The investment chestnut “Sell in May and go away” was the basis for a webinar conducted on Wednesday by S&P Capital IQ, and its premise offered a glimpse into where one might choose to go in a market that offers both choice and challenge.
Sam Stovall (left), S&P Capital IQ chief equity strategist, pointed out that while the S&P 500 offered slim returns from the period of May through October, averaging 1.2% as calculated from April 30, 1945, through April 24, 2012, during those same years it averaged a return of 6.9% for the months of November through April. Hence, leaving the S&P in May and returning in November does seem to have a basis in fact.
However, Stovall then turned to market sectors to identify where one might seek returns rather than parking investment money in cash for six months of the year. Focusing on consumer staples and health care, he pointed out that from April 30, 1990, through April 24, 2012, the former gained 4.7% and the latter 4.3%, compared with the average semiannual return of the S&P 500 for the same period of only 0.9%.
Investors engaging in a twice-yearly rotation in and out of the S&P 500 and individual sectors could, he said, boost returns substantially, calculated on price only. If an investor stayed in the S&P 500 all year during the period of 4/30/90–4/24/12, he could have had a hypothetical compound annual growth rate of 6.7%. If on the other hand in May the same investor moved into a portfolio of 50% consumer staples and 50% health care, moving back to 100% S&P in November, the return could have been 10.7%.
Todd Rosenbluth, S&P Capital IQ ETF analyst, then addressed ETFs, providing insight into how they are constructed and ranked. Ranking, he explained, was based on three factors: performance analytics, risk considerations and cost factors. This allows an ETF to be ranked not just on its holdings but also its characteristics relative to peers.