The existence of a ‘Santa Rally’ in markets continues to divide opinion among experienced investors. Although some market indices have risen over the Christmas period in some years, the trend remains difficult to explain.
Asset manager Schroders say there could be a number of reasons, such as more goodwill driving buying activity rather than selling. It also highlighted the view that fund managers are more likely to be re-balancing portfolios ahead of the year-end.
However, analysis by the firm also suggests that there could be some probability of a market rise increases in December, with growth likely 75 per cent of the time – just behind 70 per cent for April. But it argues that investors shouldn’t rush to put money into the market just because December has come around again.
Probability of indices rising
Source: Schroders
“You shouldn’t expect stock market history to repeat itself and you should certainly treat superstitions about the markets with a huge pinch of salt,” said James Rainbow, co-head of Schroders UK intermediary business.
“As a case in point, consider the ‘sell in May’ adage for this year. Those who sold at the FTSE 100’s highest point of the year in May, at 6,271 points, would have missed out on an 8 per cent gain by St Ledger’s Day.”
“Those looking to gamble on Santa spreading his goodwill around the markets again this year do so at their own risk. It really is one for day traders to worry about. A far better approach is to think long term. Make sure you have a clear investment plan and stick to it.”
While a true Santa Rally is defined by some analysts by the final five trading days of the year and the first two days of the new year, FE Trustnet has looked at December performance in four key sectors for the past five years to identify the funds that have made investors jolliest.
In the IA Europe ex-UK sector, the JPM Europe Dynamic fund was top quartile for the past four Decembers and second quartile in 2011; it’s best Christmas was a 3.23 per cent gain in 2012. The FP CRUX European Special Situations, meanwhile, was top quartile in four of the past five Decembers and second quartile during 2012, with 2.56 per cent return the stand-out Yuletide performance in 2015.
The Montanaro European Income fund has been top quartile in each of the past four Decembers it has data available for, while the Liontrust European Growth fund, also top quartile during the past four years, but third quartile in 2011.
There are fewer top festive performers in the IA Global sector, however one stand-out fund is Tim Wood’s £77.2m McInroy & Wood Smaller Companies, which has generated a positive return in each of the past five Christmases.
Performance of McInroy & Wood Smaller Companies vs sector average over 5yrs
Source: FE Analytics
More consistent December performers have been the Rathbone Global Opportunities and JOHCM Global Select funds, top quartile over the past three Christmases.
Despite the enthusiasm for the holiday in the US, few funds in the IA North America sector have enjoyed much seasonal consistency in December during the past five years.
The Black Rock US Dynamic fund has been top quartile in December 2015, 2014 and 2011. It was second quartile during 2013 and 2012. Elsewhere, the Marlborough US Multi-Cap Income fund was also first quartile in December during three of the past five years, most recently a 1.53 per cent return in 2015.
The Janus Opportunistic Alpha fund has also recorded top quartile performance during December during three of the past five years, however last Christmas the fund recorded a bottom quartile loss of 1.42 per cent.
In the UK All Companies sector there is greater consistency, however, with growth and mid-cap funds dominate the Yuletide performers.
The £23m Smith & Williamson UK Equity Growth fund, overseen by Rupert Fleming, has generated positive returns and top quartile Christmas performance during the past five years, including a 3.25 per cent gain in 2013.
Performance of Smith & Williamson UK Equity Growth vs sector average over 5yrs
Source: FE Analytics
The Aberdeen UK Mid Cap Equity fund is first quartile in the past four years, although it recorded a bottom quartile fall of 2.11 per cent in 2011.
Allianz UK Unconstrained was a top quartile performer for the past three Decembers and was also top quartile in 2011, missing out on a full spread in 2012 with a second quartile performance. The Ardevora UK Equity fund has a similar consistency but dropped to second quartile in 2014.
The Old Mutual UK Mid Cap, Threadneedle UK Mid 250 and Axa Framlington UK Mid Cap funds were top quartile in each of the past four Decembers, but were bottom quartile in 2011. Aviva’s UK Growth fund was top quartile for the past four Christmases, but third quartile in 2011.
F&C UK Mid Cap and Fidelity UK Opportunities Franklin UK Mid Cap were also top quartile in the past four years.