Investors told to beware the Halloween effect

28th October 2013

The half year from November to April has seen better returns than May to October which investment firm Hargreaves Lansdown has dubbed the Halloween effect.

Hargreaves says that this means that half of all Isa investors risk missing out with emphasis on the 50% of investors who take out their Isas in the last 5 weeks of the tax year.

On its calculations, FTSE all share returns are on average 6.7% higher in the second half of the tax year.

Hargreaves Lansdown suggests the Halloween effect is the reverse of the Sell in May adage.

Whilst the latter suggests that markets tend to fall in the summer the Halloween effect refers to the strong performance of stock markets from 1st November to 30th April.

Hargreaves isn’t being totally scientific.  It says that there is no clear explanation as to why stock markets tend to rise more between November and April but it suggests a few.

·         Investors returning to the stock market after the summer

·         Investors waiting until October, a month with a reputation for market crashes, has passed

·         The Santa rally. December is often the best performing month for stock markets

·         The tax year ends on 5th April and is usually accompanied by increased activity as investors use their annual ISA and Pension allowances.

Hargreaves suggests the effect also works on the other side of the Atlantic, although it is less pronounced. It says the effect held true with the S&P 500 16 times out of 25 or 64% of the time. On average the S&P returned 6.21% more during the six months from 1st November to 30th April.

Adrian Lowcock, senior investment adviser at Hargreaves Lansdown, says:  “Investing is for the long term and we shouldn’t pay too much attention to short term trends. However, our analysis shows that stock markets generally have their best period of performance between November and April.

“The research shows that by taking out your 2013/14 ISA or topping up your SIPP early you could benefit from a seasonal boost to your portfolio.”

Clearly Hargreaves Lansdown would like to see investors take out Isas earlier in the year, though nothing concentrates the mind like a deadline. But, all other things being equal, it looks like it doesn’t hurt to have money in the market.

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