In its quest to disprove this catchy saying, the analysts at AmericaFirst became some of its staunchest supporters.
What is the “Sell in May and Walk Away” Strategy?
Sell in May and Walk Away (also known as the Halloween Strategy) is a well-known trading adage that warns investors to sell their stock holdings in May to avoid a seasonal decline in equity markets. The sell-in-May-and-go-away strategy is where an investor sells his stock holdings in May and gets back into the equity market in November, thereby avoiding the typically volatile May-October period.
What We Learned
After pouring through decades of data and millions of data points, we learned the following:
Works Best with Non-Defensive Sectors. While Defensive sectors (Healthcare, Staples, and
Utilities) tend to show little deviation between the “best six months” and the “worst six months”, Cyclical stocks have displayed dramatic performance differences – see the following chart.
Bonds Double Stocks. AmericaFirst learned the worst six months for stocks have proven to be among the best six months for bonds. In fact, bonds have doubled stocks during May through October timeframe – regardless of interest rate environment. Why? Because as stocks decline, investors flee to bonds thereby increasing demand and therefore bond prices.
A Global Phenomena. The “Sell in May” strategy does not just apply to the United States. In fact, it is supported by over 200 years of data in the United Kingdom. The Strategy has proven effective in nearly 90% of developed and emerging markets – see the following chart:
How to Invest
AmericaFirst manages the only “Sell in May and Walk Away” mutual fund.
The Seasonal Rotation Fund owns cyclical stocks November through April and owns investment-grade bonds the remaining six months. As an additional market hedge, the Fund can implement short-selling strategies when the markets break down technically.