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Christopher Doll | June 3, 2016

Sell in May and go away? Maybe not

“Sell in May and go away” is a well-known market adage that warns investors to sell their equity holdings in May to avoid the typically volatile May-to-October period. Historically, stocks have underperformed in this six-month (“unfavourable”) period, compared to the six-month (“favourable”) period from November through April.

sellinmay_chart

Source: Bespoke Investment Group, LLC, as at April 28, 2016.All data is based on U.S. dollars.

While the “Sell in May” strategy may sound tempting, in reality it may not be smart or practical. The performance during the unfavourable period, while lower than the favourable period, has been positive nonetheless. In a period of low interest rates, it would be ill-advised to forgo performance of nearly 1% (over the past 50 years).

Investors who can’t stomach the increased volatility during the unfavourable period but want to maintain equity exposure, may be better off considering a low-volatility strategy.

Since 1998, a low-volatility strategy could have outperformed the broad benchmark during the unfavourable period. This outperformance has ranged from 0.5% to 3.75% across different geographic markets.

sellinmay_chart2

Source: Morningstar Direct. Data covers the period May 1 to October 31 for the years 1999 to 2015.

The following indices represent each of the PowerShares low-volatility strategies above: Canada – S&P/TSX Composite Low Volatility Index; U.S. – S&P 500 Low Volatility Index; International developed markets – S&P BMI International Developed Low Volatility Index; and Emerging markets – S&P BMI Emerging Markets Low Volatility Index. See end notes for index inception dates and important information about back-tested data.

Performance (C$) 1 year 3 years 5 years 10 years
S&P/TSX Composite Low Volatility Index* 2.55% 9.30% 11.02% 7.77%
PowerShares S&P/TSX Composite Low Volatility Index ETF 2.15% 8.82%
S&P/TSX Composite Index -5.43% 7.05% 3.05% 4.33%
S&P 500 Low Volatility Index* 14.18% 18.82% 19.66% 10.44%
PowerShares S&P 500 Low Volatility (CAD Hedged) Index ETF 9.20% 9.83%
S&P 500 Index 4.66% 19.70% 17.36% 8.10%
S&P BMI International Developed Low Volatility Index* 1.30% 10.20% 11.16% 7.21%
PowerShares S&P International Developed Low Volatility Index ETF 0.38%
MSCI EAFE + Canada Index -6.33% 8.93% 6.97% 2.79%
S&P BMI Emerging Markets Low Volatility Index* -10.64% 1.78% 4.50% 8.47%
PowerShares S&P Emerging Markets Low Volatility Index ETF -11.51%
MSCI Emerging Markets Index -15.06% 2.67% 0.84% 3.51%

 

Low-volatility strategies can allow you to remain invested, ride out the volatility and provide superior risk-adjusted returns relative to the broad benchmark, allowing you to buck the trend and “hold in May and go away.”

 

Source: Morningstar Direct, as at April 30, 2016.

* Please refer to the disclosures below for important information about index back-tested performance data.

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Information presented is from sources believed to be reliable but accuracy cannot be guaranteed.

Index creation dates: S&P/TSX Composite Low Volatility Index, April 10, 2012; S&P 500 Low Volatility Index, April 20, 2011; S&P BMI Emerging Markets Low Volatility Index, December 5, 2011; S&P BMI International Developed Markets Low Volatility Index, December 5, 2011. Index data shown before these creation dates have been reconstructed and are calculated on a basis consistent with their current basis of calculation. Reconstructed performance is hypothetical and for illustrative purposes only. You cannot invest directly in an index. Index performance does not reflect fees and expenses that would be applicable to a fund. Hypothetical performance data for each index should not be taken as indicating that if the index had, in fact, existed during the shown time periods before its creation that the index would have achieved the hypothetical results shown, as actual results might have differed.

S&P®, S&P 500® and S&P 500 Low Volatility Index® are registered trademarks of Standard & Poor’s Financial Services LLC and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by Invesco Canada Ltd.

TSX is a trademark of TSX Inc. (“TSX”) and has been licensed for use by S&P Dow Jones Indices LLC and Invesco Canada Ltd.

The S&P/TSX Composite Low Volatility Index, S&P 500 Low Volatility Index (CAD Hedged), S&P BMI International Developed Low Volatility Index and S&P BMI Emerging Markets Low Volatility Index (the “Indices”) are products of S&P Dow Jones Indices LLC, and have been licensed for use by Invesco Canada Ltd. Invesco Canada Ltd.'s PowerShares Index ETFs are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, its affiliates or TSX, and none of such parties makes any representation regarding the advisability of investing in such a product.

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