‘Sell in May and go away’

IF you wondered where this saying comes from, it is a well-known adage in trading circles.

A call to traders to sell their stock holdings early to avoid the summer slump in equity markets between May and October each year.

There is historical evidence to suggest there may have been some truth in this saying for some markets. According to the Stock Traders Almanac, since 1950, the Dow Jones Industrial Average has shown an medium return between May and October that is substantially lower than average gains from November to April.

Precise reasons for this downturn are not known, but some claim that it reflects lower trading volumes during Summer holiday months compared to the higher volumes traded during the Winter.

This is, of course, simply looking at one particular stock market influence in the US. Today we live in an infinitely more global environment, but sentiment is contagious and market trends in one country will spread around the world as markets open for business.

Economic data and political concerns will always influence the markets, so one cannot simply point to summer holidays as the sole reason to sell up.

Renewed growth in the UK economy and the prospect of increasing interest rates contrasts with other European countries – many still in a difficult economic position.

Indeed, with ECB interest rates reduced still further, the worst in Europe may be yet to come.
Increasing interest rates should be good news for investors but we have already seen how the big banks conspire against existing customers by excluding them from transferring ISA accounts in the UK into the new NISA accounts.

For new customers, the banks are offering higher rates but you cannot (in the main) transfer existing accounts over to get the better rate.

So where does this leave the average investor and how can you be sure you are getting the best return on your investments, particularly if you are looking to generate income from your capital?
Well, there is some good news from a perhaps unexpected direction.

It is not often that I promote a product provider specifically, but established life assurance company Prudential have a long track record of providing ‘smoothed’ investment returns from some of their PruFunds.

They have also increased their expected growth rates on their ‘Cautious’ and ‘Growth’ funds. These rates are announced each quarter and unlike the banks, their policyholders will benefit from the increased rate in full and with Prudential smoothed returns, investors don’t need to be concerned about selling in May – or any other time of the year.