Some rules are just meant to be broken

‘Buy low, sell high’, ‘The time to buy is when there’s blood in the streets’, and ‘Sell in May, come back on St Ledger’s Day’ are just a selection.

But can following these really result in a sound investment? Or, in times of significant market volatility owing to more than just economics, should investors be taking more notice of the wider influencers?

Ad van Tiggelen, senior investment specialist at ING Investment Management, says: “In equity markets, ‘Sell in May’ is one of those rare rules of thumb that actually seems to work. For example, between 2010 and 2012 the US equity market rose on average 8 per cent in the first four months, then declined 7 per cent during the summer, only to jump again by 8 per cent in the last four months [of the year].

“Within this timeframe, the summer weakness coincided with a dip in global growth and unrest in the eurozone. With economic data recently worsening again, we therefore have to ask ourselves: is it indeed time to leave on an extended market holiday, only to return in September?”

Based on FTSE All-Share index returns since the start of May to date (June 10), investors who chose to follow the adage would perhaps have made the right choice. From the start of the year to April 30, the FTSE All-Share index returned 10.96 per cent. From May 1 to June 10 it has lost 0.06 per cent.

But, given that already this year we have witnessed record stockmarket highs, it is fair to say that anything can happen between now and St Ledger’s Day on September 14.

Jason Hollands, managing director at Bestinvest, says: “One thing is for certain, following such an approach last year would have proven a costly move. While shares did fall in May 2012, a major rally began in June. During the period from May 1 to September 15 2012, the FTSE All-Share index returned 4 per cent on a total return basis.

“Over a lengthier period too, Bestinvest research suggests a general strategy of exiting the market during the summer is far from convincing. During the period between May 1 and the second week of September, the FTSE All-Share index has delivered positive returns in 17 out of the past 27 years, meaning 63 per cent of the time investors would have made positive returns by staying invested over the summer.”

Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment, agrees: “Seasonality is an intangible concept, but looking at current valuations and global growth prospects, a summertime correction is not out of the question. The ability of central banks to re-stimulate growth without immediate fear of inflation means this could present an attractive buying opportunity.”

While it can be good to live by a set of rules, perhaps in this case some rules are meant to be broken.

Jenny Lowe is features editor at Investment Adviser