The index has risen by an average of 2.8 per cent between 15 December and 5 January since 2000. The only year investors didn’t make money was in 2007, when investors lost a modest 0.71 per cent.
Some UK equity funds have done an even better job. The £12.4bn Invesco Perpetual High Income portfolio, formerly run by Neil Woodford and now headed up by fellow FE Alpha Manager Mark Barnett (pictured), has made money in 14 consecutive years over this period, with an average return of 2.92 per cent. In fact, the last time the fund didn’t make a positive return over the Christmas period was back in 1995/1996.
Source: FE Analytics
However, there are numerous theories that suggest equity markets have an above average chance of making money over the festive period. These range from higher consumer spending and the general feel good factor in the City and Wall Street, to lower than average trading volumes. Some even point to the anticipation of the “January effect” – the theory that stock markets tend to do well in the first month of the year. The “proven” gains could, of course, be a coincidence. Let’s consider a 21-day period over a random period. I’ve decided to use my birthday as a starting point – 30 March.
FE data shows that Invesco Perpetual High Income has made a positive return in 12 of the last 14 years between 30 March and 20 April, with an average return of 1.99 per cent. The worst performance of the fund came over the 21-day period in 2014, when Barnett lost 1.82 per cent. The FTSE 100 has made a positive return in 11 of the last 14 years.
Experts suggest that there are certain macro drivers during the Christmas period, but think that making investment decisions based on past performance is a bad idea.
John Blowers (pictured), head of Trustnet Direct, said:
“Past performance is no guarantee of what will happen in the future, but institutional window dressing ahead of the year end, combined with lower than usual volumes, do appear to be instrumental in routinely driving the market higher over this period,” he said.
“However, to consider this as a genuine investment strategy would be a big mistake. If you’re working in small volumes, the trading fees themselves would erode away much of the gains you make – if indeed the ‘Santa rally’ occurs.”
“There’s always the chance that a black swan event occurs, which would deem something like positive consumer sentiment completely irrelevant.”
Patrick Connolly (pictured), head of communications at Chase de Vere, agrees. Like Blowers, he thinks the consistency of UK equities over the Christmas period makes for interesting reading – but nothing more.
“The results sound pretty compelling. There may well be something that drives the markets at this time of year – I would agree that investors tend to be more positive at the end of the year for example, but I wouldn’t invest clients’ money based on this,” he said. “We’re not into market timing at the best of times, and certainly wouldn’t invest at a certain time of year.”
Connolly suggests that buying when markets dip makes much more sense from a market timing point of view than trying to cash in on a ‘Santa rally’, but even then he only rebalances clients’ portfolios rather than investing aggressively.
He thinks that most investment theories, including “sell in May and go away”, are nothing more than marketing ploys, designed to encourage investors to part with their hard earned cash.
One of the more elaborate investment portfolios launched in recent times includes a ‘Winter portfolio’, consisting of five stocks that tend to perform well between November and May.
“You’ve got to remember that share price movements aren’t based on how well the company performs or how many sales are made. It’s about how the company performs compared to expectations,” he said.
“The strong performance of companies is often already in the price. A company could do very well but be below expectations.”
