The old investor adage ‘sell in May, go away, come back on St Leger Day’ has largely proven to be a sensible tactic this year, according to data from FE Analytics.
Data from FE Analytics has shown that the saying has rung true in the past, with the FTSE All Share posting an average loss of 1.88 per cent between the start of May and St Leger Day in each calendar year since the millennium – and it has proven to be the case once again.
A equally weighted portfolio of all the major sectors in the Investment Association universe has fallen by 6.39 per cent between May and now, showing that more funds than not suffered from this summer’s volatility.
Performance of composite between May and Leger Day 2015
Source: FE Analytics
The turbulence experienced in markets over the summer was caused by a great deal of nervousness across the globe following a growth slowdown in China, the continuation of the Greek debt crisis and the impending interest rate rises from the Federal Reserve and the Bank of England.
Concern among investors came to a head on 24 August after the Shanghai Composite index had been plummeting for almost two months and a mass global sell-off resulted in ‘Black Monday’, when the FTSE 100 alone had more than £74bn wiped from it by close of play.
Because of this, it will probably come as no surprise that the sector in the Association Universe that has been the worst hit between May and St Leger day, which was yesterday, was IA China/Greater China, which fell on average by 24.02 per cent.
Every single fund in the sector, which consists of 37 portfolios, lost at least 17 per cent in returns. The worst hit funds were New Capital China Equity, GAM Star China Equity and Guinness China & Hong Kong, which all saw losses of more than 28 per cent.
There were seven funds in the sector that managed to lose less than 20 per cent, however – these included Aberdeen Global Chinese Equity, Douglas Turnbull’s Neptune Greater China Income and David Chen and Pauline Dan’s Pictet Greater China.
The next worst-performing sector that has supported the St Leger Day investing adage is IA Global Emerging Markets, which of course includes weightings in China and fell by 14.25 per cent on average. The pattern of funds with Asia weightings being hit hardest continues, with IA Asia Pacific Excluding Japan and IA Asia Pacific Including Japan following suite as the next worst-performing areas of the market.
Investors would have perhaps been better off investing closer to home if they chose not to sell over the summer, as the IA UK Smaller Companies sector provided the highest average returns of 5.68 per cent.
Performance of sector vs composite between May and St Leger Day 2015
Source: FE Analytics
There have been a number of reasons for this trend as while the internationally-facing FTSE 100 index has been rocked by global headwinds UK small and mid-caps (which had been out of favour in the build up to the election) have flourished in the more certain domestic political environment and improving economic backdrop.
The runaway top-performer in the sector was MFM Techinvest Special Situations, which is managed by Conor McCarthy and Darren Freemantle and returned 18.18 per cent.
While the £5.2m fund has found itself in the top decile over three months, six months and one year, it is bottom decile over 10 years and is in the bottom decile for nearly all ratios over the same time period including its Sharpe ratio, alpha ratio and maximum drawdown.
Larger household funds that came up trumps against the summer’s volatility were AXA Framlington UK Smaller Cos which returned 9.89 per cent, M&G Smaller Companies at 9.81 per cent, Franklin UK Smaller Companies at 9.78 per cent and CF Miton UK Smaller Companies at 9.65 per cent.
The second best-performing fund in the sector though was Schroder UK Dynamic Smaller Companies, which is managed by FE Alpha Managers Paul Marriage and John Warren and returned 10.67 per cent.
The four FE Crown-rated fund has also performed well over the longer term, despite its tough year in 2014, outperforming its sector average by 55.22 percentage points and returning 159.84 per cent over five years.
Performance of fund vs sector over 5yrs
Source: FE Analytics
Out of the 51 funds in the sector, only two funds made a loss this summer – these were TM Progressive UK Smaller Companies which lost 1.56 per cent and SF Webb Capital Smaller Companies Growth which lost 3.7 per cent.
The second two sectors to have come up roses between May and St Leger Day are IA UK Index-Linked Gilts and IA UK Gilts, which returned 1.72 and 0.8 per cent on average respectively.
The top-performing fund in the IA UK Index-Linked Gilts sector was Baillie Gifford Active Index-Linked Gilt Plus, which has been managed by Steven Hay since 2009. The £154m fund aims to outperform the FTSE Actuaries UK Index-Linked Gilts Over 5 Years index by 1.5 per cent each year over rolling three-year periods.
The fund, almost doubled the performance of the second top-performing fund in the sector, which was Scottish Widows UK Index Linked Tracker, which tracks the FTSE Actuaries Index-Linked All Stocks index.
Two other funds in the sector achieved a return in excess of 2 per cent over the summer – these were Thomas Sartain’s Schroder Institutional Index Linked Bond and Ben Lord’s M&G Index-Linked Bond.
Almost every fund in the sector made a positive return of at least 1 per cent between May and St Leger Day except SJP Index Linked Gilts which lost 0.81 per cent.
Over in the IA UK Gilts sector, AXA Sterling Long Gilt provided the highest return of 1.69 per cent. Other funds that fared well were Newton Long Gilt which returned 1.51 per cent, Vanguard UK Government Bond Index at 1.45 per cent, Schroder Intuitional Long Dated Sterling also at 1.45 per cent and F&C Institutional Retirement Annuity at 1.34 per cent.
While no fund in the sector made a loss, the likes of Allianz Gilt Yield, Scottish Widows Gilt and Royal London Short Duration Gilts found themselves at the bottom of the list for their returns, which collectively amounted to just 50 basis points.
For those who were investing in UK Equity Income funds this summer, the sector didn’t fairly too badly overall and made a loss of just 2.83 per cent on average.
The fund that weathered the storm the best out of the 84 in the sector this summer was CF Miton UK Multi Cap Income, which is managed by Gervais Williams and Martin Turner, which is biased towards the lower end of the FTSE All Share.
Not only has the five FE Crown-rated fund found itself in first place for performance since May with a return of 8.01 per cent, it has also provided top-decile returns over one year and three years as well as over one month, three months and six months.
Performance of fund vs sector over 3yrs
Source: FE Analytics
For those investors that tried to gain as much regional diversification as possible over the summer, the IA Global sector fared less well due to being dragged down by Asia and emerging markets, and lost an average of 7.95 per cent between May and St Leger Day.
Out of 270 funds, six of them have lost more than 20 per cent over the last few months – these were SKAGEN KonTiki, Guinness Alternative Energy, First State Global Resources, Schroder Global Small Cap Energy and Schroder ISF Global Energy.
Guinness Global Energy lost the largest amount at 29.08 per cent, although losses were to be expected from funds that rely on commodities due to their tumbling prices.
In fact, only one fund in the entire sector made a positive return between May and now – this was FE Alpha Manager James Thomson’s Rathbone Global Opportunities fund, which returned 0.59 per cent.
This outperformance could be attributed to the manager’s aversion to emerging market stocks, although the fund has also performed well over the longer term having beaten its sector average in landed in the top decile over one, three five and 10 years.
Performance of fund vs sector over 10yrs
Source: FE Analytics
Rathbone Global Opportunities has a clean OCF of 0.8 per cent.