Best Sector ETFs For August: Boring Could Be Beautiful

Today is the last trading day of July, marking a good time for traders to start setting the table for August. The eighth month of the year may bring hot temperatures outside, but on Wall Street, historical data suggest August is ice cold.

Historical Performances

Over the past 20 years, the S&P 500 averages an August loss of 1.2 percent. On average, that is by far the worst monthly performance for the benchmark U.S. equity index, according to EquityClock.com.

That does not sound encouraging, but tactical investors can find better opportunities at the sector level. Although past performance is not indicative of future returns, history has a funny way of repeating itself in financial markets. So, with that in mind, it is not surprising that best sector exchange-traded funds for August are part of the "boring is beautiful" theme.

Boring Is Beautiful

Of the nine original sector SPDR ETFs, not many average positive returns in August, but the leader of that group is also this year's top performer: Utilities SPDR (ETF) XLU. Dating back to 1999, XLU has averaged an August gain of less than 1 percent, according to CXO Advisory.

Related Link: This Seasonal ETF Is Ripe For The Pickin' This Summer

In June, August and September, XLU is the best-performing SPDR on a historical basis, but the ETF is also one of the two worst sector SPDRs in July. However, XLU rebuffed that reputation this month and enters July's last trading day with a month-to-date gain of about 1 percent.

Keeping with the low beta, defensive theme in August, the Consumer Staples Select Sect. SPDR (ETF) XLP is August's second-best SPDR, averaging a modest gain dating back to 1999, the first full year of trading for the original sector SPDRs.

XLP is also the second-best SPDR in September and ranks as one of the two best SPDRs in four different months, according to CXO Advisory.

Watch Out For These Guys

As for the sector ETFs to avoid this month, history says, and it is not surprising, it is cyclical sectors. The Consumer Discretionary SPDR (ETF) XLY averages a modest August loss, making it the second-worst sector SPDR, on average, dating back to 1999.

The Materials Select Sector SPDR XLB averages a loss of half a percent in August, a month that marks the start of a rough two-month stretch for the largest materials ETF. In September, XLB is also the worst of the original sector SPDR, posting an average loss of about three percent, according to CXO data.