Some stand ready to bet against the flow and ad­vo­cate buy-in-May strat­egy

New Straits Times - - Business -

SELL in May and go away” is per­haps the old­est saw on Wall Street, but it ap­pears there is no short­age of United States mu­tual funds do­ing ex­actly that this year.

After all, the S&P 500 has de­liv­ered a to­tal re­turn, in­clud­ing rein­vested div­i­dends, of 10.8 per cent over the last six months, es­sen­tially cap­tur­ing all of the av­er­age rolling 12-month to­tal re­turn on the in­dex since 1990, so why not cash in?

In­deed, po­lit­i­cal drama and high val­u­a­tions are clearly driv­ing some in­vestors to take prof­its. Amer­i­can fund in­vestors have yanked more than US$17 bil­lion (RM72.5 bil­lion) from US stocks so far this month, data from fund tracker Lip­per shows, with some US$10.1 bil­lion in with­drawals in the lat­est week alone, the sec­ond big­gest out­flow for the year.

Some hearty in­vestors, how­ever, stand ready to bet against that flow — and history — and are ad­vo­cat­ing a buy-in-May ap­proach this year.

“If any­thing, you might want to buy in May and sell in Novem­ber,” said Chris Zac­carelli, chief in­vest­ment of­fi­cer at Cor­ner­stone Fi­nan­cial Part­ners, in Hun­tersville, North Carolina, who bases his bullish­ness on the healthy out­look for the global econ­omy rather than ex­pec­ta­tions for a pol­icy boost from the Trump ad­min­is­tra­tion.

While stocks ap­pear to have priced in hope for a Trump stim­u­lus this year, Zac­carelli says his ex­pec­ta­tions for progress on Trump’s agenda this year has re­cently tum­bled to 40/60 from 80/20 be­cause he doesn’t see Trump gain­ing enough sup­port from a se­verely di­vided Repub­li­can party, which sug­gests to him that sell­ing will be more op­por­tune a few months down the road.

The sell-in-May tac­tic has been kicked around Wall Street for decades and is premised on the his­toric out­per­for­mance of the Novem­ber-May pe­riod over the other six months of the year. It works.

In the last 20 years, a US$100 in­vest­ment in the S&P from Novem­ber through April would have be­come US$343 while a US$100 in­vest­ment in May through Oc­to­ber in the same years would have slipped to US$98.5, ac­cord­ing to Be­spoke In­vest­ment Group, in Harrison, New York.

Other fac­tors that can drive a sum­mer lull in­clude a cor­po­rate ten­dency to hold stock-boost­ing in­vestor meet­ings early or late in the year, a re­duc­tion of over-op­ti­mistic an­a­lyst es­ti­mates around mid-year, and a boost just ahead of the end-of-year hol­i­day shop­ping sea­son, says Linda Bakhshian, port­fo­lio man­ager at Fed­er­ated In­vestors in Pitts­burgh.

John Au­gus­tine, chief in­vest­ment of­fi­cer at Hunt­ing­ton Na­tional Bank in Colum­bus, Ohio said he is “tak­ing the op­po­site tack to ‘sell-in-May’” and mov­ing into US small and mid cap stocks which have un­der­per­formed large caps so far this year.

The small cap Rus­sell 2000 in­dex has risen just 1.8 per cent year-to-date com­pared with 7.8 per cent for the S&P 500, 6.6 per cent for the Dow Jones In­dus­trial Av­er­age and 15.3 per cent for Nas­daq Com­pos­ite. Reuters


The S&P 500 has de­liv­ered a to­tal re­turn of 10.8 per cent over the last six months.

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