As quaint as the adage sounds, is it still relevant today?
A few things spring to mind. Some suggest that exiting the markets protects investors from the volatility that plagues markets over those summer months. But is that a chicken-and-egg scenario, whereby the volatility only comes from said investors pulling their money out? If we all held firm, the seasonality would be less prominent and therefore we’d all be better off – or would we?
Timing market vs time in market
This leads to the point about time in the market being preferable to attempting to time the market – and while you might miss those down days while you’re gallivanting off around racecourses, cricket grounds, golf courses, tennis courts, on sailboats or at Henley Regatta (before, of course, the inducements paper, which has most certainly put a stop to all that) – you might also miss some spikes upwards.
Deutsche Asset & Wealth Management co-chief executive Asoka Wöhrmann recently pointed out that while the rotation from bonds into equities was pushing valuations upwards, prompting a potential sell-off, there was further to go, and therefore any sell-off may be delayed, at best.
“The old stock market saying ‘sell in May and go away’ could prove wrong this year,” he said.
“Indeed, stock markets could be in for a bumpy climb up in light of the expected rise in interest rates. But market dips could be good buying opportunities.”
Nick Peters, portfolio manager at Fidelity Solutions said it might be sensible to take some money off the table. He said: "We have been quietly reducing our equity exposure for about the last three to six months."
His team has reduced its equity overweight – which had reached its upper limit of 10% above benchmark at one point – by about half, moving into cash and commodities, reducing its underweight.
Peters said he was considering switching this allocation into emerging markets (based on valuations) but added that the team were awaiting further earnings downgrades, so had not moved just yet.
Julian Chillingworth, chief investment officer at Rathbone Unit Trust Management, said the ‘summer lull’ was not as apparent as it used to be, expecting returns to ‘yo-yo’ around delivering surprises on both up- and downside.
Movement within, rather than out of, equities
Rather he explained as the nominal growth plays were looking a bit expensive, investors were taking profits (in mid caps, cyclicals such as biotech, technology, consumer stocks) and shifting into larger, more defensive, blue chips that might have been cheaper to access – rather than selling out of equities altogether.
The other thing to note, obviously, is that any seasonal sell-off would come at a cost, and with dealing costs to consider, redemptions for their own sake would be foolish, while more active trading activity – picking up the pricing anomalies that can be found during more volatile market periods – might make more sense.
Robert Jukes, global strategist at Canaccord Genuity Wealth Management said the adage may have worked very well in the past, and seemed to apply in 2013, but generally for the last 10-15 years it has not.
He suggested institutional portfolios being rebalanced at the start of the year bringing in new money, added to tax year-driven new ISA (and other) investments bringing a flurry of fresh money into the market in the months leading up to May while summer holiday trends discouraged optimum trading conditions, encouraging people to hold off.
But with the City’s cultural shift – FCA-enforced or otherwise – the silly summer season may not be upon us just yet, so perhaps stick with the markets, at least until Halloween.