June is not the ideal month of the year in which to be long stocks. Historical data confirms as much as the SPDR S&P 500 ETF (NYSEArca: SPY) averages negative returns in June and the only one of the nine sector SPDR exchange traded funds to average a June gain is the Utilities Select Sector SPDR (NYSEArca: XLU).
Already up nearly 10% year-to-date, XLV is by far the best performer among the nine sector SPDRs and although the ETF averages modest June losses, there are good reasons to give the fund a look this month.
“Dating back to 1990, the S&P 500 Index has risen only 1.6% on an annualized basis during the May-October period, relatively weak compared to other six month periods. However, the Health Care sector has risen 5.2%, the strongest of the ten sectors, and outperformed the broader market 65% of the time,” said S&P Capital IQ in a new research note.
Over the past decade, the biotechnology industry has offered impressive out-performance during the summer months, which could be an important catalyst for XLV because the ETF allocates over 20% of its weight to biotech stocks. XLV has averaged small July and August gains. [Biotech ETFs Could be hot This Summer]
“From a sub-industry perspective, Pharmaceuticals makes up roughly 42% of XLV’s assets, followed by Biotechnology’s 21%, Health Care Equipment’s 14% and Managed Care’s 9%. But XLV’s recent top-10 holdings make up 54% of overall assets, making the ETF’s performance highly dependent on a handful of mega-cap securities, in our view. Part of why S&P Capital IQ is so favorable on XLV is our view on the valuation and risk consideration of these securities,” said S&P Capital IQ.