Best Sector ETFs For January: Energy, Health Care In Focus

With the S&P 500 coming off its performance in two decades last year, expectations are in place that returns are likely to be more subdued this year. If historical trends repeat, that subdued tenor could be seen this month as the S&P 500 averaged a Jan

Benzinga · 01/06/2020 16:10

With the S&P 500 coming off its performance in two decades last year, expectations are in place that returns are likely to be more subdued this year. If historical trends repeat, that subdued tenor could be seen this month as the S&P 500 averaged a January decline of 0.30% over the previous 20 years.

So although January is part of the best six-month period in which to own stocks, the month typically isn't strong in its own right. The tepid nature of January equity market action is reflected at the sector as just five of the original nine sector SPDR exchange traded funds average gains in the first month of the year.

A Standout

As for solid sector performers in January, the Health Care Select Sector SPDR (NYSE: XLV) stands out as the best performer of the original nine sector SPDR ETFs.

XLV, the largest health care ETF, averages a January gain of around 1%, according to CXO Advisory data. Last year, XLV gained 20.4%, trailing the S&P 500, which rose 31.2%. January is one of four months in which XLV ranks as one of the best sector SPDRs, notes CXO.

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What Else?

Keeping with the theme of last year's sector laggards having good January reputations, there is the Energy Select Sector SPDR (NYSE: XLE). The S&P 500 almost tripled up on XLE last year, but the energy fund is the second best SPDR in January, averaging a first-month gain of just under half a percent, according to CXO.

Depending on what happens with Iran over the near-term, XLE could get a lift, particularly if rising oil prices make their way to Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX). Those stocks combine for over 40% of XLE's weight.

January is one of three months in which XLE is one of the top two sector SPDRs with February and April being the others, according to CXO.

What To Avoid?

As for the sector SPDR ETFs history says to avoid in January, the Financial Select Sector SPDR (NYSE: XLF) averages a January decline of almost 1%, but that doesn't make it the worst of the bunch.

That dubious distinction belongs to the Materials Select Sector SPDR (NYSE: XLB), which averages a January drop of just over 1%, notes CXO. XLB lost 2.72% last week, so it could be preparing to live up to its glum January precedent.

That said, there are four months of the year in which XLB is one of the two best SPDRs, including February.

Disclosure: The author owns shares of XLF.