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The Santa Rally is unlikely to bring investors joy this year

Posted by Adrian Lowcock in Press releases category on 23 Nov 18

Adrian Lowcock, Head of Personal Investing, Willis Owen says:

“Financial markets have many sayings and trends. Investors are always looking for patterns in all the market and economic data to gain a competitive advantage and boost their investment returns. Most, however, don’t hold up to analysis and other trends are not strong enough to warrant the basis of an investment strategy.  

However, the exception to this rule is the Santa Rally which has long been regarded as one of the more statistically robust market trends. In December, the stock market tend to be flat in the first couple of weeks of the month before rising strongly in the last two weeks. 

  • Since the FTSE 100 was created in 1984 the index has increased by an average of 2.6% during the month of December, excluding dividends
  • The FTSE 100 has only fallen six times during the month in 34 years, the last time being December 2015
  • Santa Rally occurs 82% of the time making it one of the most reliable statistical market trends
  • The last two weeks of the year are statistically the strongest, with the Santa Rally starting on average since the year 2000, on the 10th trading day of December (14th).
Adrian Lowcock, Head of Personal Investing, Willis Owen:

“The Santa Rally is one of the most statistically visible trends in the stock market although it is hard to give an exact reason for why the rally occurs. It may be down to fund managers repositioning their portfolios ahead of the year end or just plain simple goodwill associated with the festive season puts professional investors in a positive mood.

“The good news is there is no evidence that a bad year to date will keep the Santa Rally away, however the bad news is that on only one occasion has the Santa Rally reversed a bad year for stock markets and that was in 1987.” 

“It is important for investors focus on long-term trends in the markets rather than short term swings. In the long term, investors will focus once again on the most important factors which determine stock market performance such as company profits and the economic outlook.  

“Christmas can be a good time to sit down and review your portfolio and consider what your plans are for the year ahead, decide on how much money and where you plan to invest.  Investors should continue to focus on good quality managers who can add value throughout the year and not just at Christmas. Stock pickers should be able to add significant value and help investors’ portfolios outperform over the longer term.”

Fund ideas 

Man GLG Undervalued Assets - Henry Dixon and co-manager Jack Barrat believe they can add value through thorough analysis of company balance sheets to understand a business’s true real-world assets and liabilities. They seek to identify two types of stock: those trading below their view of the company’s value and those where the company’s profit stream is being undervalued relative to the cost of capital. The portfolio has a value bias, but it does include elements of quality and positive earnings momentum.  Dixon has demonstrated his ability to consistently execute the investment process with discipline.

Investec UK Alpha - Simon Brazier blends fundamental company research with economic analysis and believes that a clear understanding of the economic and thematic background is important. He then meets company management and sees this as key to his approach. His assessment of a company management’s track record, strategy, and allocation of free cash flow are vital parts of the research framework, alongside a thorough valuation analysis considering both the upside potential and downside risk of any investment. The manager’s approach is flexible and pragmatic, and he constantly seeks to balance out the risk/reward opportunities not only at the individual stock level, but more importantly at an overall fund level.