“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.
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.
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.