plays a vital role in the stock market surge during the six-month period (from November to April). Cyclical stocks from consumer discretionary, industrials, financials, energy and materials tend to benefit the most. This is especially true as investors look for more growth rather than being defensive when cyclical trading starts. This implies that investors should buy stocks during this bustling time in the market (see: all the Top Ranked ETFs).
Earnings Growth
The bullish picture for November is further backed by better-than-expected earnings. With more than 60% of the third-quarter results already out, earnings are poised to grow despite the significant energy sector drag, which follows three back-to-back quarters of declines.
Total earnings for the 311 S&P 500 members that have reported results so far are up 2.3% from the same period last year on 2% higher revenues, with 80.7% beating EPS estimates and 61.7% beating revenue estimates. Earnings growth represents a notable improvement when compared to the recent previous quarters. Still, the revenue growth pace marks a clear decelerating trend.
Vanguard Information Technology ETF (VGT)
November tends to be a good month for chipmakers and the overall technology sector. Half of the stocks that topped the S&P 500 during the month in each of the past five years hail from the technology sector. Vanguard Information Technology ETF manages $48.1 billion in its asset base and provides exposure to 319 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Systems software, technology hardware storage & peripheral, semiconductors and application software are the top four sectors.
Vanguard Information Technology ETF has an expense ratio of 0.10%, while volume is solid at nearly 489,000 shares. It has a Zacks ETF Rank #1.
Consumer Discretionary Select Sector SPDR Fund (XLY)
Solid economic growth will have a positive impact on the consumer discretionary sector, which attracts a major portion of consumer spending. As such, investors could tap the encouraging trend in the basket form through the ultra-popular Consumer Discretionary Select Sector SPDR Fund. It offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. Holding 53 securities in its basket, XLY charges 10 bps in annual fees.
Consumer Discretionary Select Sector SPDR Fund has AUM of $15.3 billion and an average daily volume of about 5.6 million shares. It has a Zacks ETF Rank #1.
Financial Select Sector SPDR Fund (XLF)
A robust economy will lead to more investments and financial activities. The ultra-popular Financial Select Sector SPDR Fund ETF seeks to provide exposure to 72 companies in diversified financial services, insurance, banks, capital markets, mortgage real estate investment trusts, consumer finance, and thrifts and mortgage finance industries. It follows the Financial Select Sector Index, charging investors 10 bps in fees per year.
Financial Select Sector SPDR Fund has AUM of $27.7 billion and trades in an average daily volume of 44 million shares. It carries a Zacks ETF Rank #1 with a Medium risk outlook.
iShares U.S. Industrials ETF (IYJ)
The industrial sector is likely to post strong gains in November due to increased manufacturing activity, infrastructure spending, and positive economic indicators. iShares U.S. Industrials ETF offers exposure to 185 U.S. companies that produce goods used in construction and manufacturing by tracking Russell 1000 Industrials 40 Act 15/22.5 Daily Capped Index.
iShares U.S. Industrials ETF has an AUM of $1 billion and an average daily volume of around 53,000 shares. It charges 40 bps in annual fees and has a Zacks ETF Rank #2.
SPDR S&P Retail ETF (XRT)
With the start of November, retailers are gearing up for the holiday season as a greater number of consumers are expected to shop. As such, retail sector ETFs will get a boost. SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large, mid and small-cap stocks. It holds 78 well-diversified stocks in its basket (read: Consumer Spending Boosts U.S. Q3 GDP: ETFs to Buy).
SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $326.3 million and an average trading volume of 6.6 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #2.
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Financial Select Sector SPDR ETF (XLF): ETF Research Reports
SPDR S&P Retail ETF (XRT): ETF Research Reports
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
iShares U.S. Industrials ETF (IYJ): ETF Research Reports
Vanguard Information Technology ETF (VGT): ETF Research Reports
