January is here and with the arrival of the first month of the year comes the third month in the best six-month period stocks. Over the past 20 years, the S&P 500 has posted an average January gain of 0.6% while rising 65% of the time, or in 13 of those 20 Januarys.
Beyond basic broad market and S&P 500 exchange traded funds, investors can take a more refined approach with some sector ETFs that historically deliver solid January showings. As of Dec. 26, there was $311.1 billion allocated to sector ETFs with energy ETFs accounting for $44.7 billion of that total, according to Bloomberg.
Energy ETFs have been gaining plenty of assets in recent months, but those funds are not the best January seasonal trades. The distinction of the best of the nine sector SPDR ETFs in January belongs to the Health Care Select Sector SPDR (NYSEArca: XLV).
Dating back to 1999, the first full year of trading for the nine sector SPDRs, XLV has posted an average January gain of just over 1%, according to CXO Advisory.
XLV, the largest health care ETF, is coming off a year in which it gained 23.3%, more than double the 11.4% gained by the S&P 500. XLV also added about $1.5 billion in new assets and was the second-best of the nine SPDRs behind theUtilities Select Sector SPDR (NYSEArca: XLU). [A Look at the Strength of Health Care ETFs]
TheTechnology Select Sector SPDR (NYSEArca: XLK) is usually the second-best sector SPDR in the first month of the year with an average January gain of just under 1%, according to CXO Advisory.
Investors misread XLK in 2014, pulling more than $1.5 billion from the fund as it climbed 15.7%. XLV and XLK rank among in the top SPDRs on a historical basis in just two other months; XLV as the second-best in June and XLK as the best of the nine in October.
As for the SPDRs to avoid this month, historical data show the Industrial Select Sector SPDR (NYSEArca: XLI) and the Materials Select Sector SPDR (NYSEArca: XLB) typically lose more than 1% apiece in January. [Industrial, Materials ETFs Diverge]
Technology Select Sector SPDR
ETF Trends editorial team contributed to this post.
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.