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Best Sector ETFs For June: Utilities And Health Care

ETF Professor

Following a rough May for U.S. stocks, investors will not be pleased to know June is, historically, an unpleasant month for stocks. Over the past 20 years, the S&P 500 averages a June decline of 0.70 percent, making the sixth month of the year the second-worst, on average, behind only September.

What Happened

As is the case with the other 11 months of the year, there are sector-level opportunities with exchange traded funds in June. As historical data confirm, the pickings are slim. Using the original nine sector SPDR ETFs (there are now 11) as the gauges, just two average positive returns in the month of June, according to CXO Advisory.

In a month that historically rewards playing defensive, it's not surprising that the best-performing sector SPDR in June usually is the Utilities Select Sector SPDR (NYSE: XLU).

Supporting the notion that gains are hard to come by in the sixth month of the year, XLU, the largest utilities ETF by assets, averages June returns of under half a percent, according to CXO data.

Why It's Important

The June through August period is an interesting one, historically speaking for XLU. It goes from being the best sector SPDR ETF in June to the second-worst in July to the second-best in August. Historically, XLU is one of the two best sector SPDR ETFs in June, August and September.

The other June “winner,” albeit barely, is the Health Care Select Sector SPDR (NYSE: XLV). XLV, the largest health care ETF, was less bad than the broader market last month, losing just 2 percent. The fund averages a modest June gain, according to CXO data.

What's Next

As for the sector ETFs to avoid in June, well it could be all of them excluding XLU and XLV. However, two of the worst offenders are the Financial Select Sector SPDR (NYSE: XLF) and the Industrial Select Sector SPDR (NYSE: XLI).

Both of those ETFs average June declines of more than 1 percent, though there is some evidence suggesting XLF often picks up its performance in July and August. XLI lost 7 percent in May while XLF was lower by 6.41 percent.

Disclosure: The author owns shares of XLF.

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