Market strength forecast to surge in September

Market strength forecast to surge in September

Sell in May and return on St Leger’s Day - this used to be the old investment adage but advisers and fund managers have suggested anyone doing this will have been “wrong-footed”.

According to Jason Hollands, managing director of communications at TilneyBestinvest, it would have been right to be sceptical of the old adage that investors should “sell in May” and come back to the markets in September.

He commented: “Anyone dogmatically following such an approach this year will have been badly wrong footed.

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“For despite many observers and professional investors – including ourselves - being cautious in our 2016 outlook and a rocky start to the year which began with Chinese markets nosediving and a bloody rout for commodities, the summer returns from stock markets have been surprisingly buoyant.

“While in recent months many investors have been ditching equities in favour of “defensive” assets such as gold and absolute return funds, the stock markets have seemingly brushed aside Brexit, party political upheavals, terrorist attacks in Europe, an attempted coup in Turkey and the most extraordinary US Presidential campaign in living memory.”

He pointed to strong performance from the FTSE 100 index of UK blue-chip companies.

This surged 10 per cent from a closing level on 29 April of 6,241 points to 6,868 at the end of August.

However, he said investors should not “breathe a sigh of collective relief” as there could be more volatility on its way, but nor should they assume the gains from the UK are over.

Indeed, in a survey of advisers by FTAdviser Advantage, 71 per cent believed investors should return to and add to their UK exposure, with some strong gains expected over the autumn.

Only 29 per cent believed investors would remain shy of UK equity markets, given anticipated volatility and the effects of the US election on the horizon.

Some believe now is the time to lock in returns. Thesis Asset Management has cut its exposure to UK equities in light of recent market conditions across six of its seven-strong range of model portfolios.

Ryan Paterson, research manager at Thesis, said the decision to reduce exposure was down to confidence in UK equities moderating somewhat as uncertainty looks to persist in the UK for some time.

He commented: “With equities currently at the upper end of their trading range and valuations generally high, now was a good time to trim back.

“The hangover from the referendum is yet to be felt, reduced business investment and likely slower pace of hiring is still to come.”

While some are locking in the strong returns, other investors who sold ahead of the June vote and waited to return will have lost out on the gains over July and August - especially those who headed into cash just as the Bank of England cut base rates to 0.25 per cent.