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September 2014 - St Leger's Day

There is an old investment adage: “Sell in May, and go away, come back on St Leger's Day', which suggests investors should sell their investments in May each year and reinvest in September, after the last classic flat race of the season.

The saying dates back to the time when the London 'social scene' meant that City traders and investment types would all vacate the capital and head for the countryside. The result was that not a lot of trading took place until everyone came back to work.

These days, there is a summer lull of sorts, but mainly because fund managers and traders are off on a family holiday for a week or two in August, just like the rest of us. Work is covered by other people in the office though and there is always the 'joy 'of mobile technology for those who are unable to switch off completely.

Does the strategy work?

Recent research on the topic, looking at the UK market, has found that in 13 of the past 30 years, the adage would have worked for investors, whilst in the other 17 they would have been out of pocket. Taking a quick look at other markets reveals a similar picture: a slight bias one way or another, but no real explanation as to why this may be. Akin to tossing a coin, really.

As you may suspect, at FundCalibre we are proponents of a buy and hold strategy. Most people won't have the time and resource to be constantly changing their investments and, while we would advocate reviewing a portfolio at least once or twice a year, we think that trying to time the market is a waste of time. If it was that easy, we would have retired a long time ago and wouldn't be writing this article now!

There are also other practicalities to consider such as trading costs, whether or not you could trigger a capital gains tax liability and whether you may well be missing out on a substantial dividend payment.

The winners and losers this year

For those of you interested anyway (we're all human and it's always good to see where the money is being made and lost), there are just four IMA sectors which have produced negative returns so far this summer* (at the time of writing there are still 12 days until St Leger's Day): Europe including UK (- 2.03%), UK Smaller Companies (-2.34%), Europe excluding UK (-2.99%) and European Smaller Companies (-5.39%).

The low for European markets was in early August and, since then, Mario Draghi, the president of the European Bank has put his money where his mouth is and announced some stimulus measures to get the European economy back on track. Markets have come back slightly since his announcement.

The UK market (barring smaller companies) has been relatively flat (up around 1%) while the real winners have been China/Greater China (+14.51%), Global Emerging Markets (+11.63%) and Asia Pacific ex Japan (+11.35%) and Japanese Smaller companies (+11.23%).

It's been an Indian summer for emerging markets (excuse the pun). The Indian market reacted well to the election of a new leader in May and the rest of the region has benefited from investors looking for new opportunities. Developed markets are all looking fairly valued today, whereas emerging markets and Asia Pacific are offering better value.

In a similar vein, our Elite Rated fund performance has produced a similar picture. There were 24 funds in negative territory, including all 10 European equity funds, although only two underperformed their sector average. The other 90 funds were in positive territory over the period, with the top five performing funds as follows:

First State Indian Subcontinent: 27.31%
Lazard Emerging Markets: 14.30%
First State Greater China Growth: 14.14%
First State Asia Pacific Leaders: 13.38%
AXA Framlington Global Technology: 12.56%

All performance data is sourced from FE Analytics, total returns from 1st May 2014 to 31st August 2014. Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views of the FundCalibre team are their own and do not constitute financial advice.

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Clive Hale, Director - September 2014

©2014 FundCalibre Ltd. All Rights Reserved. The information, data, analyses, and opinions contained herein (1) include the proprietary information of FundCalibre Ltd, (2) may not be copied or redistributed without prior permission, (3) do not constitute investment advice offered by FundCalibre Ltd, (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete, or accurate. FundCalibre Ltd shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses, or opinions or their use.