The investing adage “Sell in May and go away” is catchy, but it’s not the best investment strategy. It’s better to sell in May and invest in a defensive sector, like utilities, rather than keep cash on the sidelines.
That’s the conclusion of ﬁnancial analyst Hugh Wynne of Bernstein Research. He found that the stocks of regulated utilities tend to outperform the Standard & Poor’s 500 index in the period from May through October. That’s precisely the six-month window that “Sell in May” investors seek to avoid because it’s traditionally a time when stock prices languish.
Since 1970, the S&P 500 index has generated an annualized return of 4.1 percent from May through October, according to Wynne. That’s well below the 17.2 percent annualized return for November through April.
Over that time period, switching to regulated utilities during the May through October period would have resulted in an annualized return of 14.3 percent. That’s well ahead of the 10.7 percent annualized return produced by the classic “Sell in May” approach.
A $100 investment in January 1970 would have grown to $30,920 by the end of 2012 using the utilities strategy. “Sell in May” investors would have pocketed $7,873.Associated Press