SOURCE: Russell Investments

Russell Investments

May 18, 2015 13:38 ET

Sell in May? When It Comes to the FTSE All-Share Index, the Old Adage May Only Apply to Certain Industry Groups, According to FTSE and Russell Indexes

Historical Analysis Suggests Consumer-Oriented U.K. Stocks Historically Haven't Faded in the Summer Sun

SEATTLE, WA--(Marketwired - May 18, 2015) - In their academic paper, "The Halloween Effect in US Sectors," Ben Jacobsen and Nuttawat Visaltanachoti from Massey University in New Zealand examined U.S. equity market sector and industry returns from 1926-2005, finding that U.S. investors have experienced a Halloween effect, with all U.S. stock market sectors performing better during the winter.

FTSE and Russell Indexes analyzed this concept through the lens of the FTSE All-Share Index, a broad indicator for the performance of companies listed on the London Stock Exchange, to see if it also applied to the largest UK-listed stocks in recent history. The results offer a fresh take on a time honored investment concept.

Our study consisted of examining FTSE All-Share Index industry returns (GBP) between 2000 and 2015, breaking out so-called summer months (May through October) and winter months (November through April). While our analysis confirmed that overall performance for the FTSE All-Share Index in the winter months has been better than that of the summer months, it also uncovered distinctions in industry performance in the summer months over the history of the Index which may prove useful to market participants.

UK Consumer Industries (i.e., Telecommunications, Consumer Goods, Consumer Services, Utilities and Health Care) on average outperformed UK Producer Industries (i.e., Oil & Gas, Industrials, Technology and Basic Materials) in the summer months (see Table 1 below).

The industry group that demonstrated a clear inconsistency from the original academic study was Consumer Services (food, retailers, media, travel and leisure), which experienced its largest losses in the summer months in 2001, 2002 and 2008. Although the UK economy avoided a post dot-com bubble recession, 2001 and 2002 were anomalous years for UK Consumer Services business activity. Some factors potentially contributing to this were deterioration in consumer confidence in light of an uncertain macroeconomic environment and adverse economic effects in a post 9/11 world. When excluding both summer and subsequent winter returns for these three years from the analysis, FTSE analysts found a much higher summer return for Consumer Services stocks (see Table 2 below).

Kevin Kelly

Managing Partner & Chief Investment Officer, Recon Capital Partners
"The recent analysis from FTSE and Russell Indexes supports the notion that investors should avoid broad consensus or generalities when making long-term investment decisions. Investors can benefit from looking deeper into individual market history to uncover certain nuances and distinctions that can make a difference over time. While past performance is no guarantee of future results, deeper historical perspective through market indexes can be helpful to investors."

Table 1: FTSE All-Share Index Industry Average Returns: 2000-2015
     
ICB Industry Sector May - October November - April
Telecommunications 3.0% 1.8%
Consumer Goods 4.8% 7.9%
Utilities 5.5% 6.0%
Health Care 2.6% 5.6%
Financials 0.9% 4.7%
Oil & Gas 0.8% 6.6%
Industrials 0.4% 9.8%
Consumer Services (-0.9%) 7.4%
Technology (-1.8%) 4.0%
Basic Materials 0.0% 13.0%
     
     
Table 2: FTSE All-Share Index Industry Average Returns: 2000-2015
(Excluding 2001, 2002 & 2008 Returns for U.S. Consumer Services)
 
     
Index Industry Sector May - October November - April
Telecommunications 3.0%
1.8%
Consumer Goods 4.8% 7.9%
Consumer Services 5.1% 6.9%
Utilities 5.5% 6.0%
Health Care 2.6% 5.6%
Financials 0.9% 4.7%
Oil & Gas 0.8% 6.6%
Industrials 0.4% 9.8%
Technology (-1.8%) 4.0%
Basic Materials 0.0% 13.0%
     
 Source: FTSE Group, data as of December 31, 2014. Past performance is no guarantee of future results.   
 

FTSE International Limited ("FTSE") and Russell Indexes ("Russell") are wholly owned by London Stock Exchange Group. For more information on the FTSE 100 Index, go to the FTSE website.

Please note: Indices are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

Publication of indexes or index constituents in no way suggests or implies a representation or opinion by Russell or FTSE as to the attractiveness of investing in a particular security. Inclusion of a security in an Index is not a promotion, sponsorship or endorsement of a security by Russell or FTSE and neither Russell nor FTSE makes any representation, warranty or guarantee with respect to the performance of any security included in a FTSE Index.

Opinions expressed by Mr. Kelly as of May 18, 2015 and are subject to change at any time based on market or other conditions without notice. Past performance does not guarantee future performance.

Global equity involves risk associated with investments primarily in equity securities of companies located around the world, including the United States. International securities can involve risks relating to political and economic instability or regulatory conditions. Investments in emerging or developing markets involve exposure to economic structures that are generally less diverse and mature, and to political systems which have less stability than those of more developed countries.

Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional. The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.

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