A Surprising ETF Cure For The Summertime Blues

For the S&P 500, June is usually a trying month while July is pretty good and August historically results in modest losses for the benchmark U.S. equity gauge.

Over the past two decades, the average return for the S&P 500 in the June through August window is a loss of 0.10 percent.

That's a small loss and not one that needs to be seen as alarming. There are sector-level opportunities that have historically rewarded investors as summer heats up. One of the ideas to consider from the June through August is the Financial Select Sector SPDR XLF, the largest financial services exchange traded fund.

From Memorial Day through Labor Day over the past decade, XLF has generated positive returns in each of those 10 years, generating an average gain of almost 3.30 percent.

Why It's Important

XLF has some work to do to live up its seasonal reputation as the fund is lower by nearly 6 percent this month. Not only that, but the financial services ETF is betraying its post-Memorial Day billing with a loss of nearly 2.30 percent this week.

“Perhaps the most compelling pick here is the one that's managed a flawless summer track record over the past 10 years, with 100% positive returns in the late May-early September window,” according to Schaeffer's Investment Research.

The $23.53 billion XLF holds 67 stocks with a weighted average market value of $167.95 billion. Berkshire Hathaway Inc. (NYSE: BRK-B) and Dow component JPMorgan Chase & Co. JPM combine for 24 percent of XLF's roster.

XLF devotes over 42 percent of its weight to bank stocks and a combined 40 percent of its weight to capital markets companies and insurance providers.

What's Next

“Technically speaking, XLF is testing its footing above support at its 200-day moving average, which previously served as resistance during rally attempts in February, March, and early April. And since the start of April, the big bank fund has held its footing above the level,” notes Schaeffer's.

Investors are displaying some enthusiasm for XLF as the ETF has seen second-quarter inflows of almost $690 million.

Disclosure: The author owns shares of XLF.

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