Best Sector ETFs For June: Offense Through Defense

June can be a rough month for U.S. stocks. The sixth month of the year is the fourth-worst for both the S&P 500 and the Dow Jones Industrial Average.

Not surprisingly, that the theme of broader market weakness in June trickles down to the sector level. Just two of the original nine sector SPDR exchange traded funds have averaged June gains since inception, according to CXO Advisory.

What To Know

With June's reputation for equity market declines, it's probably not surprising that defensive sectors are among the better performers in the sixth month of the year. The Utilities Select Sector SPDR XLU is usually the best-performing sector SPDR ETF in June, but its average June gains are negligible, according to CXO data.

XLU, the largest utilities ETF by assets, comes into June with a year-to-date loss of 3.20 percent, but that may not be the biggest challenge to the XLU/June thesis. The Federal Reserve meets this month and is widely expected to hike interest rates again, a move that could spark near-term selling of rate-sensitive utilities stocks.

Why It's Important

The Health Care Select Sector SPDR XLV is the other sector SPDR ETF that averages a June gain, but as is the case with XLU, XLV's June track record is tepid. The largest health care ETF enters June with a modest year-to-date loss, but did finish May slightly higher.

Health care, the third-largest sector weight in the S&P 500, is often viewed as a defensive sector, but not necessarily a bond proxy on par with utilities, so XLV still has the potential to be a solid June play even if the Fed raises rates again.

What's Next

With June being a risk-off kind of month, some cyclical sectors often lag this month. The Industrial Select Sector SPDR XLI, for example, averages June losses of more than 1 percent.

XLI is not, on a historical basis, the worst-performing sector SPDR ETF in June. That dubious distinction belongs to the Financial Select Sector SPDR XLF. XLF's average June loss is close to 1.5 percent, according to CXO. That theme could be challenged for the better if interest rates rise this month.

Disclosure: The author owns shares of XLF.

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