What Sell in May? Buy These ETFs Instead

As May begins, the old adage – “sell in May and go away” – comes to the forefront. The proverb is ingrained in the S&P 500’s awful historical run for the May-to-October period. May has been a subdued month with average gains of 0.19% since 1950.

But the saying did not hold good in recent times. Per an article published on CNN.com, the proverb proved itself wrong in the past few years with the May-October period turning pretty profitable.

The present market momentum should be solid in the United States given the upbeat GDP numbers for Q1, subdued inflation and a dovish Fed. 

Any Downside Risks?

The return of global growth worries thanks to the subdued Chinese manufacturing number and some downbeat tech earnings, for instance Alphabet GOOGL, are playing foul with markets to start May.

Morgan Stanley’s (MS) economists now expect that U.S. economy to log 1.1% growth in the second quarter due to a reversal of the surge in exports and inventories recorded in the first quarter. Goldman Sachs (GS) analysts also lowered their estimate on U.S. GDP for the current quarter by 0.5 percentage point to 2.2%, but their estimated growth is twice as higher as Morgan Stanley's projection.

Against this backdrop, below we highlight a few ETFs that could shower gains on investors in an otherwise defamed May.

NuShares Short-Term REIT ETF (NURE)

The U.S. economy grew an annualized 3.2% in the first quarter of 2019, breezing past expectations of 2%, following a 2.2% uptick in the previous three-month period. The expansion marked the best first-quarter growth in four years.

Though analysts cut their projections for the second quarter, the U.S. economy is still better-positioned in the global economic backdrop. Since the fund has its holdings in apartment buildings, hotels, self-storage facilities and manufactured home properties, it should do well in a burgeoning economy. Moreover, subdued interest rates in the United States is another positive for the fund.

SuperDividend Alternatives ETF ALTY

The fund looks to track alternative income-generating categories, including real estate, MLPs and infrastructure, institutional managers, and fixed income and derivative strategies. The product yields about 6.99% annually. With stock market expected to stay strong in the coming days, long-term U.S. treasury yields have high chances of soaring. In such a situation, a high-yielding and alternative investment like ALTY may prove to be a profitable bet. This kind of product does well in a market downturn too (if at all there is any in May) (read: 5 High-Dividend ETFs Available Under $15).

Invesco KBW Regional Banking ETF KBWR

As the yield curve steepened lately, banking stocks should start performing well. The spread between the US 10-year and two-year Treasury yields surged to a five-month high in late April. Banks’ net interest rate margins grow materially in this kind of environment. So, it’s time to play KBWR. Its underlying KBW Nasdaq Regional Banking Index is an equal capitalization-weighted index comprising securities of 50 mid-cap banking companies.

Consumer Discretionary Select Sector SPDR ETF XLY

Though consumer spending slowed materially in the first quarter from 2.5% growth seen in the fourth quarter of 2018, the slowdown was due to factors including delayed tax refund payouts as a result of the government shutdown at the start of the year, according to PIMCO. PIMCO now expects consumer demand to “likely rebound” in the second quarter. A solid labor market and subdued inflation should add to consumers’ spending spree. This makes the fund a good pick (read: US Q1 GDP Growth Trumps Expectations: ETF Areas to Win).

iShares Interest Rate Hedged Long-Term Corporate Bond ETF (IGBH)

Since high-yield corporate bonds often behave like equities, funds like IGBHshould gain in the days ahead. U.S. treasury yields may move higher in the coming days due to the strengthening of the U.S. economy.  In such a situation, a corporate bond ETF that offers benchmark-beating yields could help meet investors’ demand.  Notably, the fund IGBH yields about 4.02% annually (read: Best ETF Strategies for Your Retirement Portfolio).

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