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5 Top-Ranked ETFs to Buy for December

After the first back-to-back monthly gains since 2021, Wall Street is expected to continue its strong trend to end the month. A solid historical performance, Santa Claus Rally, a less-hawkish Federal Reserve and encouraging inflation data could unleash a mega-rally in December, which has proved to be a strong month for the stock market over the past 70 years (read: Top-Ranked ETFs That Outperformed in November).

The Dow Jones Industrial Average, the S&P 500 and the Russell 2000 indexes have ended higher in December more often than any other month, according to Dow Jones Market Data, bouyed by the holiday fervor. In order to tap the bullishness, investors should consider ETFs that are likely to make the most from the trend. These include iShares Core S&P 500 ETF IVV, Invesco S&P SmallCap Consumer Discretionary ETF PSCD, iShares Core S&P Small-Cap ETF IJR, Invesco S&P 500 Pure Growth ETF RPG, and SPDR S&P Retail ETF XRT. These ETFs have a top Zacks Rank #2 (Buy).

Per Dow Jones Market Data, the S&P 500 has risen 73% in Decmeber since 1928 and gained 1.4% on average, while the Dow Jones has risen 71% of the time in December since 1896, with an average 1.4% return.

The Russell 2000 has gained ground in December 83% of the time since 1987. The average return in that month is 2.8%, better than any other month. The tech-heavy Nasdaq Composite index has risen 61% of the time since 1971 for an average gain of 1.7%.

According to data from investment research firm CFRA, the S&P 500 has gained an average of 1.6% during December, the highest average of any month and more than double the 0.7% gain of all months. Meanwhile, a Santa Claus rally refers to the increase in stock prices in the final week of the calendar year (i.e. between Christmas and New Year’s Day) that extends into the first two days of the New Year.

The solid gains will likely come from fund managers’ buying stocks that have outperformed over the year for so-called "window dressing" of their portfolios, the year-end inflows and lower liquidity during holiday-shortened weeks.

The holiday season started with a huge bang, suggesting that consumer spending remined strong. Consumers spent a record $9.12 billion, up 2.3% year over year, on online shopping during Black Friday this year, according to Adobe. Cyber Monday online sales reached a record $11.3 billion in online shopping, up 5.8% year over year (read: 5 ETFs to Splurge on Cyber Monday Record Sales).

Meanwhile, the latest comments from Federal Reserve Chairman Jerome Powell signaled that smaller interest rate increases are likely and could start in December. Traders expect the Fed to increase rates by 50 bps in December, with the rates peaking in June 2023.

iShares Core S&P 500 ETF (IVV)

iShares Core S&P 500 ETF tracks the S&P 500 Index and holds 503 stocks in its basket, each accounting for no more than 6.5% of assets. iShares Core S&P 500 ETF is heavy on the information technology sector, while healthcare, financials and consumer discretionary round off its next three spots with a double-digit allocation each.

iShares Core S&P 500 ETF charges investors 3 bps in annual fees and trades in an average daily volume of 4.3 million shares. It has AUM of $312 billion.

Invesco S&P SmallCap Consumer Discretionary ETF (PSCD)

Invesco S&P SmallCap Consumer Discretionary ETF targets the small-cap segment of the broad consumer discretionary space by tracking the S&P SmallCap 600 Capped Consumer Discretionary Index. It holds 92 securities in its basket, with specialty retail taking the largest share at 37%, while household durables, and hotels, restaurants and leisure account for double-digit exposure each (read: Be Mindful About Retail ETF Investing This Holiday Season).

Invesco S&P SmallCap Consumer Discretionary ETF has attracted $25.5 million in AUM and charges 29 bps in annual fees. It trades in an average daily volume of about 1,000 shares.

iShares Core S&P Small-Cap ETF (IJR)

iShares Core S&P Small-Cap ETF offers exposure to U.S. small-cap stocks and follows the S&P SmallCap 600 Index. It holds 681 stocks in its basket, with key holdings in financials, industrials, information technology, consumer discretionary and healthcare that account for a double-digit exposure each.

iShares Core S&P Small-Cap ETF has AUM of $69.7 billion and trades in an average daily volume of 4.3 million shares. The product charges investors 6 bps in annual fees.

Invesco S&P 500 Pure Growth ETF (RPG)
 
Invesco S&P 500 Pure Growth ETF offers exposure to the companies that exhibit strong growth characteristics in the S&P 500 Index. It tracks the S&P 500 Pure Growth Index and holds 60 stocks in its basket, with none making up for more than 4.6% of assets. Information technology dominates the portfolio with 36.3% of its assets, while healthcare, consumer discretionary and financials round off the next three spots with double-digit exposure each.

Invesco S&P 500 Pure Growth ETF has amassed $2.4 billion in its asset base and trades in a good average volume of around 85,000 shares a day. The product charges 35 bps in fees a year from investors.

SPDR S&P Retail ETF (XRT)

SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large, mid and small-cap stocks. It holds well-diversified 97 stocks in its basket, with none making up for more than 1.7% share. SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in apparel retail, specialty stores, automotive retail, and Internet & direct marketing retail.

SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $700.2 million and an average trading volume of 4.5 million shares. It charges 35 bps in annual fees.

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SPDR S&P Retail ETF (XRT): ETF Research Reports

iShares Core S&P 500 ETF (IVV): ETF Research Reports

iShares Core S&P SmallCap ETF (IJR): ETF Research Reports

Invesco S&P SmallCap Consumer Discretionary ETF (PSCD): ETF Research Reports

Invesco S&P 500 Pure Growth ETF (RPG): ETF Research Reports

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