The adage dates back to when City traders would close their positions in May to enjoy Summer sporting events such as Ascot and Wimbledon. They would return only after the St Leger Flat Race, which took place during the the second week of September, and this year will happen on Saturday 12th.

For the modern-day investor, “sell in May” suggests they should get out of underperforming shares in the summer months and move into more defensive areas. But does this rule still apply?

Given the volatility of the stock market this summer, including ‘Black Monday’ when the Chinese Composite Index fell by more than eight per cent in a single day, its biggest one-day drop since 2007, and billions was wiped off the FTSE 100 which fell below the significant 6000 mark, followers of the rule would say yes, it does apply. And those who did stay away until St Leger Day may be relieved they did.

However, new Fidelity Personal Investing research suggests that despite this summer’s dramatic volatility, the adage no longer applies  – and those who are loyal to the doctrine could be losing out on returns.

The fund group analysed FTSE All Share returns for the period 1 May – 1 September since 1995, and found positive returns in 11 out of 21 years. This means investors would have lost money if they had been out of the market, effectively debunking the aphorism.

The tables below illustrate Fidelity’s findings in full.

“The St Leger Day adage is a bit of a non-starter – our figures show it is totally hit and miss since 1995,” says Tom Stevenson, investment director at Fidelity Personal Investing.

“This summer may have been a classic ‘Sell in May’ year. All around the world, investors who sat out the May to September period will be celebrating due to China’s stock market crash and the problems in Greece. But in volatile times doing nothing is often the best approach, especially when some of the best days in the market can often follow hot on the heels of the worst days.

“It is very difficult to foresee whether we are in the early stages of a real bear market, or coming to the end of a short-term correction. Either way, investors need to remember blind faith in an old adage and being out of the market could mean missing out on strong performing days which can have a significant impact on your returns. Far better to focus on your long-term saving goals and stay invested.”

A new investment universe

Stephen Bailey, co-manager of the Liontrust Macro Equity Income fund, believes while the adage may have been applicable in years gone by, it is no longer a convincing dogma. The reasons for this are both industrial and technological.

“I’ve worked in the stock market since 1985. Things were different then – markets did get very quiet over the summer, and investors did disappear for a few months,” he says.

“That’s no longer the case. First, the Big Bang transformed the City into an international trading centre – and now with smartphones and email, people can access the markets on the move, wherever they are.”

A buying opportunity?

Keith Loudon, senior partner at stockbrokers Redmayne Bentley, notes there have been “summer storms” this year – but he still prefers the advice of Baron Rothschild, who said “the time to buy is when there’s blood in the streets”, to the St Leger axiom.

“Longer term, I believe the market is still optimistic – I personally like blood on the street, as it gives long-term investors an opportunity to get into the market,” he explains.

“I say be brave. It looks as though stock markets are in for some turbulence over the next few weeks and months, but if investors can afford to sit tight, they should be able to weather the storm.”

Trading costs

While sitting out of the market this summer may have cushioned investors from the severe falls, Shaun Port, chief investment officer of Nutmeg, says that given the trading costs involved in exiting and re-entering the market, it is advisable to stay invested in any event.

“Long-term investors will almost always benefit from staying put. Volatility in the markets may have also created a buying opportunity – currently, developed markets look great value, with falling oil prices effectively serving as a big tax cut for major oil importers.”

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