Best Sector ETFs for May: Getting Defensive

In equity markets, May's reputation is not the best. After all, it is the month that investors are supposed to sell in and go away, according to the old adage. To be fair, the historical performance of the S&P 500 in the fifth month of the year is neither good nor bad. Over the past two decades, the S&P 500 has averaged a flat showing in May.

Some sectors and the related exchange traded funds have historically delivered a little more excitement in May. At the sector level, some May stars include defensive sectors, some of which are struggling year-to-date.

That includes the Consumer Staples Select SPDR XLP. XLP, the largest consumer staples ETF by assets, is lower by 10.76 percent year-to-date, making it the worst-performing sector SPDR ETF.

What Happened

A confluence of factors has hampered XLP and rival staples ETFs this year, including investors' preference for growth sectors, rising interest rates and disappointing earnings reports. The rising dollar could further pinch the sector.

With those factors in mind, it would be nice for staples bulls if XLP lives up to its historical reputation as the best-performing sector SPDR in May. XLP averages May gains of over 1 percent, according to CXO Advisory. May is the only month of the year in which XLP is one of the two best sector SPDR ETFs.

Why It's Important

Another defensive sector, health care, can be a solid performer in May. The Health Care Select Sector SPDR XLV is usually the second-best sector SPDR behind XLP in the fifth month of the year, according to CXO.

XLV, the largest health care ETF, is up just over 1 percent year-to-date. The ETF averages May gains of just under 1 percent.

What's Next

Historical data indicate that some sectors struggle in May. It is the extent to which those groups struggle that investors should consider. For example, the Consumer Discretionary Select Sector SPDR XLY is the second-worst of the sector SPDRs in May, but XLY still manages to generate positive returns.

The same cannot be said of the Materials Select Sector SPDR XLB, which averages a negative May performance, making it the worst-performing sector SPDR fund in the fifth month of the year.

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