Time To Play Defense
‘Sell in May and go away’ is a well-known stock market adage that suggests investors should move to cash as April ends – and stay there until November, when the market has historically been perceived to be ready to begin a six-month stretch of seasonal outperformance. Utilizing the idea of rotating into defensive stocks has shown to be an attractive alternative in the past. A study on the sector-rotation process demonstrated that a portfolio that invested in defensive sectors from May through October, and in cyclical, growth-oriented stocks from November to April beat the S&P 500 by an average of 8.5% over the past 20 years. Even better – overweighting in traditionally stable sectors like healthcare and consumer staples gave the defensive portfolio a boost with those two stock groups posting average returns of 4.8% and 5%, respectively between May and October while the S&P 500 gained just 1.4% over the same 20-year-period.
This motif uses a sector-rotation approach to maintain equity exposure all year long while seeking to reduce risk during the traditionally volatile summer months.
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