It’s the time of year when an old stock market adage is given its annual airing: “Sell in May and go away, come back on St Leger day.“
Its origin is lost in the mists of time, but the idea is that investors can improve their returns by selling their stocks in May and buying them back in September (when the St Leger horse race — inaugurated in 1776 — is run).
Maybe the strategy had some merit in the past, but having crunched the FTSE All-Share index numbers for the last 10 years, I see no compelling evidence it’s a smart idea today.
Let me tell you about three FTSE stocks I’d far rather buy (or hold) than sell. And say a few things about ‘Sell in May’ while I’ve got the bit between my teeth.
FTSE All-Share
First off, those FTSE All-Share numbers I mentioned. The index contains the largest number of UK main market companies. It also covers the widest range of market capitalisations — from £100bn giants like HSBC down to sub-£100m small caps like Topps Tiles.
The figures below show the index’s percentage rise/(fall) between mid-May and St Leger day for the last 10 years:
- 2023: (1.1)
- 2022: (1.9)
- 2021: 1.1
- 2020: 5.6
- 2019: 1.4
- 2018: (4.8)
- 2017: (2.9)
- 2016: 9.6
- 2015: (11.8)
- 2014: (0.3)
As you can see, there were four years when the index made gains and six years when it fell. This doesn’t strike me as a particularly persuasive advertisement for the Sell in May strategy.
Furthermore, I’d suggest that in at least two of the years when the index fell — 2014 (-0.3%) and 2023 (-1.1%) — selling in May and buying back in September would nevertheless have left small investors worse off.
How so? Principally because of the trading costs incurred in the selling and re-buying round trip and the loss of dividend entitlements during the period out of the market.
Brands powerhouse
Diageo is a £63bn blue-chip company. I like its powerful stable of over 200 drinks brands. These include Johnnie Walker, Smirnoff and Guinness. I also like its impressive history of dividend growth since it was formed by a merger of Guinness and Grand Metropolitan in 1997.
The shares are currently out of favour with the market because the macroeconomic backdrop is challenging. However, this could mean the stock offers value today.
A rating of 19 times forecast earnings and a prospective dividend yield of 2.8% are cheap by Diageo’s historical standards. Incidentally, sellers in May would miss out on the year’s final dividend to which shareholders will become entitled in August.
Niche real estate
Primary Health Properties is a £1.2bn mid-cap company. I like its niche within the real estate sector. Its tenants, such as GP surgeries, are under long leases, and nine-tenths of its rental income is backed by the UK and Irish governments. It’s delivered 27 consecutive years of dividend growth.
The shares looked distinctly overvalued a couple of years ago. At their peak, they traded at a 47% premium to assets with a dividend yield of 3.6%.
However, today — at a 15% discount to assets and with a 7.5% yield — they look a lot more attractive. Sellers in May would miss the entitlement (in July) to the third of the company’s quarterly dividends.
Wizard performer
Bloomsbury Publishing has a market capitalisation of £450m and is one of the larger companies in the small-cap universe. It was once very much smaller. The value of its shares has increased by over 2,000% since it joined the stock market in 1994.
It’s famed for its punt on an unknown author in 1995: JK Rowling. But there’s a lot more to its success than riding on the back of Harry Potter’s broomstick.
The shares have hit all-time highs this spring, and I’m not sure I’d be rushing to buy right now. However, there’s undoubtedly strong momentum in the business. Management has said it expects revenue and profit to be significantly ahead of its already upgraded guidance.
If I owned the stock, I’d be inclined to continue holding (including for the July entitlement to the year’s final dividend), based on the company’s record of delivering terrific value for shareholders.
Just three of many
I’ve highlighted Diageo, Primary Health Properties and Bloomsbury because of their range across the large-, mid- and small-cap arenas.
However, they’re just three of many UK stocks I’d far rather buy (or hold) than sell in May in the hope of lower prices come St Leger day.
