OFFSHORE FUNDS GROUP
Sell in May and Go Away? - May 2006 Newlsetter
As we head towards the summer season, the old investment adage of "sell in May and go away" is being explored once again. Over the last 25 years, the UK FTSE All Share has made an average gain of 10% each year between November and April, while from May to October the index has made an average loss of 0.1% each year.
However, data has shown that the suggestion only works about 50% of the time. Last year the FTSE 100 continued its recovery through the summer period and there is a view that the factors that provided the impetus last year, such as growing corporate earnings, attractive valuations and strong merger and acquisition activity, are still in place to stimulate the market this year.
The FTSE 100 is now less than 1,000 from the all-time high of 6,930 it reached in December 1999, while the FTSE 250 index has already reached new ground. Last week it broke through 10,000 before retreating back to 9,879. While there is concern in some quarters that growth in the global economy may slow, in the UK's favour is that its equity markets have significant exposure to pharmaceuticals, banks, oil and mining stocks, which investors may seek out if growth in the global economy does falter.
Following a surprise rise in Chinese interest rates, the FTSE 100 closed down last week, but still managed to stay above 6,000. Over the last year the index is up 25.8%, while over three years it has risen 55.6%.
Meanwhile, Asian stocks have hit their highest levels for 17 years following some strong corporate earnings results. The Morgan Stanley Capital International Asia-Pacific Index, which tracks more than 1,000 stocks in the region, has risen to 139.22, its highest level since 24 February 1989, while
Turning to oil, the price of a barrel of crude continues to rise over concern that supplies from
Looking forward, there appears to be some commentator consensus that the price of oil may rise further in the short term due to continuing uncertainty about potential disruption in supplies. However, the duration of such a rise may be limited with prices weakening in the longer term.
Fund management group Miton Optimal have this to say about the coming quarter;
“The second quarter of the year should continue in a similar fashion to the first quarter with no nasty surprises anticipated, reported earnings not disappointing despite the over quoted ‘sell in May and go away’. It will be interesting to see if M&A activity continues at the same pace, but with private equity funds awash with money, any reasonably valued companies with good free cash flow could find themselves a target.
The main message which we started the year with and adhere to, is that the second half will see a slow down as higher energy prices and interest rates take their toll on household spend and little has appeared to contradict this theory. This in turn could lead to a slowdown in global GDP, largely being driven by the big engine the
Turning to currencies, the
While equity and other asset valuations generally continue to advance with commodity prices driving index levels, investor attention is focused on the anticipation of the point at which further growth will be constrained by the effects of inflation of input prices and/ or a fall in activity. This pre-occupation continues to be a challenge and a significant hurdle to action.To discuss how you can protect your portfolio, make sure you contact me.