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Best Sector ETFs For February: Let's Get Cyclical

ETF Professor

January was a banner month for stocks as the S&P 500 jumped 8.1 percent. That's a major improvement on the S&P 500's January performances of the past decade.

With February here, investors are hoping stocks again belie historical trends.

What To Know

In the November through April period, the stronger six-month period for stocks, the S&P 500 averaged a February loss of 0.6 percent over the past decade. That means February is, historically, the worst month in the strong six-month frame for stocks.

As is the case with any other month, February brings some potentially compelling sector-level opportunities that are easily accessible via exchange traded funds. Some of the sector ETFs that traditionally perform well in the second month of the year are already surging to start 2019.

Winners

Among the nine original sector SPDR ETFs, the Materials Select Sector SPDR (NYSE: XLB) is the best performer in February. Since 1999, the first full year of trading for the sector SPDR lineup, XLB has averaged February gains of around 1.3 percent, according to CXO Advisory.

XLB, the largest materials ETF by assets, is off to a solid start in 2019 with a year-to-date gain of 5.1 percent, though that lags the performance of the S&P 500. February is the first of six months in which XLB ranks as either the best or second-best sector SPDR ETF on a historical basis.

As for the sector SPDR that usually finishes second behind XLB in February, that honor goes to the suddenly hot Energy Select Sector SPDR (NYSE: XLE). XLE, the largest energy ETF by assets, averages February gains of just over 1 percent, according to CXO data.

With Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) having delivered fourth-quarter results last Friday, earnings risk for XLE over the near-term is minimal After ranking as one of 2018's worst-performing sector ETFs, XLE is up 13.1 percent to start 2019 and February marks the start of what is usually the best period of the year for oil prices.

Laggards

There are some sector laggards in February. The Financial Select Sector SPDR (NYSE: XLF) and the Utilities Select Sector SPDR (NYSE: XLU) both average February losses of around 1 percent, according to CXO data. That makes the duo the worst-performing sector SPDRs in the second month of the year.

In defense of XLF and XLU, those funds are up 9.4 percent and 3.1 percent, respectively, year-to-date.

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