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To whom it May concern

Probably the best known old investment adage is sell in May and go away and stay away until St Leger’s Day. Established in 1776, the St Leger Stakes is the oldest of Britain’s five classic flat races and is held at Doncaster racecourse. The race usually takes place in mid-September and this year it will be held on September 11.

The sell in May…adage normally gets trotted out at this time every year and, having not paid too much attention to it in the past, I decided to analyse the results over the period I have been in the industry.

Going back to 1987, there have been eight out of 22 years when it would have been beneficial to have sold in May and bought back at lower levels in the second half of September (mind you, the month of October has produced some horrific months – think of 1929, 1987 and 2008).
The average move in the FTSE 100 was a decline of just 0.49 per cent from May 31 to September 15.

However, the disparity of returns is high, with the worst period being in 2002 with a fall of 21.2 per cent and the best period being last year with a gain of 14.1 per cent.

Over the last 10 years, it has been advantageous to sell in May four times.

The above assumes that you sold on the last trading day of the month of May. However, if you were to have sold on the May 1, the figure rises to 10 years out 22 years and the average moves up to a positive figure of 0.38 per cent.

The worst period was still 2002, with a marginally higher loss of 21.8 per cent, and the best period was also last year, but with a much higher gain of 18.8 per cent.

What of 2010? Well we have enjoyed a return of over 60 per cent from the FTSE 100 since the low of 14 months ago, with just a couple of brief pauses for breath along the way.

The UK market has been rather sanguine in the run-up to general election about the prospects of a hung Parliament. Instead, investors have focused more the improved earnings’ numbers coming through from companies, not just in the UK, but worldwide.

It certainly would not surprise us to see the markets retreat in the near term as the market has performed so well since the depths of despair in March 2009.

In addition, the Greek debt crisis does not seem to be going away any time soon, so, while some words of caution in the near term, they are not led by any sell in May thoughts.

The afore-mentioned data points appear hardly worthy of basing investment decisions solely on this so-called seasonal effect. We remain upbeat for growth prospects for equities over the next year or so and equities remain our preferred asset class. We continue to see positive surprises on the GDP growth around the world and corporate earnings’ growth momentum remains strong. We see more risk of deflation over inflation, which should mean we enjoy lower interest rates for longer, thus helping fuel more flows into equities.

(Source: Lipper. The figures relate to the FTSE 100 Index Capital Return).

Graham Duce is co-head of multi-manager funds at Aberdeen Asset Management

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