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A 'Sell In May' Strategy

Ploutos profile picture


  • Market returns have historically demonstrated strong seasonality, rising sharply from November to April and then producing modest returns 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 has strongly outperformed the S&P 500 with lower variability of returns.

In Tuesday's 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 equity 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 surprising, yet persistent, calendar effect has not been arbitraged.

As the calendar moves into early May, examining this market axiom seems prudent. My article Tuesday began with the disclaimer that for most investors, a buy-and-hold strategy that focuses on capturing long-run equity risk premium is preferable. During the current market correction, that long-term focus may be even more salient advice. Indeed, some investors noted that while semi-annual returns (tabled below) were weaker in the May-October period, they were still positive. Why turn our nose up at market gains?

Sell in May and Go Away Semi-Annual Returns

For more trading-oriented portfolios looking to tactically reposition over shorter-time intervals, I decided to examine a strategy that held the S&P 500 (SPY) from November to April and was long duration U.S. Treasuries (NYSEARCA:SPTL) during the period from May through October. Using data dating to 1973, the longest data set I had for long Treasury returns, I found that this bi-annual switching strategy has generated structural alpha.

The results are fairly striking. This 1973-2019 time frame was a great period for U.S. stocks, which produced annualized returns of over 10% over the sample period. The seasonal U.S. equity/long Treasuries strategy did even better, producing a 13.6% annualized return. As one would expect for a strategy that owned Treasuries half of the time, the switching strategy also produced less variable returns.

Sell in May - S&P 500/Treasury Swap

The annualized return from the Sell in May and Buy Treasuries portfolio was 13.6% with a standard deviation of annualized returns

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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (27)

Ed Grey profile picture
I wonder how this would work with other portfolios. There are probably some stocks (or kinds of stocks) that would work better than others; e.g. software vs. retail vs. financials.
I'm using it change from 3 cap weight indices in one season to 3 other ones in the next. So yes, it works (well.. not because I'm using it of course).

5ofDiamonds profile picture
Its too stressful to sell and buy your entire portfolio year after year @Ploutos

Its much easier to just focus on what one wants to buy every day.
Droleht profile picture
If I were to implement this strategy now, I would choose GSY rather than TLT or SPTL. I would thus give up the possible price increase in TLT/SPTL if Yields drop but pick up an extra .6% in yield income. I know that the FED is creating money to fund the new treasuries but there has to be an incentive to market some to other lenders which could drive yields up a bit when those lenders fail to participate as expected.
@Droleht - March 2020 exposed the achilles heel of funds like MINT/GSY though. To gain that extra yield they go spelunking into the junky debts of fixed income. when credit freezes up, panic ensues. Nobody panicked holding TLT though, they benefited.
mfposa profile picture
One would be tempted to jump on this strategy. Then you realize that you're 100% S&P500 sometimes and 100% long treasuries sometimes. I'm not sure I'd be comfortable being 100% long either of them. At some point you'll get bit hard.
Matt GV profile picture
Commit no more than a part of your capital to any single strategy.
Augustus profile picture
It is not necessary to follow 100% for improvement in returns.
Make it 80%/20% and switch to 20%/80%.
There has been a bit of advancement on the strategy. Execute the trade based upon the 12,26,9 MACD signal beginning mid April for the SELL and Sept 15 for the BUY
Algyros profile picture
Thanks for the idea. Do you have any data on how this strategy performs?
This year sell in May and go away till October, after those with loans can layoff people without penalty and others will go bankrupt even with the loans. Plus Hurricane season with help already stretched to the limit [then again just print a few more TRILLION] and maybe a resurgence of Hurricane Coronavirus. Then hopefully Santa can save the day.
I'm not an overall fan nor practice this type of market timing, but if you were going to try it then I generally agree with the comment above. If you want to do that though then I would say perhaps sell in late May or early June to catch some more tail winds of economy re-openings, even if those prove to be temporary summer vacations. Go away till October seems sound pending of course there are no major (re)shut downs remaining in October.
Bert Mariani profile picture
Hello Ploutos
Can you show the results for a running 10 year span.
This will show it it still applies to recent data

The Sell in May and Go Away used to use these dates
Memorial Day to Labour Day
Are the results similar

Then to skip a couple of bad Octobers it was changed
Memorial Day to Oct 31

Then revised again to these dates
May 1 to Oct 31
No Come back on September 12th. For the races you know.
Thanks for the work Ploutos.
No doubt the 8.5% long bond played a large role in the returns during the risk-off 6 month period. Now that the long bond is at less than 2%, the returns of the strategy going forward would look much more like the SP500 returns, but probably with lower volatility.

I would probably be more apt to change my stock/bond ratio from 60/40 during the good 6 months back down to 50/50 during the bad.
Thanks for your work. This is one cliche that is well known to work well and i have tilted my investments that way for many years.

But now we are entering years that i believe could bring about stagflation as a dominant market factor with long term interest rates rising along with a sluggish stock market, ala 1974-1980.

So maybe a little adjustment to inflation protected Treasuries would work out better. Those options didn't exist in 1974.

My plan was to substitute TIPs via VTIP and TIP in lieu of TLT or SPTL
Ray205 profile picture
Thank you. Your sell in May analysis focuses on the broad market. Have you looked at how different sectors behave?
Of course, the question now is interest rates
BayArea2016 profile picture
Exactly! Going to negative, which will require a lot of restructuring and global wealth leaving the dollar. I can't imagine the US losing its reserve currency status. However, I can imagine restructuring taking on different form of currency that dramatically devalues the dollar. The rest of this decade is going to be an economic mind blowing episode full of twists and turns.
You can build the same strategy and use cash instead of long-term bonds to see if even "lame" cash had a benefit. If so, then the only thing you have to do is design a switch between cash and long-term bonds and invest in the winner.

@drftr Or perhaps even instead of cash, then GLD or physical if you have currency concerns. The argument I've heard is it all yields nothing anyhow, so not much difference between bonds, cash, or precious metals. It is not a strategy I'm down with at any rate as I don't attempt to dance into and out of markets at opportune times, but if I were to adopt such a strategy I could see the sense in subbing out bonds for cash and/or precious metals in this environment.

Another interesting idea I saw some time back from @Richard Berger was to write covered calls off of GLD shares to generate some income and choose a sufficiently high strike price such that you would get converted to cash to shift back into stocks (or whatever else) when you would want to anyhow. If Richard would like to comment further and update his thoughts on that strategy, I would welcome that ... probably a good time even for a refresh article on that strategy if he is so inclined. I suspect though that his answer may very well be that Gold looks overvalued at present, but who knows with Gold as it is so hard to pin down fair value on. Thanks.
For the nervous and risk-adverse investor, the respite through the summer maybe worth the relatively small sacrifice in yield. While divested from equities one can still get 1 or 2% in safe assets through the break to help compensate. With the unfolding virus situation, this may not be the time to implement this this year, unless you feel the market is ready for another downturn.
While this type of market timing without thinking seems to work well, I don't plan to follow it because it just seems like a roll of the dice. That is, I don't have the courage to risk it this late in the game.
I wonder though, how does this compare with the typical market timing? I'm sure there are many anecdotal reports of brilliant success in market timing but is there any way to get at typical, or average results?
Algyros profile picture
Thank you, Ploutos. This is, indeed, food for thought.
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