There have been hundreds of articles written about the concept of selling equities in May and going away. Some claim it is a foolproof mechanism to prevent losses while others think it is foolhardy. The overall concept is to bypass the summer slump and to re-establish positions about the first of November.
In reviewing the price-only market performance of utilities stocks from May 1, to November 1, annually over the past 10 years reveals some very interesting trends. The first is that an investor who sold the S&P Utility Index ETF (NYSEARCA:XLU) on May 1, and bought again on November 1, in each of the past 10 years really would not have been spared much pain and in fact would have missed positive total returns in nine of the past 10 years.
As the table below shows, including the decline of 2008, investors who sold XLU in May and repurchased in November would have missed an average of 4.8% in total returns. The following table compares the price of XLU at the open May 1, and the open on November 1, the net dollar change and percent, the dividend paid between May and November, and the total investment return - by year:
The single major investment impact over the past 10 years was missing the precipitous decline of 27% from May to November in 2008, but that was the result of a major crisis, not the annual summertime blues. Share prices of XLU have just recently retraced their decline from $40 reached in May 2008. If 2008 performance were removed from consideration as a one-off event, the nine-year average total return would have been 8.4% annually. However, taking the worst year out of consideration flies in the face of the "buy and hold" crowd and the reality is investors would still have averaged a 10-year annual total return of almost 5% - countering the premise of selling in May and repurchasing in November for utility stocks.
Using bigcharts.com, the following is a series of graphs of price-only performance of 10 utility stocks and XLU. The period is May 1, to November 1, for each year going back to 2003. The companies were selected somewhat randomly with a combination of regulated electric utilities, natural gas and water utilities, and of various market capitalizations. The companies are:
- Southern Company (NYSE:SO) -- Electric, more information is here;
- Duke Energy (NYSE:DUK) - Diversified, mainly electric, more information is here;
- Dominion Resources (NYSE:D) -- Diversified, mainly electric, more information is here;
- American Electric Power (NYSE:AEP) - Electric, more information is here;
- Spectra Energy (NYSE:SE) - Natural Gas, more information is here;
- Centerpoint Energy (NYSE:CNP) -Natural Gas, more information is here;
- National Fuel Gas (NYSE:NFG) - Natural Gas, more information is here;
- Wisconsin Electric (NYSE:WEC) - Electric, more information is here;
- ITC Corp (NYSE:ITC) -Electric, more information is here;
- Aqua America (NYSE:WTR) - Water, more information is here;
May 1 2012 to Nov 1 2012
May 1 2011 to Nov 1 2011
May 1 2010 to Nov 1 2010
May 1 2009 to Oct 30 2009
May 1 2008 to Oct 31 2008
May 1 2007 to Nov 1 2007
May 1 2006 to Nov 1 2006
May 1 2005 to Nov 1 2005
May 1 2004 to Nov 1 2004
May 1 2003 to Oct 31 2003
May 1 2003 to May 1 2012
While some sectors may benefit from an annual market timing exercise, the utility sector is not one. Buying a basket of utility stocks over time with a dollar cost averaging approach seems prudent for the buy and hold dividend and income investor.
Author's Note: Please review important disclaimer in author's profile.
Disclosure: I am long SO, ITC, AEP, NFG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.