Investors are likely to have fared badly if they’d listened to the ‘sell in May, go away, come back on St Leger Day’ adage this year, research from FE Trustnet shows.
The age-old investment motto has long been followed by investors who believe that, during the more volatile summer months, it is best to sell out of their holdings and return once markets are back in full swing.
However, Tom Stevenson, investment director for personal investing at Fidelity International, believes the maxim needs to be retired as it would have actually slashed investors’ returns by 60 per cent had they taken heed over the past 30 years.
“While the summer has seen its fair share of geopolitical risks, including rising tension between North Korea and the US, as well as stalling Brexit negotiations, the FTSE All share has still gone on to deliver a positive return between May and September,” he said. “As such, anyone who followed this stock market adage this summer would have lost out.
Performance of index in 2017
Source: FE Analytics
“Trying to predict the best time to be in and out of the market is a fool’s errand and getting it wrong can severely dent your long-term investment returns. If there is one adage that investors should abide by it is ‘time in the market matters more than timing the market’.”
FE Trustnet’s research into how investors would have coped this year had they followed the adage supports Stevenson’s belief that it does not improve returns.
Two days after the famous race (although our data was collated on 14 September), we decided to look at the performance of all funds within the Investment Association year-to-date and between May and now.
Our research found that, out of 35 sectors which are accessible to retail investors, just two made losses on average between May and St Leger Day.
The IA UK Gilts sector average lost 11 basis points between May and 14 September but, from the start of the year up until May, returned 1.41 per cent. Similarly, the IA UK Index Linked Gilts sector lost 85 basis points between the start of May and St Leger Day, but returned 2.77 per cent between January and May.
At the opposite end of the spectrum, those invested in the average IA Global Bonds fund would have missed out the most had they listened to the adage compared to if they’d held tight.
The sector average saw gains of 3.03 per cent between May and St Leger Day but returned just seven basis points this year outside of this time frame; this means more than 97 per cent of its 2017 return was made between May and 14 September.
Within the sector, the fund that made the largest part of its gains between May and 14 September was Philip Annen’s Baillie Gifford Global Bond fund at a whopping 715 per cent; while it achieved a total return within this time frame of 1.86 per cent, it has returned just 0.26 per cent year-to-date due to losses made during the first part of the year.
In fact, 30 funds in the sector made at least 100 per cent of their returns between May and September; other vehicles to have recovered from losses between January and May include Man GLG Corporate Bond, Dodge & Cox Global Bond and Threadneedle European Bond.
The sector making the second-largest percentage of its gains between May and St Leger Day at 76 per cent is IA Japan, which returned just 2 per cent during January and May but, during the second half of the year so far, has made 6.77 per cent.
Within the sector, the fund making most of its gains between May and 14 September was JOHCM Japan at 149 per cent. While it returned 3.71 per cent year-to-date, it lost 1.74 per cent between the start of the year to May but gained 5.54 per cent between May and 14 September.
Other funds to have made more than 100 per cent of their 2017 gains between May and St Leger Day include Jupiter Japan Income, CF Canlife Japan and Man GLG Japan Core Alpha. In fact, 94 per cent of funds in the sector made more than half of this year’s gains between May and 14 September, with the remaining four all achieving at least one-third of their returns during the time frame.
On average, eight of the 35 sectors achieved at least half of their returns this year between May and St Leger Day; other market areas include the IA Property, IA China/Greater China and IA Specialist sectors.
For UK investors holding exposure to their home market across the IA UK All Companies, IA UK Equity Income and IA UK Smaller Companies sectors, an average of 28 per cent of year-to-date gains would have been made between May and 14 September.
Interestingly, out of 395 funds, 36 – or 9 per cent – lost money between May and St Leger Day but achieved positive returns from January to May.
Out of these, the fund to have suffered the greatest loss between May and 14 September at 4.17 per cent was Neil Woodford’s flagship CF Woodford Equity Income fund. Had an investor bought the fund at the start of the year and sold in May, however, they would have seen gains of 5.77 per cent. Year-to-date, the fund is down by 1.37 per cent.
Performance of fund vs sector and benchmark in 2017
Source: FE Analytics
Star manager Woodford’s struggles over recent months have been well-documented, with holdings such as Provident Financial, Imperial Brands and AstraZeneca all taking a hit for various reasons.
Jupiter UK Growth is next on the list for its loss between May and September (while still achieving positive returns between January and May) of 3.93 per cent, it is up 7.36 per cent year-to-date due to an 11.75 per cent return during the first four months of the year.
Three funds – SF Webb Capital Smaller Companies Growth, TM Sanditon UK and VT Cape Wrath Focus – lost money during both time frames.
At the other end of the scale, Schroder Specialist Value UK Equity made the biggest percentage of its gains between May and 14 September at 99 per cent, having made just 4 basis points between the start of January to May.
The fund to have made the largest individual return between May and St Leger Day was Old Mutual UK Smaller Companies Focus at 17.96 per cent. The five crown-rated fund returned 47.14 per cent between January and 14 September.
Performance of fund vs sector in 2017
Source: FE Analytics
Over in the IA Global and IA Global Equity Income sectors, an average of 82 per cent of gains were made between May and St Leger Day this year. However, investors should note that Davy Defensive Equity Income has significantly skewed the data as 8,750 per cent of its total return was made in this time frame (the fund made 1.75 per cent between May and 14 September but returned just 2 basis points year-to-date).
When Davy Defensive Equity Income was removed from the data pool, the average gain fell to 55 per cent.
The global fund to have made the largest individual gain between May and St Leger Day was Aubrey Capital Management’s Aubrey Global Conviction at 21.61 per cent. The £36m fund has returned 38.18 per cent year-to-date, meaning 56.6 per cent of its gains were made between May and 14 September.
Aside from the aforementioned Davy Defensive Equity Income fund, the global funds to have made the largest proportion of their returns between May and St Leger Day were Neptune Global Income, First State Global Resources and Davy Global Equity Income.
In contrast, Sanlam FOUR Stable Global Equity and CF Canlife Global Equity were the only two funds to have lost money between May and 14 September while making positive returns from January to May. The funds returned a respective 2.76 and 1.69 per cent year-to-date.
Meanwhile, the four funds to have lost money during both periods of time were all global energy funds, which is perhaps unsurprising given the tumble in oil price year-to-date. These were Fidelity Global Industrials, MFS Meridian Global Energy, Guinness Global Energy and Schroder ISF Global Energy.