Stay in May and don’t fly away…

6th May 2014 by Edmund Shing

I find that I am greatly tiring of the plethora of articles which arrive around this time of year, urging investors to “sell in May and go away – come back on St Leger’s day”. Every year following May Day it is the same story but I believe the record needs to be set straight…

1. Yes, November to April is the strongest seasonal period for the FTSE 100 Index

As Figure 1 illustrates, the FTSE-100 index has typically posted its strongest seasonal performance over the six months from the beginning of November to the end of April the following year, judging from average monthly returns since 1986. December returns (including dividends) have averaged 2.6%, while April has been the second-best month at 2.1%.

1. FTSE-100 Index Has Posted Strongest Returns in December, April

Source: Author, Bloomberg

Judging from this 29-year history for the FTSE-100, May comes in as the ninth-best month for stockmarket returns, with a 0.3% – not all that impressive but nevertheless a positive average return.

2. And yes, this is true also for emerging market stocks…

Figure 2 shows the average monthly returns since 1990 for the MSCI Emerging Markets index, the main benchmark index used for investing in this geographic segment.

2. Emerging Market Stocks Show an Even More Pronounced Seasonal Effect

Source: Author, Bloomberg

In the case of emerging markets, the average return has been zero for the month of May, typically following a strong April, which has typically been the second-best month for emerging market gains.

 3. The real danger period for UK stocks is between June and October

If we look at the table in Figure 3, which shows monthly returns for the thee UK FTSE stock indices by size, we can see the real danger period for stocks historically has really been June to October, with negative returns registered on average over two to three of these months.

3. June to October is Rocky for UK Stocks

 Source: Author, Bloomberg

 4. But actually May is pretty good for mid and small-caps

Below, as illustrated in figure four it is clear that May is actually on average a month where UK stocks go up, with better performance from stocks in the FTSE Mid 250 and SmallCap indices.

4. Decent May Returns in the Mid- and SmallCaps

  Source: Author, Bloomberg

 5. For UK small caps, the December to May period is better than November to April

Check out Figure 5 in this chart. I have compared the results of holding the FTSE SmallCap index all the time (dividends included and reinvested) from the beginning of 1986 with two seasonal strategies: the first is holding SmallCap stocks just over the classic November-April half-year period each  year (and sticking the money under the mattress for the other six months), while the second holds SmallCap stocks over the December-May six-month span each year.

5. Best to Hold UK SmallCaps over the December to May period each year
Source: Author, Bloomberg

Holding UK SmallCaps over just December to May of each year since 1986 would have resulted in an average yearly return including dividends of 12%, compared with just 10.6% if you had held SmallCaps over November to April each year and only 8.3% if you had held SmallCaps the entire time. Compounded up over the 28 years, this results in a 43% higher total return.

This is why I believe investors should stay in May. Just be invested more in mid and small-caps rather than the large-cap FTSE 100 index, particularly this year following strong recent performance from mega-caps like AstraZeneca and Royal Dutch Shell.

If you want to take a seasonal approach to your stockmarket investing, then note that September and October are the real danger months, when market volatility has traditionally been at its highest. So perhaps think of switching into bonds and cash over those two months of the year…

6. September and October Are the Most Volatile Months for Stocks

2 thoughts on “Stay in May and don’t fly away…”

  1. David Lilley says:


    An excellent well researched presentation. It is all sound. The “go away in May” should perhaps be qualified “late May” to avoid the June falls. And then go away again in late August to avoid the bigger September falls.

    I note from the chart in 4. above that the “Christmas Rally” is fairly reliable and surely needs a little rhyme of its own.

    Your analysis convinces me that I may have been unfair to dismiss Chartism as a psuedo-science, failling as it does the “falsifability criterion” demarcing science from non-science. It also fails as it is induction which has been trashed and it fails as determinism which has also been trashed and given up to free will. If Chartism was sound we could replace every investment banker and fund manager with a calender.
    But if I can make a comment that is extraordinarily useful on when to buy and when to go away it has to be “read Simon Ward on Mindfulmoney”.
    With all respect,
    David Lilley

    1. Edmund Shing says:

      Hi David,

      Well thank you for the comments. I would certainly agree that Chartism by itself is certainly not sufficient for making informed investment decisions, even for the long-term. It is a useful guide, but does not replace good old-fashioned fundamental analysis, in my view.

      But I am happy to look at seasonality as one of many financial market effects that are not explained by Modern Portfolio Theory, along with the Value, Momentum, Size, Quality and Volatility factors that can help generate outperformance versus benchmark stock indices over the long haul…


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