December has historically been a bullish month for the stock market. In fact, over the past 24 years, buying and holding an S&P 500 Index fund during the month of December would have netted a gain 20 times, or 83.3% of the time, with an average gain of almost +2% (+1.93% actually). A lot of investors might be tempted to say “That’s good enough for me”, and who could blame them?
But there might be a way to do even better.
Certain sectors show historical tendencies to perform well during certain times of the year. So let’s look at a simple 3 fund portfolio that has performed quite a bit better than the S&P 500 over the past 24 years.
The “December Three”
The three sectors are Biotech, Software and Home Construction. Figure 1 displays some potential trading vehicles.
| Sector | Fidelity | ETF |
| Biotech | FBIOX | IBB |
| Software | FSCSX | VGT |
| Home Construction | FSHOX | XHB |
Results
For testing purposes we will use the Fidelity funds listed in Figure 1 as they have historical data going back much further than the ETFs listed.
Figure 2 displays the annual result of a portfolio split evenly between the three funds versus the S&P 500 Index.
Figure 3 displays the growth of $1,000 invested only during the month of December in the “Fidelity 3” versus the S&P 500 Index.
Figure 4 displays the relevant comparative figures.
A few things to note:
*The Fidelity 3 has gained an average of +4.21% versus +1.93% for SPX.
*The Fidelity 3 median gain was +2.52% versus +1.25% for SPX.
*The Fidelity 3 has showed a higher standard deviation, but also a *higher Average/Standard Deviation.
*The worst December for the Fidelity 3 was -4.99% versus -6.03% for SPX.
*Interestingly, the Fidelity 3 has been up 19 times and down 5, versus up 20 and down 4 for SPX.
However – and most importantly – the Fidelity 3 has outperformed SPX in 18 of the past 24 years.
Summary
So are biotech, software and home construction guaranteed to show a gain and outperform the S&P 500 this December. Not at all. But for an investor looking to “beat the market”, it certainly is “food for thought.”
Jay Kaeppel
Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro (http://www.aiq.com) client
http://jayonthemarkets.com/
