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A Sell In May Strategy

May 07, 2018 10:56 AM ETSPDR® S&P 500 ETF Trust (SPY), SPTL46 Comments
Ploutos profile picture


  • Market returns have demonstrated strong seasonality, rising from November to April and then producing modest returns with higher variability between May and October.
  • This article looks at a simple strategy that owns stocks from November to April and then owns Treasuries from May to November.
  • While this strategy holds stocks half the time, it strongly outperformed the S&P 500 with lower variability of returns.

In a recent article, I took a deeper look at the old market adage of "Sell in May and Go Away." The article demonstrated that equity markets globally have experienced meaningful seasonality with returns from November to April far higher than between May and October. This phenomenon has held in developed and emerging economies globally over very long time periods, meaning this persistent calendar effect has not been arbitraged.

As the calendar flips to May, examining this market axiom seemed prudent. I decided to examine a strategy that held the S&P 500 (NYSEARCA:SPY) from November to April and long duration U.S. Treasuries (NYSEARCA:SPTL) during the period from May to November. Using data dating to 1973, the longest dataset I had for long Treasury returns, I found that this bi-annual switching strategy has generated structural alpha.

The results are fairly striking. This 1973-2017 time frame was a great period for U.S. stocks, which produced annualized returns of just over 10% over the sample period. The seasonal U.S. equity/long Treasuries strategy did even better, producing a 13.5% annualized return. As one would expect for a strategy that owned Treasuries half of the time, the switching strategy also produced less variable returns.

The annualized return from the Sell in May and Buy Treasuries portfolio was 13.5% with a standard deviation of annualized returns of just 14.4%. The strategy beat the S&P 500, which it owned for half the time, by 3.1% per annum and did so with suppressed variability. These are gross returns that are assumed to be held in a tax deferred account or vehicle and are shown before the small transaction costs of a twice-a-year switching strategy.

While the S&P 500 produced a -37% return in 2008, the Sell in May and Buy Treasuries portfolio was just -11% in 2008. That switching strategy was

This article was written by

Ploutos profile picture
Institutional investment manager authoring on a variety of topics that pique my interest, and could further discourse in this online community. I hold an MBA from the University of Chicago, and have earned the CFA designation. My articles may contain statements and projections that are forward-looking in nature, and therefore inherently subject to numerous risks, uncertainties and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance, and investment horizon.

Analyst’s Disclosure: I am/we are long SPY. 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.

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