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Alka Banerjee, Vice President of Global Equity Indices at S&P Indices

S&P data confirms tradition of weak summer for investment returns


The old adage traditionally used across London trading floors, “Sell in May and go away,” still holds its own across European markets, according to an analysis by S&P Indices.

The theory behind this maxim is that the summer months are characterised by sluggish performance or a loss.  

By selling out holdings in May and reinvesting them only when the summer is over, the portfolio is protected and better returns may be achieved.

By analysing the monthly performance of 16 European markets in the S&P Global Broad Market Index over the ten year period from January 2000 to December 2009, S&P has shown that this trading strategy still holds across Europe.

The impact is particularly pronounced in Europe’s leading economy, Germany, which over the last decade saw an average total return of 3.33 per cent over the January to May period, compared with an average loss of 1.42 per cent over the June to August summer months. This compares with an average total return of 8.86 per cent over the year as a whole. 

France and Italy also see similar performance, with average gains of 3.58 per cent and 2.92 per cent respectively over January to May and losses of 0.96 per cent and 0.92 per cent from June to August.

Finland, however, has the worst performing summer overall with a loss of 7.17 per cent over June to August on average over the last ten years. This is followed by Portugal, with an average loss of 3.02 per cent over June to August, compared to a 3.82 per cent gain over January to May and a 9.12 per cent rise over the year as a whole. Portuguese investors not reducing their market exposure after May are at risk of losing a large part of their entire year to date gains.

The most successful summer periods are had in Denmark and Austria, which see an average 3.02 per cent and 1.67 per cent rise over June to August respectively. This is eclipsed, however, by the average 9.48 per cent and 11.05 per cent returns from the first five months of the year.

The effect would not seem to be so pronounced in the UK, where the adage originated, as in much of the rest of Europe. It still holds true, though, with an average sluggish gain of only 0.11 per cent over the summer compared to a 2.46 per cent rise over January to May.

Despite this pattern, for most European countries the last four months remain the most important for contributing to full year returns, meaning that even after experiencing a poorly performing summer there is still the chance to improve returns.

In the US during this period, the average May to August performance was -0.03 per cent, compared with an average annual 2.63 per cent gain.

Alka Banerjee, vice president of global equities at S&P Indices, says: “We wanted to check back how true this seasonal effect still was in markets around Europe, and it’s clear it is still a very significant factor. A number of reasons have often been put forward for this, such as reduced capital inflows in the summer months, the impacts of vacations on trading activity, and the fact investors get less forgiving of companies if first half earnings disappoint. Whatever the exact causes – and they may differ from market to market – this seasonal effect looks alive and well across most major European markets.”

The full original City of London phrase is “Sell in May and go away, stay away till St Leger’s Day.”  This refers to the St Leger Stakes horse race, held in early September for well over 200 years.

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