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  • Go Away In May: Exploiting Seasonal Abnormality For Sector ETFs And Mutual Funds 5 comments
    Apr 17, 2012 10:23 PM | about stocks: XLE, XLB, XRT, XLI, XME

    April is the month when the talk of 'Go Away in May' is revived every year. It appears from historical data that it may indeed be possible to get substantially higher returns (or at least decrease volatility) for some ETFs by buying them on the last day of November, and exiting the position at the end of May in the following year. The improvement becomes quite impressive if the strategy also includes investment in a long term treasury bond fund held during the remainder of the year (buy, say VUSTX or TLT on the last day of May, and exit the position on the last trading day of November).

    Here are the results of back testing of the enhanced strategy using VUSTX for some SPDR Sector ETFs for the period beginning on the date of inception thru 2011.

     XLEXLBXLIXRTXMEXHB
    Date of Inception199919991999200720072007
    CAGR (Buy &Hold)10.2%5.3%4%6.3%0.2%-13%
    CAGR (Sell in May)20.2%13.7%12.5%28%34.5%20.7%
    Min Return (B&H)-39%-44%-39%-38%-59%-47%
    Min Return (S in M)6.3%-5.5%-3.6%11%13%4.8%

    If the strategy is applied to an equally weighted portfolio of all six of these ETFs, the results are quite remarkable (for 2007-2011):

    CAGR (Buy and Hold): 1.8%

    CAGR (Sell in May) : 24.3%

    Minimum Return (Buy and Hold): -43%

    Minimum Return (Sell in May): 18%

    (Alpha and Beta not meaningful due to short time period).

    Obviously 2007-2011 is not long enough a period to make any significant judgments for practical investment decisions. However, a similar improvement would have also occurred for a portfolio of Fidelity Select Sector Funds for which data is available for a longer period. Indeed, for an equally weighted portfolio of seven such funds (FSESX, FSENX, FSRPX, FSRFX, FSCGX, FSELX and FSCHX) the following results are obtained for the twenty one year period 1991-2011.

    CAGR (Buy and Hold): 13.3%

    CAGR (Sell in May) : 20.4%

    Minimum Return (Buy and Hold): -44%

    Minimum Return (Sell in May): 2%

    Sharpe Ratio: 1.46

    One Factor Alpha: 16.3%

    One Factor Beta: 0.19

    Disclosure: I am long XLE.

    Stocks: XLE, XLB, XRT, XLI, XME
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Comments (5)
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  • Maybe you could run this on your Fidelity sector rotation method ? Buy applicable sector funds the last day on Nov. and also Feb. and sell in May .
    Also, using a variant on the idea, I ran an analysis on the Fidelity sector rotation method which bought only VUSTX on all 3rd quarters.
    Since 1991, seems like just about the same cumulative performance with a lot less risk. The 3rd quarter cumulative performance was definitely the lowest performing quarter of the 4 with the 1st quarters being the best .
    http://tinyurl.com/d3u...
    20 Apr 2012, 06:24 PM Reply Like
  • Author’s reply » thanks. I will take a look.
    20 Apr 2012, 06:39 PM Reply Like
  • Wonder why you used the XRT, XME and XHB? These are not part of the broad SPDR sectors. Where is XLV, XLU, XLK, XLF,XLYand XLP?
    10 May 2012, 06:07 AM Reply Like
  • Author’s reply » The purpose was to illustrate rather than to be comprehensive. The others show improvements too. The first number is the CAGR for 1999-2011 for buy and hold, and the second is for holding the ETF during Dec.-May, and VUSTX during the rest of the year. Though the relative improvement is just as dramatic, the absolute return with the sell in may is not quite attractive.

     

    XLY: 3.4 12.1
    XLU: 4.7 10.6
    XLK: -1.15 4.4
    XLF: -2.6 8.8
    XLY: 4 12
    XLP 3.2 7.7
    10 May 2012, 09:35 AM Reply Like
  • AAAP Calculator: You can find the calculator for Adaptive Asset Allocation, provided by FTSE, at this URL:

     

    http://bit.ly/RCEU9s

     

    The calculator is based upon the work of Professor Sharpe. William F. Sharpe is the Professor of Finance, Emeritus at Stanford University's Graduate School of Business. He was one of the originators of the Capital Asset Pricing Model and developed the Sharpe Ratio for investment performance analysis. In 1990 he received the Nobel Prize in Economic Sciences.

     

    Professor Sharpe's paper, describing the thesis can be downloaded there, as well.
    22 Aug 2012, 10:16 AM Reply Like
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