Best Sector ETFs For May: An Interesting Mix

Investors often believe May brings with it potential downside for stocks, but over the past two decades, the S&P 500 has averaged May gains of 0.30 percent.

What comes after May can be trying for investors, particularly in the third quarter, but this month, there are some sector-level opportunities worth considering.

The Top Performer

Belying May's alleged weakness, each of the original nine sector SPDR exchange traded funds average positive returns in the fifth month of the year, but those performances vary from sector to sector. Perhaps owing to the conservative posture some investors look to adopt in May, the Consumer Staples Select Sector SPDR XLP is the best-performing sector SPDR in May.

XLP, the largest consumer staples ETF by assets, averages May returns of just over 1 percent, according to CXO Advisory. That's going to back to 1999, the first full year of trading for the sector SPDR ETFs.

XLP gained nearly 3 percent in April, extending its year-to-date gain to 13.65 percent. The fund devotes over a quarter of its combined weight to Dow components Procter & Gamble PG and Coca-Cola Co. KO.

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Historically, the Technology Select Sector SPDR XLK is the second-best sector SPDR ETF in May, averaging fifth-month gains of just over 1 percent, according to CXO data.

XLK, the largest technology ETF, jumped 6.36 percent in April, extending its year-to-date gain to almost 27 percent.

The tech ETF could extend its bullish to start May after Apple Inc. AAPL, XLK's second-largest component, reported fiscal second-quarter earnings of $2.46 per share on revenue of $58 billion. Analysts expected earnings of $2.36 per share on sales of about $57.5 billion.

On The Other Hand...

Usually, the two worst sector SPDRs to own in May are the Financial Select Sector SPDR XLF and the Materials Select Sector SPDR XLB, but both ETFs average modest May gains. For its part, XLF gained nearly 9 percent in April, good for one of its best monthly performances in over a year.

Investors added $1.39 billion to XLK last month, good for the sixth-best total among US-listed ETFs.

Disclosure: The author owns shares of XLF.

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