“Sell in May and go away” was first coined over 50 years ago in the FT and is discussed and thought about every year by many in the market. Its validity as a strategy varies depending on the motives of who is arguing it and the assumptions behind treatment of costs, dividends and interest.
What is certain is that if you take any index the gross returns in the December to May period will exceed those in the June to November period. Bouman and Jacobsen (2002) in The Halloween Indicator, “Sell in May and Go Away”: Another puzzle found evidence of this going back 300 years.
Although not the case every year a quick look at markets this year shows the saying to hold.
At Camomille where we run a strategy that seeks to maximise the time value and utilisation of risk we cannot ignore that it is optimal to rebalance risk from the summer period to the winter period. For this reason in the summer period we reduce the size of our long positions by 30% and increase the size of our short positions by 10% to improve risk adjusted returns.
