The month of October has an interesting track record when it
comes to the U.S. equity market. This is the month when the crashes
of 1929 and 1987 took place. Those with shorter-term memories
likely remember that October 2008 was less than pleasant for stocks
as well.
As the Stock Trader's Almanac points out, October has reversed
11 bear markets since the end of World War II. Additionally,
October can be a good time to establish long positions because it
is the last month in the six-month period known for being
historically unfavorable to stocks.
Keeping with the theme of
using ETFs for seasonal profits
, here is a look at some ETFs that could be worth scooping up next
month.
Vanguard Telecom Services ETF (NYSE:
VOX
)
The telecom sector sector has already been mentioned as a
possible winner should
President Obama win reelection in November
. That alone could make an ultra-conservative ETF like VOX worth a
look next month.
As S&P Capital IQ said in a recent research note, "President
Obama has been supportive of broadband expansion, through
government subsidies, enticing carriers to build out their
networks. In addition, the Federal Communications Commission's
chairman has been a proponent of moving wireless spectrum from
television broadcasters to telecom carriers. If Governor Romney
wins, a new chairman would take over and could scuttle these
efforts."
The biggest risk to VOX or any other U.S.-focused telecom ETF
continuing the good times for the rest of this year is that many of
these ETFs have already surged. VOX, which allocates 45 percent of
its combined weight to Verizon (NYSE:
VZ
) and AT&T (NYSE:
T
), is up 21.2 percent year-to-date, a run that is nearly 700 basis
points better than the SPDR S&P 500 (NYSE:
SPY
).
Then again, it has been investors' preference for low-beta fare
that has driven VOX higher. If that trend persists through
year-end, VOX makes for a good October buy.
First Trust Materials AlphaDEX Fund (NYSE:
FXZ
)
Like telecom, materials accounts for a relatively small
percentage of the S&P 500's weight, but the two sectors are far
removed from each other in terms of beta and risk profile. Still,
materials stocks make for a sound October bet. The Stock Trader's
Almanac notes the S&P 500 Materials Sector has a five-year
average return of 16.4 percent from mid-October through
mid-May.
That is not the index tracked by the First Trust Materials
AlphaDEX Fund, but FXZ has shown a penchant for outperforming
larger, more popular materials ETFs over time
.
Health Care Select Sector SPDR (NYSE:
XLV
)
Yes, the pharmaceuticals sector is historically a good one to
embrace in October, but there is more to the story with XLV or any
of the comparable funds. Like VOX, this is another presidential
election play, and as is the case with the telecom ETF, investors
who are long XLV might want to be pulling for President Obama.
For as controversial as Obamacare has been, it has been good for
the pharmaceuticals sector. XLV is up almost 16 percent this year
and when it makes a new high, it is not just a 52-week high. It is
a new all-time high.
The thesis is simple, as S&P Capital IQ points out.
""Health care is likely the most obvious sector that would
benefit from President Obama holding on, as health care reform
would proceed unabated," S&P Capital IQ said in the note. "Most
sub-industries have been working toward implementing the law. The
pharmaceutical industry would proceed with its plan to pay upfront
fees in increased Medicaid rebates and Medicaid discounts with the
promise of expanding the insured market come 2014. We also see
generic firms and drug distributors benefiting from the
government's push toward lower-cost drugs in the newly expanded
patient populations. Meanwhile, hospitals should benefit from a
sharp drop in total uncompensated care with an increase in insured
patients."
For more on ETFs and seasonal ttrends, click
here
.
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