Best Sector ETFs For September: History May Not Repeat

One perception of September is it marks the start of autumn. In financial markets, that does not necessarily mean the return of risk appetite. Over the past 20 years, the S&P 500 has averaged a September loss of 0.3 percent.

Keeping with the theme of needing to wait a little while longer before risk appetite returns, at least at the sector, are historical data points highlighting the sector exchange-traded funds that usually perform well in September.

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As is the case with August, the best members of the sector SPDR ETF suite in September, dating back to their first full year of trading in 1999, are low beta, defensive plays including the Utilities SPDR (ETF) XLU.

Utilizing Those Utility And Staples Stocks, ETFs

In fact, XLU is the best-performing SPDR in September, averaging a gain of just over half a percent in the ninth month of the year, according to CXO Advisory data. September is one of three months in which XLU is one of the two best sector SPDRs. Importantly, September is also the last month in that series of three for XLU.

And as is the case with August, the second-best sector SPDR ETF in September is the Consumer Staples Select Sect. SPDR (ETF) XLP. Underscoring the point that September can be a tricky month for equities is the fact that XLP averages a small loss in the ninth month of the year, according to CXO data.

Past Is Not Indicative Of Future Performance

Well, as is always said in financial markets, past performance is no guarantee of future returns, and that could be especially true of XLP and XLU this September. XLU has spent much of this year as the best-performing sector SPDR, but recently ceded that honor to the Energy Select Sector SPDR (ETF) XLE.

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Amid increasing concerns that the defensive traded is overcrowded and overvalued, XLU and XLP have recently been bleeding assets. If the August jobs report due out Thursday is strong, giving the Federal Reserve room to soon raise interest rates, XLU and XLP could very well be on their way to defying their historical September trends — and not in a good way.

The Technology SPDR (ETF) XLK and the Materials Select Sector SPDR XLB are usually the two worst sector SPDRs in September, but a move away from defensive names to cyclical fare, particularly against the backdrop of an imminent rate hike, could lift those ETFs this month.