Best Sector ETFs For April: No Fooling Around

For all the fanfare surrounding the purported bullishness of stocks in months such as January and December, April can be quite kind to equities. In fact, the S&P 500 has averaged an April return of 2 percent, making the fourth month of the year the best for the benchmark U.S. equity gauge, according to EquityClock.com.

With April historically being a good month to own stocks, perhaps it is not surprising that the best performers among the sector SPDR suite of exchange traded funds are cyclical ETFs. For example, the Industrial Select Sector SPDR XLI is usually the best-performing sector SPDR ETF in the fourth month of the year.

Industrials Lead The Way

Dating back to 1999, the first full year of trading for the sector SPDR ETFs, XLI has averaged an April gain of about 3.5 percent, according to CXO Advisory data. Year-to-date, XLI, the largest industrial ETF by assets, is up 5 percent.

XLI is historically the second-best performer in the month of March and in the second-best of the sector SPDRs in November, according to CXO data.

The here-and-now market environment favors industrials. Industrials are a cyclical group and cyclicals historically outperform in the latter stages of the business cycle. Additionally, cyclical groups have historically been durable in the face of rising interest rates. With the possibility of the Federal Reserve boosting interest rates multiple times next year, industrials make for an ideal sector bet.

Other Strong Contenders: Cyclicals Comes Around Again

The Materials Select Sector SPDR XLB, another highly cyclical ETF, is the second-best SPDR in April with an average return of about 3.3 percent. XLB, the largest materials ETF by assets, is offer to a strong start this year after posting a first-quarter gain of 5.8 percent.

April is one of five months in which XLB is one of the top two sector SPDR ETFs, according to CXO data. However, traders should be careful with XLB as it is usually the worst sector SPDR in May, one of three months in which XLB has that dubious distinction.

As for April's worst SPDR, that “honor” goes to the Consumer Staples Select Sector SPDR XLP, but in a testament to the historical strength of U.S. stocks this month, XLP averages an April gain of more than 1 percent, according to CXO.

The Technology Select Sector SPDR XLK, the largest technology ETF, is the second-worst SPDR in April, but its average April showing is not that bad. XLK has averaged April returns of more than 1 percent since 1999, according to CXO data.

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