Broad Market ETF Ideas for Dealing With May’s Doldrums
May 1st, 2014 at 9:00am by Tom Lydon
It’s that time of year again when investors are replaying that old market aphorism: “Sell in May and go away.” However, stock exchange traded fund should take that saying with a grain of salt.
ConvergEx Group’s chief market strategist, Nicholas Colas argues that selling in May and coming back to equities in November is not an investable thesis, reports Alex Rosenberg for CNBC.
“You can’t just close your eyes and use a nursery rhyme to invest,” Colas said in the article. “You have to look at why it might be similar or different this year. We respect history, but everything about this market over the past five years has been a series of interesting and one-off anomalies—the most obvious example of which is Fed policy.”
Over the past 36 years, the S&P 500 has gained an average 1.3% per month between November to April. However, the index only gained an average 0.3% per month between May to October. The numbers, though, don’t mirror results in the last few years.
“A lot of people like to talk about making that one-month call in May or whatever, but if you bought securities anytime last May, you’d be well above that level today,” Adam Parker, Morgan Stanley’s chief U.S. equity strategist, said in the article. “So I don’t really know why people make that statement—you can’t statistically prove that it works every time. It’s a bit astrological.”
Moreover, Citigroup Chief U.S. Equity Strategist Tobias Levkovich points out that economic data points to better conditions.
“I’m not really worried about the ‘sell in May and go away’ view this year,” Levkovich said in a separate CNBC article. “It doesn’t work when economic data starts to improve.”
Nevertheless, investors who are less skeptical can try to diversify their exposure with broad market exposure. For instance, the SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) provides exposure to Dow bluechips, SPDR S&P 500 (NYSEArca: SPY) reflects the S&P 500 index and PowerShares QQQ (NasdaqGS: QQQ) tracks the Nasdaq-100. [Stock ETFs: Buffett Still Believes in the Equities Market]
Alternatively, investors can take an even broader approach with total stock market ETFs. The Vanguard Total Stock Market ETF (NYSEArca: VTI) tracks 3,692 stocks, iShares Russell 3000 ETF (NYSEArca: IWV) has 2,983 holdings and Schwab U.S. Broad Market ETF (NYSEArca: SCHB) follows 2,010 companies.[Three Low-Cost ETFs for a Diversified Portfolio]
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Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of SPY and QQQ.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.