The arrival of December brings with it several potentially compelling seasonal trends investors may want to consider and that is particularly true with sector exchange traded funds.
Dating back to 1999, the first full trading year for the nine sector SPDR ETFs, the Materials Select Sector SPDR (NYSEArca: XLB) and the Energy Select Sector SPDR (NYSEArca: XLE) have generated the best December returns. The month is young, but XLE and rival energy ETFs are off to poor starts after poor showings in November. [Best Sector ETFs for December]
There are other sector ETFs to consider for December strength, including financial services funds. Financials often start outperforming the broader market in October, but that out-performance kicks into high gear this month and extends further in mid-January, according to Thackray’s 2014 Investor’s Guide.
“The main driver for the strong seasonal performance of the financial sector has been the year-end earnings of the banks that start to report in mid-January. A strong performance from mid-January has been the result of investors getting into the market early to take advantage of positive year-end earnings,” notes Brooke Thackray.
Inflows data indicate some investors have been preparing for a run by financial services ETFs. The Financial Select Sector SPDR (NYSEArca: XLF), the largest financial services ETF, added over $800 million in new assets last month. Over the past month, XLF has trailed the S&P 500 by 40 basis points, but earnings surprises could be just the tonic bank stocks and ETFs need to validate the aforementioned seasonality.