August can be a tricky month to navigate for the bulls. That might be one reason low-beta ETFs such as the Consumer Staples Select Sector SPDR (NYSEArca: XLP) have proven durable in the eighth month of year. It is worth noting that the more intense a January-July rally, the higher the odds are of an August swoon.
“In years when the S&P 500 gained at least 15% through July, there was a decline 44% of the time in August. Use only the post-war data and it’s 58%,” reports Brendan Conway for Barron’s. The first nine trading days of August are usually bearish and although this month got off to a decent start, slack performances by U.S. stocks on Monday and Tuesday could be a sign August will live up to its reputation as being a trying month in which to be long stocks.
An August decline could create an opportunity for investors to scoop up some ETFs that could finish 2013 in strong form. A group of ETFs poised to surge into year-end after a dull August could include biotechnology ETFs, which are coming off stellar runs in July. Amid a flurry of interesting new drug filings, strong earnings reports and positive clinical trial results, biotech ETFs such as the Market Vectors Biotechnology ETF (NYSEArca: BBH) and the iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), are among this year’s top-performing non-leveraged sector ETFs. [Biotech ETFs Shine in July]
Citing Ned Davis Research, Barron’s notes technology, biotechnology and large-cap growth are corners of the market that could offer investors strong finishes to 2013. Ned Davis ran a screen based on the following parameters: Interest coverage, return on invested capital, EBIT/assets, net profit margin, free cash flow/enterprise value, and EPS growth/stability, Barron’s reported.
BBH was one of the ETFs that turned up. So was The iShares North American Tech-Multimedia Networking ETF (NYSEArca: IGN). The $233.3 million IGN is home to familiar tech names such as Cisco (NasdaqGM: CSCO) and Qualcomm (NasdaqGM: QCOM). IGN is up almost 29% in the past year. [Spotlight on Communications ETFs]