The traditional adage ‘Sell in May and go away, don’t come back until St Leger’s Day’ is on course to come true this summer for the first time in three years, according to new analysis* by Willis Owen, the online investment platform.
The adage recommends investors should sell their UK equities at the beginning of May then re-invest on the 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.
The FTSE 100 has fallen 3.23% excluding dividends and is still down 1.43% including dividends this summer1. Investors with overseas equities would have missed out if they applied the adage, however, with global equities returning 6.79%. Other major stock market returns include the S&P 500 (14.15%); Japan (2.75%); Europe (0.01%).**
The FTSE 100’s negative return is also the first one for this period since the Brexit vote***, which partly reflects the international nature of the FTSE 100 and the benefits of a weaker pound but also the increasing uncertainty surrounding the negotiations. The global backdrop since 2016 has also been largely positive, with the support of Quantitative Easing taking effect and the US economy being seen to grow under its own steam.
Over the last 30 years, investors have lost money less than a third (32.26%) of the time over the summer if dividends are included in overall returns.****
Adrian Lowcock, Head of Savings Planning, Willis Owen, commented:
“Over the long term, the advantage of selling in May is marginal and when you take dividends into consideration it is non-existent. If applied on a global basis then investors would have missed some huge gains this summer as the weak pound has boosted overseas equity returns.
“Investors often look to short-term trends and investment patterns as a way of outperforming the market. While this can sometimes generate short-term gains, 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. The fees payable for transacting in and out of the market also eats 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.”
*Source: Willis Owen analysis of the performance of the FTSE 100 and other markets on Total Return and Price Return basis in pounds sterling from 1st May to 7th September 2018
**Source: Willis Owen analysis of global stock markets on Total Return and Price Return basis in pounds sterling from 1st May to 3rd September 2018.
***Source: Willis Owen analysis of the performance of the FTSE 100
****Source: Willis Owen analysis of performance of the FTSE 100 on Total Return and Price Return basis in pounds sterling from 1st May to 15th September between 1988 and 2017.
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