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 |
Figure 1 – Fidelity and ETFs
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 2 – Annual Results: 3 Fidelity Sector Funds vs. SPX
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 3 – Growth of $1,000 invested in Fidelity 3 versus SPX (1990-2013)
Figure 4 displays the relevant comparative figures. 
Figure 4 – Comparative Results
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
