Sell in May and go away?

By Staci West on 29 April 2024 in Best performing funds

At this time of year, we’re usually reminded of the investment adage “sell in May and go away, don’t come back ‘til St Leger’s Day.”

The saying dates back to a time when stock market traders spent most of the summer months away from their desks, attending social or sporting events. As a consequence of less trading taking place, any market sell-offs were amplified. So it was suggested that investors would be better off selling their holdings and reinvesting in September when the traders returned.

A strategy worth following?

The short answer is almost certainly no. For one thing, the headline numbers don’t include transaction costs (it may cost you money to sell your shares or funds today, and there could be more to pay when you buy back into the market). Secondly, there could be tax implications – capital gains, for example.

And while there is a certain logic to the saying, times have changed. Technological advances mean that stock market traders and fund managers can now monitor the markets and their investments without having to be anywhere near London or any other city.

There is also very little evidence to suggest that the strategy works.

How do markets look now?

The FTSE 100 hit a milestone in April, closing at an all-time high of 8,023 — and it looks like the UK stock market could continue to gather momentum.

Darius McDermott, managing director of FundCalibre, said: “We could easily see the FTSE 100 moving towards 9,000 by year-end if commodity prices continue their upward trajectory. There is also a renewed political realisation that the UK market is falling behind and the government has finally recognised it needs to do more to support its domestic stock market.”

Read more about the FTSE 100 surge

In our “Spring Budget” podcast, we discuss what the British ISA could mean for the UK market but, most importantly, what else still needs to be done to improve sentiment and encourage global investors to return.

Despite breaking records, UK equities still appear attractively valued compared with other developed markets. Simon Murphy, manager of VT Tyndall Unconstrained UK Income, told us he believes we’ve got a generational opportunity in the UK market today.

He added: “We’ve been out of favour for many years post the Brexit vote; we’ve had huge outflows from retail funds, and institutional investors and overseas investors are all record underweight and all that sort of stuff. And all of that negativity has created a wonderful valuation opportunity, literally a once-in-a-generation opportunity, in my view.”

Best-performing Elite Rated UK funds over 5 years

Stay invested

Once you factor in possible charges and tax implications, not to mention the extra effort, there is nothing to suggest that selling in May and going away until St. Leger’s Day is a strategy worth following.

At FundCalibre, we are strong believers that investors should spend time in the market, not spend time trying to time the market. Juliet Schooling Latter, research director of FundCalibre, added: “It’s very easy to get caught up in collective fear and optimism, but trying to time the market is notoriously difficult. Most investors tend to be better off doing nothing or investing monthly to take the emotion and stress out of their investment decision-making.”

*Source: FE Analytics, total returns in sterling, 25 April 2019 to 25 April 2024