“Sell in May” Mantra Could Hurt Large Cap Equities

The “sell in May and go away” strategy may have changed with the coronavirus pandemic or has it? If investors are still willing to employ this strategy given the forthcoming uncertainty in a post-coronavirus world, large cap equities could bear the brunt of the hurt.

“While April was extremely strong for equities, May 1 started off poorly in a risk-off move,” a Forbes article noted. “The fund flow data this week of the top ETFs by AUM show that trend. “Sell in May and Go Away” is something we will likely be hearing for the next few weeks, it will be interesting to see if the flows will follow that mantra, or if 2020 can buck the trend. It will be an interesting month with plenty of shockingly poor economic numbers set to come out after a full month of stay-at-home orders in April.”

An indicator of how well large cap equities will fare moving forward is obviously how well the SPDR S&P 500 ETF Trust (SPY) performs.

“The largest ETF by AUM, the SPDR S&P 500 ETF Trust (SPY) lost some more ground this week,” the article added. “It had over $3.2 billion in outflows, bringing its 30-day total losses to $6.7 billion. For a holding with an AUM of a still impressive $252 billion, it might not seem like a huge deal, but there is a trend to cheaper ETFs right now. SPY’s net expense ratio of 0.094% while still cheap, is higher than their direct competitors.”

A Relative Play in Small Caps

If investors believe that small cap equities will outperform large cap equities, the Direxion Russell Small Over Large Cap ETF (NYSEArca: RWSL) provides a means to not only see small cap stocks perform well, but a way to capitalize on their outperformance versus their large cap brethren. RWSL seeks investment results, before fees and expenses, that track the Russell 2000®/Russell 1000® 150/50 Net Spread Index.

The index measures the performance of a portfolio that has 150% long exposure to the Russell 2000® Index (the “Long Component”) and 50% short exposure to the Russell 1000® Index (the “Short Component”). On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150% and the weight of the Short Component is equal to 50% of the Index value. In tracking the Index, the Fund seeks to provide a vehicle for investors looking to efficiently express a small-capitalization over large-capitalization investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component.

For more market trends, visit ETF Trends.