Two ETF Ideas For a Winning June
June 4th 2013 at 5:40pm by Tom Lydon
The Dow Jones Industrial Average ended its jaw-dropping Tuesday winning streak at 20 today. Combine that with the fact that June is the second month in what is traditionally the worst six-month period in which to own stocks and some skittish investors may be thinking the market is in for a dose of June gloom.
That may not be the case. Even with a dismal end to May, the S&P 500 finished the month higher and now has a seven-month winning streak going. A seven-month winning streak might imply a down month is right around the corner, but the statistics indicate otherwise. As Piper Jaffray Technical Market Strategist Craig Johnson points out, there have been 22 broader market winning streaks of seven months or long since 1900. [An ETF For Dividends And The Cyclical Rotation]
Johnson said the broader market was higher for an eighth month 62% of the time with an average gain of 0.6%. Those are good odds and decent returns.
“Historically, June has often been a tepid month for the broader market (S&P 500), with an average monthly return of just 0.13% since 1950 and positive only half of the time,” said Johnson in a research note. That may not sound encouraging, but there is a “but.”
“However, in January barometer years (when January was up 5% or more), June has had an average return of 1.23% and was positive 7 out of 10 times. In years that are up 15% or more from the beginning of the year through May, June tends to continue the trend, with an average performance of 1.73% (and a positive return 87.5% of the time since 1950),” said Johnson.
Here are a pair of ETFs that could benefit from a June upswing, particularly one of the high-beta variety.
iShares Dow Jones U.S. Broker-Dealers Index Fund (NYSEArca: IAI)
Considering that the iShares Dow Jones U.S. Broker-Dealers Index Fund features a 7.3% weight to Goldman Sachs (NYSE: GS), one of the largest ETF weights to the venerable Wall Street firm, the fund does not garner nearly the level of attention that other financial services ETFs do. That has not stopped IAI from being a leader among ETFs tracking the financial service sector. [Broker Dealers Lead Financials ETFs]
The broker/dealer arena covers a wide variety of firms, including Wall Street banks with large trading businesses, retail and online brokers, exchanges and market specialists. Joining Goldman in IAI’s top-10 holdings are ETF market maker Knight Capital (NYSE: KCG), Morgan Stanley (NYSE: MS) and Charles Schwab (NYSE: SCHW) just to name a few. [Two ETFs For The Great Cyclical Rotation]
Despite its small stature (IAI has just $96.2 million in assets under management), the ETF is up 5.6% in the past month and almost 24% this year. That compares with a gain of about 17% for the far larger Financial Select Sector SPDR (NYSEArca: XLF).
First Trust Consumer Discretionary AlphaDEX Fund (NYSEArca: FXD)
The conversation regarding consumer discretionary ETFs is usually denominated by the two largest funds tracking the sector, but the First Trust Consumer Discretionary AlphaDEX Fund has earned its place atop the list of discretionary ETFs. [Chart Of The Day: AlphaDEX Methodology]
No stock accounts for more than 1.57% of FXD’s weight and ETF is well positioned with its largest sub-sector allocation being a 20.6% weight to media names. More importantly, FXD stands as proof positive that not all discretionary ETFs are created equal. FXD is up 18.2% this year while the rival Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) is up 16.4%.
First Trust Consumer Discretionary AlphaDEX Fund
ETF Trends editorial team contributed to this report.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.