Why You Should Sell The FTSE 100 In May And Go Away

This Fool explains why the uncertainty of a Brexit could have serious implications for the FTSE 100 (INDEXFTSE:UKX) in the short term.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The latest breaking news about offshore trusts and the release of a number of prominent politicians’ tax returns have given us a welcome break from the all-consuming media campaigns from the respective EU In and Out camps. Personally, I’m finding it difficult to actually assess the main reasons for staying in, or indeed voting to leave as I’m swamped with stories circulating in the press highlighting the potential ramifications and/or benefits of leaving.

Better together?

Indeed, only yesterday The International Monetary Fund, one of the pillars of the global economic order, charged with overseeing the international monetary and financial system, waded into the debate.

In short, the organisation believes that if the 23 June referendum in the UK were to produce a vote in favour of leaving the EU, it would expect negotiations on post-exit arrangements to be protracted. This, it warned “could weigh heavily on confidence and investment, all the while increasing financial market volatility“.

Additionally, the IMF felt that a UK exit from the EU would “disrupt and reduce mutual trade and financial flows” and restrict benefits from economic co-operation and integration, such as those resulting from economies of scale.

However, the Fund said that domestic demand, boosted by lower energy prices and a buoyant property market, would help to offset the impact on UK growth ahead of the EU referendum.

With all of this uncertainty in the public domain, like it or not, as an investor I couldn’t be more aware of the potential impact that the build-up to the referendum could have on stock markets as the day of reckoning approaches. After all. Mr Market hates uncertainty.

Sell in May?

Selling in May and going away can be used as an investment strategy for stocks or indices based on the theory that the period from November to April inclusive has significantly stronger growth on average than the other months of the year.

In such strategies, holdings are sold at the start of May and the proceeds held in cash before buying again in the autumn, typically around November time.

However, as we saw in 2015 with the General election approaching in the UK, there were many sectors such as utilities and housebuilders that were under pressure. Investors were uncertain of the outcome of the election and the potential impact of differences in policies such as the mansion tax. Of course, when the Conservatives won an overall majority, these sectors bounced back strongly.

Turning to the chart below, it’s quite clear that the best thing to have done in May 2015 was to have sold the FTSE 100 as it breached 7,000 points and to have stayed out of the market completely. The market has slipped steadily, even entering bear market territory in the first quarter.

And although we’ve seen a recovery of sorts with the price of oil now well off its lows, I still think that there’s plenty of potential to worry investors going forward, the impact of which could well be amplified in such a nervous market.

Will you grow richer in 2016?

So it could well be wise to take some money off of the table as we approach 23 June. However, with uncertainty comes opportunity, and as investors we should be ready to pounce on the right opportunities as they arise.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »