Best Sector ETFs For September: A Leader And A Laggard

Coming off a rough August in which the SPDR S&P 500 ETF SPY finished lower, there may not be any rest for the weary in September because the ninth month of the year is historically rough on stocks.

Over the past two decades, the S&P 500 averages a September decline of 1.1%, making the ninth month easily the worst, on average, for U.S. stocks.

The Winners

With September usually being hard on stocks, it's not surprising there is obvious sector level weakness. Using the original nine sector SPDR exchange traded funds as the benchmarks, just two of those funds historically generate positive returns in the ninth month of the year.

Though its September gain averages a modest half a percent, the Financial Select Sector SPDR XLF is usually the best-performing sector SPDR ETF this month, according to CXO Advisory.

XLF, the largest financial services ETF, is coming off an August in which it lost 2.5% and its decent September reputation could be imperiled if more sell-side analysts warn on declining net interest margins at major money center banks. Investors already endured a spate of such announcements last month, likely explaining why XLF has suffered $2.56 billion in third-quarter outflows.

The Utilities Select Sector SPDR XLU, on average, slightly trails XLF in September, making the utilities fund the second-best performer in the ninth month of the year. XLU is coming of an impressive 4% gain last month.

XLU's credibility as a winning September sector ETF is probably more credible than XLF's at the moment because investors are showing a taste for low volatility strategies and high dividend fare as interest rates decline.

The Laggards

With September usually being a tough to be long equities, it may not be surprising that the worst-performing sectors this month are high beta groups. The Materials Select Sector SPDR XLB and the Technology Select Sector SPDR XLK are the two duds among sector SPDR ETFs in September.

XLB and XLK both average September declines of just over 1%, according to CXO data. XLB and XLK lost 2.28% and 1.03%, respectively, in August, underscoring the point these are tariff-sensitive sectors and remain beholden to trade news over the near-term. So if there is some legitimate progress on the trade front, XLB and XLK could easily betray their usually poor September reputations.

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