Thursday, April 26, 2012

Historical Sector and S&P Analysis For May

Perhaps lending support to the theory to "go away in May", there are no serious sector standouts in the month of May over the last twenty-five years.  That being said, it has not exactly been a month that has provided negative returns.  The S&P 500 has finished in positive territory for the month of May eighteen times in the past twenty-five years, with a mean return of +1.57%.

With no sectors showing an obvious dominance in the month of May, I thought it would be more helpful to provide statistical data for my readers, that you may or may not be able to derive some ideas.  If you subscribe to the mean reversion theory, which I do, then you may want to take a look at Natural Resources and Energy specific ETFs.  The average natural resources mutual fund has finished in positive territoty nineteen times over the past twenty-five years in the month of may.  Of the eleven sectors analyzed, natural resource funds have provided one of the highest returns on investment with a compounded average annual return of  25.45%.  Also note, the higher return has come with a higher level of volatility.

Energy ETFs are also catching my eye going into May.  There are few reasons why I would consider a long position in this area.  The first being that the sector, as a whole, has provided the most bang for your buck in the month of May over the last twenty-five years.  The average energy mutual fund has provided a compounded average annual return of 34.54%.  Again, with the higher return comes a higher standard deviation when compared to the rest of the sectors and the S&P 500.  That is why I like energy stocks going into May.  Not only has the average energy mutual fund finished in negative territory the last two years in the month of May, but it is also coming off a month, which at this point has not been fruitful.  This April's performance has been a complete divergence from energy's historically strong performance in the month.  With energy prices still near all-time highs, and strong earnings reports coming in from the likes of ExxonMobil (XOM), I expect a positive move back towards the mean.

I hope my readers are able to find something useful in the data I have shared.  Based on my analysis of the historical data, and current market conditions, I will be establishing a long poistion in the SPDR S&P Global Natural Resources ETF (GNR) and holding my long position in the Energy Select Sector SPDR (XLE).  There are still a few trading tradings left in the month and thus far my bet on the energy sector has not paid off as the XLE sits slightly below where it began the month, and has performed much more in line with the entire market in April. 

Thank you and good luck everyone!


Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

www.allocationforlife.com


MAY Cons Disc Health Care Energy Financials Cons Staples Technology
1987 1.52% 0.89% 5.67% -1.02% -0.63% 0.41%
1988 -2.39% -0.80% -3.39% 0.63% 0.75% -3.88%
1989 5.53% 3.15% 1.93% 4.20% 6.17% 6.94%
1990 10.52% 12.23% 9.42% 6.71% 8.71% 12.78%
1991 5.96% 4.40% 1.46% 5.22% 3.66% 3.13%
1992 0.57% 3.16% 5.67% 3.13% 0.89% 1.16%
1993 6.49% 5.07% 4.07% -1.03% 3.15% 8.62%
1994 -2.27% 0.56% 1.92% 4.25% -0.73% -2.02%
1995 1.72% 1.16% 2.33% 5.13% 3.59% 3.65%
1996 3.82% 1.77% 1.62% 1.99% 3.69% 3.35%
1997 7.15% 10.34% 10.42% 5.46% 3.40% 12.43%
1998 0.27% -3.52% -6.36% -2.40% 0.69% -6.72%
1999 -2.75% -0.12% -2.59% -3.49% -1.63% -0.98%
2000 -2.44% 1.49% 11.52% 5.50% 3.89% -11.58%
2001 3.11% 4.22% 0.55% 4.03% 2.57% -4.12%
2002 -0.45% -3.67% -2.72% 0.03% 0.50% -5.80%
2003 5.87% 8.95% 12.68% 6.18% 6.44% 12.27%
2004 -0.16% -0.70% -1.09% 1.95% -1.08% 5.62%
2005 5.71% 2.70% 3.98% 2.62% 3.21% 9.25%
2006 -3.39% -3.25% -3.87% -3.82% -0.31% -8.17%
2007 3.29% 1.30% 7.80% 2.45% 1.53% 4.29%
2008 1.18% 2.52% 7.86% -2.79% 1.10% 5.85%
2009 0.72% 5.67% 17.26% 10.96% 6.41% 4.45%
2010 -6.75% -7.79% -12.69% -9.72% -6.91% -7.01%
2011 0.17% 2.14% -4.30% -2.85% 1.30% -1.56%
Compounded Avg Ann Ret 21.17% 26.01% 34.54% 21.10% 25.75% 18.80%
# of Times Finished Up 17 18 17 17 19 15
Mean Return 1.72% 2.07% 3.48% 1.73% 2.01% 1.69%
Standard Deviation 4.02 4.42 6.40 4.42 3.22 6.81
MAY Telecom Natural Res Real Estate Utilities Industrials S&P 500
1987 2.42% 1.05% -1.36% -1.27% 1.51% 0.87%
1988 1.95% -1.81% -1.08% 3.62% -1.61% 0.86%
1989 5.91% 0.46% 1.31% 4.42% 3.50% 4.05%
1990 8.43% 7.60% 0.88% 4.58% 6.82% 9.75%
1991 0.75% 3.07% 1.07% 0.20% 5.72% 4.31%
1992 -0.65% 3.91% 3.21% 1.95% -0.22% 0.49%
1993 3.30% 3.56% -0.69% 0.28% 4.39% 2.68%
1994 -0.22% 1.69% 1.28% -2.50% -1.88% 1.64%
1995 2.49% 1.65% 4.00% 3.74% 1.67% 4.00%
1996 2.85% 1.18% 2.55% 0.74% 1.39% 2.58%
1997 9.91% 8.02% 2.90% 4.81% 7.88% 6.09%
1998 -4.39% -7.48% -1.15% -1.36% -2.93% -1.72%
1999 -0.53% -3.90% 2.28% 2.51% -1.42% -2.36%
2000 -8.97% 7.99% 1.19% -1.06% -3.64% -2.05%
2001 -4.96% 0.86% 2.02% -1.84% 3.64% 0.67%
2002 -1.52% 0.27% 1.42% -3.46% -0.67% -0.74%
2003 9.52% 10.56% 5.54% 0.30% 4.22% 5.27%
2004 0.73% 0.66% 6.34% 1.72% 2.08% 1.37%
2005 5.42% 2.48% 3.15% 0.73% 4.86% 3.18%
2006 -6.81% -3.39% -2.81% -0.16% -2.91% -2.88%
2007 7.14% 5.97% 0.59% 3.41% 5.77% 3.49%
2008 5.24% 6.98% 0.08% 3.67% 2.30% 1.30%
2009 7.87% 15.98% 3.06% 6.13% 4.25% 5.59%
2010 -5.47% -10.68% -5.25% -6.69% -8.40% -7.99%
2011 -0.17% -4.16% 1.36% 0.30% -2.56% -1.13%
Compounded Avg Ann Ret 18.92% 25.45% 15.69% 11.75% 16.12% 19.31%
# of Times Finished Up 15 19 19 17 15 18
Mean Return 1.61% 2.10% 1.28% 0.99% 1.35% 1.57%
Standard Deviation 5.16 5.76 2.51 2.99 3.90 3.60