Joined Nov 11, 2007
1,458 Blog Posts

Long Term Investors Crazy Not to Sell in May?

I was reading a post from EconomPic called Checking in On the World’s Greatest Rotation Strategy. This strategy is essentially just Sell in May and Go Away, but has one buy the Long government / credit bond index rather than just sitting in cash from May – October.

Oddly enough, I had never tested this simple strategy before, and the results EconomPic posted were good enough that I had to take a look under the hood to see exactly what was making this system run.

The Rules are simple:

  • Long $SPY from the close of the last trading day of October through the last trading day of April.
  • Long VBLTX (Vanguard Long Term Bond Index Fund) from the last trading day of April to the last trading day of October.
  • First day of test is 6.20.1996. Last day is 3.29.2013. First day is first day of history for VBLTX.
  • No commissions or slippage included.

The Results:

Sell in May Basic

The top pane is $SPY. The middle pane is the equity curve for the strategy. The lower pane shows the drawdowns in percentage terms. The blue portions of the equity curve represents time in $SPY while the green represents time in VBLTX.


Sell in May Basic Stats

Because of the way I coded his, all the trade information pertains only to the $SPY trades. The returns from VBLTX are built into the overall returns but are not considered to be trades. Perhaps in future tests I’ll break out both $SPY and $VBLTX as separate trades.

If I subtract out the added return from VBLTX, the annualized return from just holding $SPY is 8.82%.

$SPY buy and hold over the same period is 5.26% with a maximum drawdown of -56.47%. So even if you do not rotate into a vehicle to provide a return on your cash, you still beat buy and hold just by selling in May.

Historical Profit Table:

Sell in May Basic Profit Table

This strategy has just been killing it. I’m leery to assume it can continue killing it. Some questions:

  • Assuming government credit / bonds do not continue to perform as well, with what would we replace VBLTX?
  • Can we add additional robust timing mechanisms to improve performance of $SPY and/or VBLTX?

I’m looking forward to reading your ideas on these questions in the comments.

The next post will add in an additional timing measure for $SPY.

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S&P 500 Hits New High: Research on New Highs

Thursday’s close found the S&P 500 sitting at a huge new high. I didn’t go back and count the days but it is something like a 1350 day new high. I’ve done a fair amount of research on this type of event. I’ve linked the relevant studies below.

S&P 500 Makes New 1276 Day High. What Happens the Next Year?

$SPY Makes a New 79 Day High. Next Up, a New 1267 Day High.

Huge New High, Can We Go Higher?

Evidence That $SPY Can Go Higher Still

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Fidelity Sector Fund Rotational System is Having a Banner Month

I know tomorrow is technically the last day of the month, but barring catastrophe, the Fidelity Sector Fund Rotational System is set to beat the S&P for the month and the year.

I designed the system in early 2010, and watched the out-of-sample performance until February 2012, when I began trading it live.

Here are the results since inception:

FSFRS Results Since Inception

These results do not include commissions or slippage for either the Fidelity trades or $SPY. There is no commission or slippage incurred when trading these Fidelity sector funds. There would be an initial commission for the $SPY purchase. Dividends for $SPY and the Fidelity funds are also not included.

For the month the system is up 4.5% while $SPY is up 3%.

The system is currently long the following three funds:

FSAIX (Air Transportation)

FSRFX (Transportation)

FSUTX (Utilities)

The top 5 ranked Fidelity Sector Funds are as follows:

  1. FSAIX (Air Transportation)
  2. FSUTX (Utilities)
  3. FSRFX (Transportation)
  4. FBMPX (Multimedia)
  5. FSPCX (Insurance)

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