Revisiting “Sell in May and Go Away”

This is a slightly stale press release by now, but on April 17th BofA Merrill Lynch released its monthly Fund Manager Survey.  I revisit the topic because as May begins, I cannot help but to hear a discussion about, “Sell in May and Go Away,” at least twice an hour.  With more than a 1% gain initially on the SPX on the first day of the month, you should consider the strategy of watching from the sidelines for the rest of the month.  If you haven’t considered it, I don’t think you fully appreciate the implications of a 12% annualized return.  It is likely that history will repeat itself and investors will give in to the behavioral risk of greed.  Back to the survey:

Investors have increased cash positions significantly since March. A net 24 percent of global asset allocators are overweight cash in April, up from a net 6 percent one month ago…  A net 26 percent of asset allocators are overweight equities, down from a net 33 percent in March.

A net 20 percent of the panel says that the global economy will strengthen in the coming year, down from a net 28 percent in March – sentiment had improved steadily from November, when a net 29 percent predicted economic deterioration. A net 3 percent of the global investor panel expects corporate profits will worsen in the next 12 months, compared with a net 6 percent predicting an improvement in profits last month.

The survey was taken between April 5 and April 12; just as the equity markets touched their lowest level of the month.  I would suggest this is a coincident indicator rather than a leading indicator, and not necessarily predictive of the future.  As a side note, the DJIA closed higher for the month of April–its seventh consecutive monthly gain.

The contrarian in me thinks fund managers are behind the curve on this one.  As you know, I’ve been suggesting that the SPX reaches new highs by mid-May.  Should that happen, I will be very interested in May’s survey; specifically whether fund managers are back to their March optimism.

This entry was posted in Portfolio Strategy and tagged , . Bookmark the permalink.