InvestmentsDec 1 2016

Schroders' data finds Santa Rally is real

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Schroders' data finds Santa Rally is real

December is historically the strongest month for markets, despite investors often dismissing the so-called ‘Santa Rally’. 

Asset management giant Schroders analysed market movements between 1988 and 2016 and found stock markets were most likely to jump in the last month of the year.

The analysis, which combined data for the FTSE 100, S&P 500, MSCI World and Eurostoxx indices, found December was the best performing month for markets, having increased 75 per cent of the time.

April was the second best performer, increasing 70 per cent of the time in 28 years. 

Those looking to gamble on Santa spreading his goodwill around the markets again this year do so at their own risk James Rainbow

This is in contrast to the months of June, August and September which often saw a slump in markets.

Despite this, Schroders pointed out that seasoned investors often dismiss the Christmas rally.

James Rainbow, co-head of Schroders UK intermediary business, said: “There is much speculation on why stockmarkets rise at this time of the year, giving life to the terms ‘Santa Rally’ or ‘December effect’." 

He said one theory is based on investor psychology, adding: “There is more goodwill cheer in the markets due to the holiday season putting investors in a positive mood, which drives more buying than selling.

“Another view is that fund managers, which account for a substantial part of share ownership, are rebalancing portfolios ahead of the year end.”

The research revealed that the UK market had the strongest Santa Rally tendencies, while the S&P 500 also showed positive market sentiment at that time of year.

The Nikkei index, however, performed markedly worse over this period in comparison to its peers, which Mr Rainbow said could be because Japan doesn’t celebrate Christmas to the same extent as the West.

However, Mr Rainbow said investors shouldn’t expect stockmarket history to repeat itself, adding: “You should certainly treat superstitions about the markets with a huge pinch of salt.

“Those looking to gamble on Santa spreading his goodwill around the markets again this year do so at their own risk,” he said, adding that is one for day traders to worry about. 

“A far better approach is to think long-term; make sure you have a clear investment plan and stick to it.”

I think the Santa Rally is often about investment managers pushing up markets at the end of year for their own ends ---Alan Steel

Paul Lindfield, director of wealth management at Sedulo Wealth Management, said he had seen evidence of the Christmas rally, as well as the market lull during the summer months.

However, he said he has never tried to take advantage of the December rally, adding: "Our funds are in multi-asset funds with a tactical overlay and are designed to minimise threats and maximise opportunities."

The Sedulo director also said it wasn't wise to try and take advantage of the rise in markets over the Christmas period, particularly if it means buying into investments when prices are high.

"If you are going to buy and sell out quickly, then you've got to put a lot of money in to try and benefit from that rise," he said, questioning how an investor can know which fund or strategy will win.

Alan Steel, director of Alan Steel Asset Management, said: "Folks who think about such short term quirks are speculators. We’re not.

"I think the Santa Rally is often about investment managers pushing up markets at the end of year for their own ends," he said, pointing to the end of year bonuses.

"Long term investors should ignore 'interferences' and stick to patience, discipline and process. Then all their Christmas’s will deliver nice surprise presents."