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Best Sector ETFs For November: Loving The Unloved

ETF Professor

After a bloody October for U.S. stocks, several sectors enter November battered. October brought some of the worst monthly losses on record for several sectors and the related exchange traded funds and that's true across styles and market cap segments.

So it may not be surprising some investors are relieved November is here. Over the past 20 Novembers, the S&P 500 averaged a gain of 1.4 percent, making the 11th month of the year one of the better months for U.S. stocks.

What Happened

Given October's carnage, some of the sectors that historically perform well in November are limping into the new month. That's true of the Materials Select Sector SPDR (NYSE: XLB). Since 1999, the first full year of trading for the sector SPDR ETFs, XLB has been the best performer in November, averaging a gain of close to 3 percent according to CXO Advisory.

XLB, the largest materials ETF by assets, stumbled in October as several of the fund's marquee constituents reported slack third-quarter earnings. Investors reacted by departing XLB in a big way.

“More than $448 million was pulled from State Street Corp.’s Materials Select Sector SPDR Fund, or XLB, last week, reducing its assets by 15 percent to $3.18 billion, the lowest in at least a year, according to Bloomberg data,” reports Bloomberg.

Why It's Important

October 2018 was one of the worst months on record for S&P 500 industrial stocks, The Industrial Select Sector SPDR (NYSE: XLI) will try to shake off its October woes to live up to its November precedent. XLI is usually the second-best SPDR behind XLB in November, averaging a gain of around 2.6 percent, according to CXO data.

XLI, the largest industrial ETF, is coming off a double-digit October loss. Some of its ability to rebound in November could be challenged by next week's midterm elections. If aerospace and defense stocks react adversely to the election results, XLI and other industrial ETFs could see more November rain than fame.

What's Next

Here is where things get interesting. XLB and XLI, in that order, are also the two best-performing SPDRs in December before transitioning to being the two worst in January, according to CXO data. So if historical trends hold, the next 90 days should be interesting for these two ETFs.

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