Some investors may feel the need to sell UK stocks in May. Not because they’re performing poorly, or because it’s time to take their gains, but because of that old adage “sell in May and go away“.
The term is based on an investment strategy that suggests the summer months (between April and October) are significantly weaker than the winter months.
Typically, in such a strategy, investments are sold in late spring and the proceeds held in cash for the duration of the summer. Investors then return, typically around Halloween, and invest for the winter.
So why am I ignoring this strategy? Let’s take a closer look.
Is it still true?
The thing about old adages is they don’t always hold true. And over the past three years, looking at the FTSE 100, it’s clear that investors would have missed out on plenty of growth and would have experienced several corrections if they’d followed a ‘sell in May’ strategy.
The 2020 lockdown correction took place in March, and so did this year’s Silicon Valley Bank (SVB) engendered correction. There have also been periods of strong growth over the past few summers.
It’s not just the UK either. The FT Wilshire 5000 is a stock index that tracks the performance of virtually all publicly traded companies in the US. Since 2002, it would have outperformed a ‘sell at the end of April and buy on Halloween strategy’ by some distance.
One could argue that leaving your money invested throughout the summer months is more risky. But that’s only on the basis that the cash is invested half as often and is therefore less likely to impacted by a crash or correction.
Is this year different?
We’ve already seen quite a lot of movement in stocks this year. There was a real rally in January and February, and this was followed by a correction in March after SVB’s failure. But every year is unique, so it’s hard to compare 2023 with 2022 and further back.
Why buy now?
I’m ignoring the adage. I’m continuing to buy stocks for my portfolio because I’m continuing to find value, especially on the FTSE 100 and FTSE 250.
One reason for this is the March correction that hit financial stocks harder than most. Some companies, including Barclays, saw as much as 20% wiped off their share prices. Barclays and its banking peers have recovered somewhat, but I still think there are excellent buying opportunities.
UK banks weren’t widely appreciated before the market slumped. But the correction has seen its valuation metrics fall to incredibly attractive levels. Barclays now trades at just five times earnings.
But I’m interested in other sectors too. I think housebuilding stocks have got a lot of growing to do this year, and I expect plenty of this growth to come in the summer.
It’s also true that by selling in May I could miss out of ex-dividend dates during the summer. That wouldn’t be great!
