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Time to get back in the saddle?

15 September 2017

Stock markets, like the British summer, are unpredictable – but there are still plenty of sayings traditionally used to guess its movements.

Among the most famous of these is “Sell in May and go away, don’t come back ‘til St Leger Day”, which harks back to a time when the summer meant stockbrokers taking a break from number-crunching to enjoy lazy afternoons of sport.

The absence of buyers during the season made it a more difficult environment in which to sell, as Emmanuel Afoakwah, investment analyst at investment management and stockbroking firm Redmayne-Bentley, explains: “’Sell in May and go away’ is a common adage describing an investment strategy based on the historical underperformance of stocks in the period broadly covering May to October.

“In the past, this mantra has been rationalised by pointing out that traders were more likely to take time out of the city over the summer months for sporting events such as Wimbledon, the Henley Royal Regatta and the Royal Ascot. As such, the saying compels investors to sell their holdings in May, avoiding this seasonal decline in equity markets, and then buy back into the market sometime shortly after the St Legers race meeting in mid-September.”

According to this saying, this Saturday (16th September 2017) the St Leger Festival’s flagship horserace signals the time when investors should return to the market.

However, Emmanuel said: “Looking at the FTSE 100 over the past 10 years, this strategy would have been ineffective, with the exception of 2011 and 2015, when the blue-chip index lost 526 points and 600 points respectively.

“Since 1986, on average, the FTSE 100 has fallen marginally between May and September, with the FTSE 250 typically rising. Therefore, although the summer months do generally see losses for the UK’s blue chip index, they are not substantial enough to warrant the loss of dividends and additional transaction costs that would be incurred employing this strategy.

“For example, in 2016 the FTSE 100 fell dramatically in June in the wake of the Brexit vote; however, investors would still have been better off weathering the storm and reaping the rewards of the fairly swift recovery and subsequent uptrend.”

Please note, investments and income arising from them can fall as well as rise in value and you may get back less than you originally invested. Past performance and forecasts are not reliable indicators of future results or performance.

 

Contact:
Ruth Peterson
PR Executive
Email: ruth.peterson@redmayne.co.uk
Tel: 0113 200 6476

Branch: Leeds (Head Office)

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