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Will September mark a revival for UK equities?

Graham Smith

Graham Smith - Market Commentator

September sees the return for many of us to a normal routine. Full offices in the City and elsewhere and the reopening of schools and parliament herald the start of one of the busiest times of year.


For stocks and shares, this ought not to matter too much. After all, world events seem to influence them on a day-to-day basis, while economic fundamentals and company results tend to hold sway over the longer term. The time of year shouldn’t affect the chances the market is about to rise or fall.

However, one of the most well known of market sayings purports to identify a seasonal effect. “Sell in May, go away, come back St Leger’s Day” advises investors not to hold onto their investments over the period spanning May to September.

We’ve discussed here in the past the futility of pursuing this strategy in the present day. Its roots lie in a distant age when stockbrokers and their clients were supposedly more attuned to a busy calendar of social events than the stock market.

However, in today’s highly connected and interconnected markets, this strategy has shown itself to be more likely a non runner than a red hot favourite.

There have certainly been landmark years in which selling in May and buying back in September would not have worked. Take, for example, 1987 – when the stock market spiralled higher before “crashing” in October; 1999 – which ended with the bursting of the tech bubble; and 2008 – which saw the global financial crisis starting to envelop markets in September.

The hard numbers confirm the unreliability of the strategy. Fidelity has looked at returns from the FTSE All-Share Index between May and September over the past 30 years and found that the Index produced positive returns in 18 of them¹.

At the time of writing – and even after the considerable domestic political upheaval and concerns about a slowing world economy that have rocked markets since August – the UK stock market is only a little below where it was at the beginning of May².

Were we to take account of the additional problems that would be encountered putting the Sell in May strategy into practice – notably the costs that would be incurred selling investments in May and buying them back in September – the adage would look to be even more of an outsider.

Less intriguing perhaps than the Sell in May adage are two others, which are nevertheless likely to prove more reliable.

“Buy low, sell high” is evidently desirable. However, due to human preferences to follow crowds, this is often difficult to accomplish. It feels more comfortable investing when markets have performed well, whereas the best returns tend to occur after markets have fallen. 

“Don’t time markets, spend time in them” encapsulates two ideas: that short term market moves are often impossible to predict; and that always staying invested is the best way to be sure of capturing the long term growth in stock markets.

That leads me on to a readymade investment product – the regular savings plan – because it can be used to take advantage of both of these theses.

By saving a set amount each month, an investor can start to gain access to stock market returns at the earliest possible moment. Access to a large initial sum of money is not a requirement.

Also, provided the monthly amount is comfortably within an investor’s means, the plan can be continued over a long period.

Second, investing a set amount monthly automatically ensures that more shares or investment fund units get bought in months when markets are low and fewer in months when markets are high. Over time, this naturally reduces the average price per share or unit an investor pays, helping to maximise returns.

This year, the St Leger Festival in mid September is set to coincide with a time of intense political and economic uncertainty. No one realistically expects an easy ride for markets.

Perhaps though, for that reason, long term investors should at least draw a little encouragement. Depressed share prices for companies exposed mostly to the UK economy together with a weak pound suggest markets have so far failed to factor in anything other than a negative outcome to Brexit negotiations. Regular savers may relish the implied opportunity, without having to be precise about where the stock market travels to over the short term.

You can open a stocks and shares ISA with Fidelity from just £50 per month or invest up to 12 regular monthly amounts per tax year up to the current £20,000 ISA limit. 

To add additional resilience to an investment portfolio also looks sensible, given the uncertainty currently ranged against financial markets. For many investors, a multi-asset fund can be a good choice, because it will include several types of assets that behave differently from one another under a given set of economic circumstances.

The Fidelity Select 50 Balanced Fund is one such example. It invests in 30 or so other funds – mostly ones that have made it onto Fidelity’s Select 50 list – and provides investors with an exposure to equities, government and corporate bonds, and cash. It also invests across a diverse range of countries, from the Americas and Europe in the west to Japan and Asia in the east.

More on the Fidelity Select 50 Balanced Fund

¹ Fidelity International, September 2019. FTSE All-Share Index total return, 01.05.90 to 01.09.19
² Bloomberg, 04.09.19

Important information The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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