DIY Investor Magazine
|
Oct 2017
45
SELL IN MAY SECTOR STRATEGY (SIMSS)
The Sell in May Effect is one of the best known and
strongest market anomalies, but exploiting it can be
tricky. Here’s one way.
The idea is to stay in the market throughout the year
but to rebalance a stock portfolio according to which
sectors perform the best in the two six-month periods as
defined by the Sell in May Effect.
First, the performance of the respective FTSE 350
sectors is analysed for the two periods in recent years.
Then some filters are applied:
1.
Sectors with less than four component
stocks are not considered.
2.
Sectors must have a minimum 13-year
track record.
3.
Standard deviation (i.e. volatility) of a sector’s
returns must be below the average
standard deviation.
4.
Positive returns must be over 50%.
From this, the sector portfolios selected were:
The Sell in May Sector Strategy (SIMSS) is therefore:
In the summer period: long sectors Gas, Water &
Multiutilities, Beverages, and Health Care Equipment &
Services, and then switch to…
In the winter period: long sectors Construction &
Materials, Industrial Engineering, and Chemicals.
Performance of SIMSS.
The following chart shows the simulated performance
of the Sell in May Sector Strategy (SIMSS) backdated to
1999 compared to the FTSE 350.
After 17 years the SIMSS portfolio would have grown in
value to 1021 (from a starting value of 100), while the
FTSE 350 (buy and hold) portfolio would have grown to
111. This simulation does not include transaction costs,
but as the strategy only trades twice a year these would
not significantly affect the above results.
To purchase this book for the special DIY Investor price
of £18 + P&P (RRP £25) use the following promotional
code when checking out at the Harriman House online
bookshop: DiYEE15.
