4 ETFs to Buy in December for a Year-End Rally

NYSE: SPY | SPDR S&P 500 ETF Trust News, Ratings, and Charts

SPY – The Biden administration has outlined steps to curb the spread of the COVID-19 omicron variant. The administration’s specifics and optimism helped the equity benchmarks to rebound sharply on Thursday. Furthermore, jobless compensation claims remained low last week, reflecting improvement in the labor market. And spending from the infrastructure bill and Build Back Better (if the latter is passed) is expected to boost the overall economy. Given this backdrop, popular ETFs, SPDR S&P 500 ETF (SPY), iShares Russell 2000 ETF (IWM), Energy Select Sector SPDR (XLE), and Industrial Select Sector SPDR (XLI) might be solid bets. Read on.

President Biden laid out a pandemic strategy on Thursday that includes hundreds of vaccination sites, boosters for all adults, new testing requirements for international travelers, and free COVID-19 tests at home in response to the newly identified omicron COVID-19 variant. The benchmark indices rebounded sharply on Thursday. In addition, Bank of America noted that for the S&P 500 index December has historically been a strong month, with 2.3% average gains since 1936.

The labor market recovery looks promising as unemployment claims remained low last week, indicating that employers are retaining their workers and are hiring more. And the trillion-dollar infrastructure act and proposed Build Back Better spending plan are expected to provide the economy with a considerable stimulus.

New York-based financial analysis firm CFRA Research expects greater room for stocks to soar in December, given the market’s good performance after its October low. Therefore, popular ETFs SPDR S&P 500 ETF Trust (SPY), iShares Russell 2000 ETF (IWM), Energy Select Sector SPDR Fund (XLE), and Industrial Select Sector SPDR Fund (XLI) could be solid investments now.

SPDR S&P 500 ETF Trust (SPY)

One of the largest and most-traded ETFs globally, SPY seeks to track the S&P 500 index. The ETF aims to achieve its investment objective by holding a portfolio of stocks and corresponding their weight with the index. The fund is popular among active investors.

SPY had $412.94 billion assets under management as of December 1. Its top holdings include Apple Inc. (AAPL), with a 6.76% weighting, Microsoft Corporation (MSFT), with a 6.48% weighting, and Amazon.com, Inc. (AMZN), with a 3.92% weighting. The trust has a 0.09% gross expense ratio, which is significantly lower than the 0.37% category average. Over the past six months, its fund flows came in at $24.40 billion, and it had a NAV of $450.71 as of December 1.

SPY’s $5.66 annual dividend yields 1.22% at the prevailing share price. Its four-year average yield stands at 1.70%. The fund’s dividend payouts have increased at a 4.1% CAGR over the past three years and 5.1% over the past five years. It has a 1.00 beta. The trust has gained 24.7% over the past year and 22.3% year-to-date to close yesterday’s trading session at $457.40.

SPY’s strong fundamentals are reflected in its POWR Ratings. The trust has an overall A rating, which equates to Strong Buy in our proprietary rating system. It has a Trade, Buy & Hold, and Peer grade of A. In the 272-ETF Large Cap Blend ETFs group, SPY is ranked #1. The group is rated A. Click here to see the POWR Ratings for SPY.

iShares Russell 2000 ETF (IWM)

IWM seeks to track the Russell 2000 Index that measures the performance of the United States equity market small-capitalization sector. In general, the ETF invests at least 80% of its assets in the component securities of the underlying index. IWM is appealing due to its balanced nature and relative cost-efficiency.

With $68.53 billion in assets under management as of December 2, IWM’s top holdings include AMC Entertainment Holdings, Inc. (AMC), with a 0.52% weighting, Avis Budget Group, Inc. (CAR), with a 0.44% weighting, and Synaptics Incorporated (SYNA), with a 0.36% fund weighting, as of December 1. The ETF has a NAV of $219.19 and a beta of 1.26. IWM’s fund flows over the past year stand at $7.07 billion. Its 0.19% expense ratio is significantly lower than the 0.32% category average.

IWM pays a $2.02 annual dividend, which yields 0.84% at the prevailing share price. Its dividend payouts have increased at a 0.5% CAGR over the past three years and 2.4% over the past five years. The fund has gained 19.9% over the past year to close yesterday’s trading session at $219.21. It has gained 11.8% year-to-date.

IWM has a Buy & Hold grade of B. It is ranked #44 among 60 ETFs in the Small Cap Blend ETFs group. The group is rated B. To see the additional POWR Ratings for Trade and Peer for IWM, click here.

Energy Select Sector SPDR Fund (XLE)

XLE aims to provide before expenses investment results that correspond with the price and yield performance of the Energy Select Sector Index companies. The fund follows a replication strategy and offers exposure to the United States energy sector and can be used as a tactical overlay for investors looking for the exposure when oil prices show promise.

As of December 1, XLE’s top holdings included Exxon Mobil Corporation (XOM), with a 22.44% fund weighting, Chevron Corporation (CVX), with a 21.30% weighting, and EOG Resources, Inc. (EOG), with a 4.55% weighting. The fund had $25.84 billion in assets under management as of December 2 and has a $55.56 NAV. XLE’s 0.12% expense ratio is considerably lower than the 0.46% category average. With a beta of 1.95, the ETF’s fund flows came in at $6.04 billion over the past year.

XLE’s $2.16 annual dividend yields 3.75% at the current share price. The fund has a 5.42% four-year average yield, and its dividend payouts have increased at a 3.4% CAGR over the past three years and at a 3.3% CAGR over the past five years. XLE has gained 45.8% over the past year and 46.7% year-to-date to close yesterday’s trading session at $55.58.

It is no surprise that XLE has an overall A rating, which translates to Strong Buy in our POWR Rating system. The fund has an A grade for Trade, Buy & Hold, and Peer. In the 45-ETF Energy Equities ETF group, it is ranked #1. The group is rated B. Click here to see all the ratings for XLE.

Industrial Select Sector SPDR Fund (XLI)

XLI offers exposure to the industrial sector, including transportation firms, commercial and professional services providers, and capital goods manufacturers. The fund seeks to provide the before expenses price and yield results of the publicly traded equity securities of companies in the Industrial Select Sector Index.

With $16.68 billion in assets under management as of December 2, XLI’s fund flows over the past three years stand at $415.81 million. As of December 1, its top holdings included Union Pacific Corporation (UNP), with a fund weighting of 5.10%, United Parcel Service Inc. (UPS), with a 4.74% weighting, and Honeywell International Inc. (HON), with a 4.61% weighting. The fund has a $102.26 NAV and a 1.24 beta. Its 0.12% gross expense ratio is significantly lesser than the 0.43% category average.

XLI’s $1.30 annual dividend yields 1.23% at the prevailing share price. It has a 1.80% four-year average yield, and its dividend payouts have increased at a 1.3% CAGR over the last five years. Over the past year, the fund has gained 16.4% to close yesterday’s trading session at $102.32. It has gained 15.6% year-to-date.

XLI’s POWR ratings reflect this positive outlook. The ETF has an overall A grade, equating to Strong Buy in our proprietary rating system. It has an A grade for Trade and Buy & Hold. The fund is ranked #1 among 36 ETFs in the Industrial Equities ETFs group. The group is rated B.

In addition to the POWR Rating grades we have stated above, one can see the XLI rating for Peers here.


SPY shares were trading at $450.51 per share on Friday afternoon, down $6.89 (-1.51%). Year-to-date, SPY has gained 21.67%, versus a % rise in the benchmark S&P 500 index during the same period.


About the Author: Anushka Dutta


Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...


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