Investors would have missed out on market rally if they had followed the ‘Sell in May’ adage this year
- Best summer for the UK’s 100 largest companies since 2016
- This followed the worst winter period since the 2008 market sell off at the height of the global financial crisis
- 4th year since Brexit that ‘Sell in May’ has failed
- ‘Sell in May’ adage becoming increasingly less common
London, 14th September 2020 – The traditional adage ‘Sell in May and go away, don’t come back until St Leger’s Day’ looks set to be proved wrong this year, according to analysis by Willis Owen, the online investment platform.
The adage recommends investors should sell their shares at the beginning of May then re-invest after St Leger’s race day, normally on the middle Saturday of September, because markets tend to be quieter and performance weaker over the summer. This is not the case this year, with stock markets rallying as the economy recovers from the national lockdown in the second quarter of the year.
Since the close on the 1st May, UK equity markets are currently higher, with a 4.7% gain for the CBOE UK 100*, excluding dividends, and a 5.5% for the CBOE UK All Companies*.
The positive return for UK shares during that period means that since the Brexit vote in 2016, the FTSE 100* has risen three times out of the last five between May and mid-September.
This is a reminder that historical trends are not reliable and it would have been a risky exercise to undertake a “Sell in May strategy” this year. The so-called strategy does not work often enough and when it does the margins are so narrow that timing is a critical factor. Sell on the wrong day and you could lose all the benefits.
Furthermore, with dividends reinvested, the current gains are enhanced, with investors seeing a gain of 6.1% for the UKs leading shares.
In total, the adage has only proved to be right 52% of the time in the last 34 years, falling to 26% if you include dividends. Whilst the volatility in stock markets and uncertainty around the economic recovery 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.
Adrian Lowcock, head of personal investing, Willis Owen, commented: “Investor sentiment has taken a battering this year as COVID-19 weighed on the economy and had a huge impact on people’s daily lives. However, the performance of stocks markets this summer is a reminder that markets are frequently forward looking. Having priced in much of the economic damage caused by fear of the virus and lockdowns, markets began to recover in April and continued to make gains through the summer as we exited lockdowns.
“Global stimulus packages no doubt contributed to strong performance of markets as money flowed back into the market.
“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 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.”
*Cboe UK 100 and Cboe UK All Companies are used as proxies for the FTSE 100 and FTSE All Share respectively.