07 June 2023

Trading through the seasonal anomaly

Fund manager Calvin Miles ignores the old adages to add to his portfolios.

by Calvin Miles

Senior Investment Manager

There is an old market adage that investors should ‘sell in May and go away’. The historical pattern of better returns in the 6 months from November to April was first noticed by the Stock Trader’s Almanac – a US publication focussed on trading strategies – which featured an article about it in 1986. In May 2023 stocks resumed their weakness; perhaps it was faltering Chinese economic data, US political uncertainty, concerns about interest rate rises globally or perhaps it was a return of the Stock Trader’s Almanac’s seasonal anomaly.

Returns on global indices though continue to be held up year-to-date by a narrow band of mostly large cap technology stocks. Such has been the outperformance that the combined weight of five technology stocks – Apple, Microsoft, Alphabet, Amazon and Nvidia – now makes up a record-breaking quarter of the total S&P 500 index market capitalisation. This huge concentration risk being taken on by benchmarks and passive indices provides challenges for active managers in the short term but opportunities in the long term.

An ever-increasing amount of investors chasing returns where the going has been good leaves an ever-diminishing number of investors owning shares where the going may not have been so good. Our challenge in this environment is to find businesses whose economic performance and prospects do not justify their lack-lustre share price performance. Whilst we do not necessarily know when, it is our expectation that shares in these businesses at some point will reflect their comparatively better outlook.

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