Coronavirus leaves Sell in May strategy in disarray

• As virus nears end of the first phase, investors urged to be cautious about selling in May
• Coronavirus (COVID-19) crisis throws company forecasts into disarray

The investing adage “Sell in May and go away, don’t return until St Ledger’s Day” is particularly risky this year following the extreme moves we have seen in markets in 2020, Willis Owen has said.

The adage, which is widely known and widely followed by many investors, suggests that people should sell their equity positions at the start of May in anticipation of a wind down for markets in the summer months.

The adage recommends investors divest their equities at the beginning of May, then re-invest on St Ledger’s race day in September, because markets are quieter and historically underperform during the summer months.

However, the data supporting this is far from clear. Over the last 34 years, Willis Owen’s analysis shows the FTSE 100 ended down in 17 out of the 34 summer periods from 1986 to 2019 as an index, but with dividends reinvested investors were only better off by selling in May on 12 occasions.^[i]

Adrian Lowcock, Head of Personal Investing at Willis Owen, said the increase in volatility witnessed this year – and the big falls in markets seen since October 2019 – make the notion of taking time out of the market an additional risk which many investors may not want to take, particularly as timing your entry back into the market can be extremely difficult.

“Sell in May has triumphed on occasion as investors focus on the important things in life, such as holidays, in the summer months,” he said.

“However, as an investment strategy, it is far from failsafe. This year, with volatility much higher than normal, it is difficult to forecast returns on investments, with many companies unwilling, or unable, to predict their profitability for the rest of the year.

“With the Coronavirus (COVID-19) crisis in only the first phase, and with current figures reflecting a mirage caused by the lockdown, taking time out of the market now is an additional risk for investors to take.

“We are at the end of the beginning, not the beginning of the end. Life after lockdown will bring some psychological relief but when professional investors start focusing on fundamentals and more data comes through, it will be some time until the situation returns to anything like normality.”