The adage “sell in May and go away, don’t come back till St Leger Day” must be one of the most hackneyed anachronisms in City parlance, perpetuated by unimaginative financial commentators and statisticians who cannot find anything more productive to do with their time.
In some years, this phrase may turn out to be prescient, but whether the predicted outcome, i.e. a fall in the market between May and September, will actually materialise would really depend on the prevailing market levels and valuations, combined with the perceived outlook. When I last wrote about this phenomenon in 2015, the FTSE 100 Index had recently hit an all-time high of 7,122.74 on 27th April after a period of strong performance, but it was not until October of the following year that the index surpassed its previous record high.
Having spent the best part of twenty years working as a fund manager in the City, I have my own personal opinions on markets, but am not permitted to share them with you for regulatory reasons. In any case, many of you will probably already be paying a fund manager a hefty fee to manage your portfolios in accordance with their views on the outlook for bond and equity markets! Having said that, it is important to ask yourself whether you are keeping your investment advisers on their toes. The recent strength in global stock markets makes this the ideal time to take a close look at your investments and the way in which your portfolios are positioned.
One of the many services which I offer involves reviewing portfolios on behalf of my clients. My aims are to ensure that they have a better understanding of what their portfolios contain and the risks which are being taken, that they are fully aware of how their investments have performed in absolute terms, as well as relative to suitable benchmarks, and that they are clear about the aggregate fees which they are being charged, given that it is not always obvious.
Looking back at the situation in 2015, it would have turned out to be even more profitable on that occasion if investors had been encouraged to “sell in May and go away, don’t come back till St Valentine’s Day”, by which time the FTSE 100 had fallen by around 20% before taking dividends into account. Accordingly, based on the FTSE 100 Index being 7,350 at the time of writing, if you had invested in mid-February 2016, a FTSE 100 tracker fund would have generated a return of almost 30% before factoring in dividends, compared to the meagre 3% you would have made if you had done nothing!