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‘Sell in May’ works for UK shares for second year running but weak pound lifts investments overseas

Posted by Adrian Lowcock in Press releases category on 09 Sep 19

The traditional adage ‘Sell in May and go away, don’t come back until St Leger’s Day’ is on course to come true in the UK this summer for the second year running, according to analysis by Willis Owen, the online investment platform.

The adage, which recommends investors should sell their shares at the beginning of May then re-invest on St Leger’s race day (normally on the middle Saturday of September) because markets tend to be quieter and their performance weaker over the summer, is currently coming true once again amid a variety of headwinds for stocks, including Brexit uncertainty and the global trade war.

Since the close on the 1st May UK equity markets are currently lower, with a 1.4% drop for the FTSE 100 and a similar fall for the FTSE All-share.

The negative return for UK shares this year is the second since the Brexit vote, reflecting the uncertainty surrounding Brexit as companies cut back spending plans and amid a global trade war which is dampening demand.

However, although Sell in May has once again proved correct, it would have been a risky exercise to undertake as the margins are so narrow, and timing would have been a critical factor. Sell on the wrong day and you could have lost all the benefits.

With dividends reinvested, the current losses are also reversed, with investors then seeing a small gain of 0.67%.

In total, the adage has only proved to be right 44% in the last 32 years, falling to 39% if you include dividends. Whilst the volatility in stock markets is understandably making investors nervous the data shows it is very risky to make short term predictions on market movements. A much better approach is to remain invested, diversify and ensure your portfolio is regularly rebalanced.

Brexit helps UK investors overseas

Whilst investor sentiment has dropped around the world on fears of a global recession, for UK investors buying overseas shares not only did the adage not come true, but it would have seen them miss out on some strong returns.

Following a dismal summer for the pound as the impact of Brexit uncertainty increased, the effects of a weak currency reversed some big falls – a 4.7% drop in the Japanese Nikkei 225 became a 4.5% gain. In the US, which is still up 1.8% overall since May, sterling investors saw a significant 8.2% gain after sterling’s slide against the US dollar.

Adrian Lowcock, head of personal investing, Willis Owen, commented:

“The trade war and Brexit have clearly weighed on sentiment this year, and may continue to do so from here, but over the long term the advantage of selling in May is questionable, especially when you take dividends and currency swings into consideration.

“Investors often look to short-term trends and investment patterns as a way of outperforming the market. While this can sometimes generate short-term benefits, over the longer term it tends to subtract from performance because getting the timing right on such trends is critical, and not something easily done. A day missed here or there could have a dramatic impact, and transaction fees may also eat into performance.

“The best course of action for the vast majority of investors is to invest for the long term in a diversified portfolio of funds managed by professional managers.”