Summer months are worst investment performers across major European markets, according to analysts

Written by Ray Clancy

Wednesday, 26 May 2010 10:00

The summer months provide weak investment returns for many countries in Europe including Finland, France, Germany, Greece, Ireland, Italy, Portugal, Sweden and Switzerland, research shows.

There are no major European markets where average Summer performance is better than the start of the year, according to data from S&P. It is the last four months of the year that contribute most to full year returns

In an age of high frequency and algorithmic trading strategies, there may seem little room for traditional approaches. But the old adage traditionally used across London trading floors ‘Sell in May and go away’ still holds its own across European markets, according to an analysis by S&P Indices.

The theory behind this maxim is that the Summer months are characterised by sluggish performance or a loss. By selling out your holdings in May, and reinvesting them only when the Summer is over, you protect your portfolio and potentially achieve better returns.

By analysing the monthly performance of sixteen European markets in the S&P Global Broad Market Index over the ten year period from January 2000 to December 2009, S&P has shown that this trading strategy still holds good across Europe.

The impact is particularly pronounced in Europe’s leading economy, Germany, which over the last decade saw an average total return of 3.33% over the January to May period, compared with an average loss of 1.42% over the June to August Summer months. This compares with an average total return of 8.86% over the year as a whole.

France and Italy also see a not dissimilar performance, with average gains of 3.58% and 2.92% respectively over January to May and losses of 0.96% and 0.92% from June to August.

Finland has the worst performing Summer overall with a loss of 7.17% over June to August on average over the last ten years. This is followed by Portugal, with an average loss of 3.02% over June to August, compared to a 3.82% gain over January to May and a 9.12% rise over the year as a whole. On this basis, Portuguese investors not reducing their market exposure after May are at risk of losing a large part of their entire year to date gains.

The most successful Summer periods are found in Denmark and Austria, which see an average 3.02% and 1.67% rise over June to August respectively. This is eclipsed, however, by the average 9.48% and 11.05% returns from the first five months of the year.

The effect would not seem to be so pronounced in the UK, where the adage originated, as in much of the rest of Europe. It still holds true, though, with an average sluggish gain of only 0.11% over the Summer compared to a 2.46% rise over January to May.

Despite this pattern, for most European countries the last four months remain the most important for contributing to full year returns, meaning that even after experiencing a poorly performing Summer there is still the chance to improve returns.

In the US during this period, the average May-August performance was -0.03%, compared with an average annual 2.63% gain.

‘We wanted to check back how true this seasonal effect still was in markets around Europe, and it's clear it is still a very significant factor. A number of reasons have often been put forward for this, such as reduced capital inflows in the summer months, the impacts of vacations on trading activity, and the fact investors get less forgiving of companies if first half earnings disappoint. Whatever the exact causes, and they may differ from market to market, this seasonal effect looks alive and well across most major European markets,’ said Alka Banerjee, vice president of Global Equities at S&P Indices.