While this strategy performs better on an absolute basis than the first two strategies, it underperforms the third strategy. Its standard deviation is also not much better than Buy and Hold.
I crunched the numbers once more for one more alternate portfolio. This one is much more diversified, and therefore more real-world.
Diversified Sell In May Portfolio
This portfolio allocates 50% to the S&P 500, 25% to small-cap value stocks and 25% to small-cap growth stocks during the strong period. I used Fama-French data through Dec. 31, 2000. Thereafter, I use the iShares Russell 2000 Value ETF (IWN) and the iShares Russell 2000 Growth ETF (IWO). During the weak period, the portfolio allocates 50% to intermediate Treasury bonds, 25% to consumer staples stocks and 25% to utilities stocks, using the same indices and ETFs as described earlier.
|Sell In May Strategies vs. Buy & Hold|
|1973-2016||Geometric Mean||Std Dev||Sharpe Ratio||$1 Growth|
|Buy & Hold||10.10%||17.60%||0.46||$70|
|Sell in May & Go to Cash||7.60%||10.90%||0.51||$25|
|Sell in May & Go to Bonds||13.10%||12.70%||0.88||$228|
|Sell in May & Go to Cons Staples/Utilities||12.50%||17.10%||0.61||$179|
|Diversified Sell in May||15.30%||15.40%||0.86||$531|
The results speak for themselves. This strategy outperforms all the others on an absolute basis. It also outperforms all strategies except Sell in May and Go to Bonds on a risk-adjusted basis. And it accomplishes this feat with less risk than buying and holding the S&P 500.
So, should you sell in May and go away? It depends where you go.
At the time of writing, some of the authors' clients held IEF, but the author held no positions in the securities mentioned. Mack Courter, CFP® is founder of Courter Financial in Bellefonte, Pennsylvania. Disclaimer: This article is for informational purposes only, and is not meant as specific investment advice. Investing involves risk, including the possible loss of principal and fluctuation of value. Past performance is not a guarantee of future results. You can reach Courter at [email protected].