U.S. Markets closed

Materials ETFs Really Are November Buys


With the start of November less than 24 hours away, investors that follow seasonal trends are aware the eleventh month of the year marks the start of the best six-month period in which to own stocks.

While that is an important factoid for the broader market, investors can do better, and do so starting in November, than simply throwing cash into market-based funds that track large familiar indices such as the S&P 500 or Russell 1000. A more tactical, sector-driven approach is usually more rewarding and that approach should include materials ETFs. [Comparing the Major Sector ETFs]

Materials ETFs such as the Materials Select Sector SPDR (XLB) , the iShares U.S. Basic Materials ETF (IYM) and the Vanguard Materials ETF (VAW) have already been in rally mode. The average gain for the trio over the past 90 days is 8%, but that does not mean the good times are going to run out in November. Actually, the opposite could be true because “buy in November” favors cyclical sectors.

“Rotating into the Consumer Discretionary, Industrials and Materials sectors from November through April, rather than back into the market, beat the S&P 500 by 640 basis points per year, and resulted in an even lower standard deviation of 13.7,” said S&P Capital IQ’s Sam Stovall earlier this week. [ETFs for Buy in November]

If that is not convincing about materials ETFs and their November potency, then try this factoid: Using the 14 years of available data, CXO Advisory notes that XLB is the best performer among the nine sector SDPR ETFs in the month of November. It might be wise to hold XLB through year end because it is also the best SPDR in December.

For those needing a more real world examination, XLB and VAW returned an average of 1.7% from October 31 through November 30, 2012, roughly triple what the S&P 500 offered over the same time. In 2011, XLB and VAW were only modestly higher, but the S&P 500 traded lower. For the same period in 2010, IYM jumped 2.7% while the S&P 500 was flat.

Materials Select Sector SPDR

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.