Sector ETF Ideas for August: Getting Conservative

Once May rolls around, there is plenty of talk about the summer doldrums on Wall Street, implying that the summer months are unkind to stocks. Well, the S&P 500 notched a modest gain in July and August usually brings more of the same.

As is the case with the arrival of each new month, August brings sector-level opportunities that are arguably best exploited with exchange traded funds. In the eighth month of the year, that means getting conservative, building on a theme that this year started in July.

On a historical basis, the top performer among the nine sector SPDRs during the month of August is the Consumer Staples Select Sector SPDR (NYSEArca: XLP). XLP, the largest consumer staples ETF by assets, has averaged an August gain of just under 1% going back to 1999, the first full year of trading for the sector SPDR suite, according to CXO Advisory.

If XLP should honor or exceed its August reputation this year, it would be building on gains accrued in July when the ETF surged more than 4% as investors strongly favored less risky sectors over higher beta fare. [Sumptuous Staples ETFs]

August is one of three months where XLP ranks as either the best or second-best of the nine SPDRs, according to CXO data.

Keeping with the risk-off theme, the Utilities Select Sector SPDR (NYSEArca: XLU) usually barely trails in August, according to CXO data, typically notching modestly positive returns. Last month, XLU and XLP were locked in a tight race for top honors among the nine SPDRs. In the case of XLU, its Jily gain of more than 4% is even more impressive when noting that the ETF is usually one of the two worst SPDRs during July. [ETF Chart of the Day: Utilities Light Up]