Why ‘sell in May and go away’ is a myth

by | May 26, 2023

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Written by Hal Cook, Senior Investment Analyst, Hargreaves Lansdown

Investors will have heard the adage ‘sell in May and go away’. This makes reference to the fact that historically returns in stock markets have been stronger, on average, between November and April, than they have been from May to October.

But what is missing from this perspective is that, on average, stock markets have still risen between May and October each year. So, by going to cash you are missing out.

 
 

It is obviously important to stress the words ‘on average’ here because there will be periods where stock markets fall in value – such as 2022, when the FTSE All World fell 1.1% from the start of May to the end of October. But looking back at the May to October period each year since the turn of the century, the average return of the FTSE All World has been 2.28%. 

When you break this down further and look at specific regions, the US has provided the highest average return during these periods at 3.39%. But also, around 74% of these periods have seen positive returns since the turn of the century, which is the best of any of the sub regions analysed.

US fund pick

 

The simplest way to gain access to the US stock market is through a passive fund. Passive funds track the performance of the wider stock market and are attractive because of their low fees. They are particularly attractive for exposure to the US stock market because historically active managers have found it difficult to beat the US stock market consistently over time. The L&G US Index is on the HL Wealth Shortlist, which we think has a good record of tracking the performance of the wider stock market, and only charges a fee of 0.05% per year.” 

 Average summer performance (May-Oct 2000-2022)MaxMinPositiveNegative% positive
FTSE All World 2.2823.97-23.3715865.22%
FTSE All-Share 0.5521.17-28.2414960.87%
FTSE World Asia Pacific ex Japan 1.9229.71-36.58121152.17%
MSCI EM (Emerging Markets) 1.8234.74-40.25101343.48%
MSCI Europe ex UK 0.7520.09-30.9114960.87%
S&P 500 3.3924.85-22.7117673.91%
Topix 0.7434.37-22.791439.13%
       
Bloomberg Global Aggregate Bond 3.1519.42-3.5816769.57%
IA £ Corporate Bond2.6220.34-11.0118578.26%
IA £ High Yield 2.2333.99-22.2214960.87%
       
       
       
 Average winter performance (November-April 2000-2022)MaxMinPositiveNegative% positive
FTSE All World 5.7320.18-9.0419482.61%
FTSE All-Share5.2528.46-17.0219482.61%
FTSE World Asia Pacific ex Japan 8.5128.68-9.7318578.26%
MSCI EM (Emerging Markets) 8.5734.18-8.0718578.26%
MSCI Europe ex UK 6.6424.08-11.3617673.91%
S&P 500 5.6024.56-10.7617673.91%
Topix TR3.4634.7-10.76131056.52%
       
Bloomberg Global Aggregate Bond 1.6316.32-7.17121152.17%
IA £ Corporate Bond1.776.1-7.9218578.26%
IA £ High Yield 3.7713.46-9.0119482.61%

Source: Lipper

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