Black­friar

WORD FROM THE CITY

Yorkshire Post - Business - - NEWS / BUSINESS - @york­shire­post

The Santa Rally is a long-stand­ing stock mar­ket su­per­sti­tion that does have a fair amount of sta­tis­ti­cal back­ing, even though there’s lit­tle ra­tio­nal ex­pla­na­tion for its oc­cur­rence.

The Santa Rally sees mar­kets rise in the run up to Christ­mas. The UK stock mar­ket has been pos­i­tive for in­vestors in 84 per cent of De­cem­bers since

1986, ac­cord­ing to Har­g­reaves Lans­down.

This year has seen a re­turn to more tur­bu­lent mar­kets, although this is more nor­mal be­hav­iour than the eerie calm of 2017.

The un­fold­ing Brexit drama will un­doubt­edly play a part in how the stock mar­ket per­forms this Christ­mas, and this could push stock prices in ei­ther di­rec­tion.

Laith Kha­laf, se­nior an­a­lyst at Har­g­reaves Lans­down, said that while De­cem­ber is typ­i­cally a good month to be in the stock mar­ket, it’s still bet­ter to be in­vested for the long term rather than do­ing “a fes­tive hokey-cokey with your money”.

He added: “In­vestors who wish to hedge their bets can sim­ply drip feed their money into the mar­ket over a num­ber of months, so they aren’t too re­liant on Santa de­liv­er­ing the goods over the Christ­mas pe­riod.”

Since the FTSE All Share to­tal re­turn in­dex was launched in 1986, 27 out of 32 De­cem­bers (84 per cent) have seen a pos­i­tive re­turn, the high­est of any month. Over the whole year the av­er­age is 62 per cent.

De­cem­ber also has the high­est av­er­age re­turn of 2.6 per cent, while the other months have only mus­tered 0.7 per cent.

It has also pro­vided the fewest headaches to in­vestors – it has seen the low­est max­i­mum draw­down of any month, just 5.3 per cent in 2002.

Mr Kha­laf said that if you had in­vested in the FTSE All Share in Jan­uary 1986 you would have done bet­ter in De­cem­ber than in any other month. In fact, if you had only in­vested each De­cem­ber and sat the rest of the year out you would have turned £10,000 into £22,762.

How­ever, you would be £168,433 poorer than if you had stayed in the mar­ket the whole year round, in which case you would now be sit­ting on £191,195.

An in­vestor who spent De­cem­ber out of the mar­ket each year would have amassed just £83,998, mean­ing they lost out on £107,197 just from miss­ing the last month of each year.

Af­ter De­cem­ber, April is the next best month for the UK stock mar­ket, ris­ing 76 per cent of the time and record­ing an av­er­age re­turn of 2.3 per cent.

Anal­y­sis from Fidelity In­ter­na­tional shows that the in­vestors have good rea­son to be­lieve in the Santa Rally.

Ed Monk, as­so­ciate direc­tor for Per­sonal In­vest­ing at Fidelity In­ter­na­tional, said: “While many stock mar­ket su­per­sti­tions should be taken with a pinch of salt, our anal­y­sis shows that the ‘Santa Rally’ may be more real than Santa Claus him­self, with De­cem­ber

De­cem­ber also has the high­est av­er­age re­turn of 2.6 per cent.

pro­duc­ing a pos­i­tive re­turn nearly nine out of ten times in the past three decades.”

He agree with Mr Kha­laf that while there is plenty of ev­i­dence to sug­gest the Santa Rally may ex­ist, it would be un­wise to base your in­vest­ment strat­egy on such a triv­ial stock mar­ket adage, or any of the other stock mar­ket su­per­sti­tions for that mat­ter.

He said that when it comes to in­vest­ments, try­ing to time the mar­ket to take ad­van­tage of these short-term trends can have very costly con­se­quences if you get it wrong.

It ap­pears that it’s far bet­ter to stick to tried and tested in­vest­ment prin­ci­ples such as in­vest­ing for the long term, stay­ing in­vested through the cy­cle, sav­ing reg­u­larly and be­ing well di­ver­si­fied across as­set classes and ge­ogra­phies.

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