Three of the smallest sectors in the S&P 500 delivered the index’s strongest performance in January, while the two largest sectors weighed on returns.
The broad market index gained modest ground last month, with the State Street SPDR S&P 500 ETF Trust (SPY ) up 0.6%, according to ETF Database. Beneath that muted headline number, though, sector performance told a much different story.
The $32.7 billion State Street Energy Select Sector SPDR ETF (XLE ) jumped 14.4% in January, leading all sectors despite energy representing just 3.2% of the S&P 500, according to ETF Database. The fund pulled in $2.65 billion in January, signaling investors chased the rally.
Energy’s surge followed geopolitical developments, including tensions with Iran and leadership changes in Venezuela that pushed crude oil prices higher. XLE’s major holdings Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) reported fourth-quarter earnings, with both beating analyst expectations.
XLE doesn’t hold Master Limited Partnerships due to tax considerations, leaving out a piece of the energy infrastructure story. Investors seeking broader exposure can pair the fund with the $11.4 billion Alerian MLP ETF (AMLP ). The fund gained 6.5% in January and drew $75.39 million in flows, according to ETF Database.
Small Sectors Outperform Heavyweights
Materials and consumer staples, two other underweight sectors in the index, rounded out the top performers. The $6.2 billion State Street Materials Select Sector SPDR ETF (XLB ) climbed 7.7% and attracted $272.1 million in flows, the data shows. The fund attracted those flows even while materials makes up only 2% of the index.
Meanwhile, the $15.9 billion State Street Consumer Staples Select Sector SPDR ETF (XLP ) rose 6.68% with $510.68 million in inflows, the data shows. Staples accounts for 5% of the index.
The index’s heavyweights struggled over the past month. Information technology, which represents 33.4% of the S&P 500, saw the $93.6 billion State Street Technology Select Sector SPDR ETF (XLK ) slip 1.4%, according to the data. Investors exited the fund, pulling $1.03 billion.
Financials, the second-largest sector at 12.9% of the index, fared even worse. The $55.4 billion State Street Financial Select Sector SPDR ETF (XLF ) fell 3.4%. Despite the decline, XLF attracted $3.03 billion in flows, suggesting some investors viewed the drop as a buying opportunity.
Other sectors landed in the middle of the pack. The $28.1 billion State Street Industrial Select Sector SPDR ETF (XLI ) rose 5.5%. It pulled in $753.06 million while industrials represents 8.6% of the index, the data shows.
The $40.7 billion State Street Health Care Select Sector SPDR ETF (XLV ) dipped 0.7%. Despite the decline, it still attracted $1.25 billion in flows. Healthcare accounts for 9.4% of the S&P 500.
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