Don’t sell in May… even if it’s an election year

Hargreaves Lansdown

Ahead of the UK election in 2015, investors withdrew £2.7 billion from UK equity funds, but as the country prepares to go to the ballot box once again, Hargreaves Lansdown’s analysis of historical returns shows that observing the old stock market proverb of ‘selling in May’ can cost you money – lots of money.

Laith Khalaf, Senior Analyst Hargreaves Lansdown said: “Election fever could be a costly ailment if it prompts investors to follow the old proverb which recommends selling up in May and going away.

“Chances are this strategy will cost you valuable returns, and that’s even before factoring in the charges associated with selling and repurchasing an entire portfolio. Trying to time the market is never advisable, even less so based on groundless superstitions.

“There was a big exodus from UK equity funds before the last general election, though that might not be repeated this time around. In the forthcoming election, the winner looks more certain, on paper at least, and there is less time for investors to fret about the outcome.

Moreover the status quo in terms of the governing party is expected to be reinforced rather than toppled.”

The UK stock market is replete with international companies, and as such UK politics and economics only play a limited role in its twists and turns. One of the clearest trends to reveal itself since the Brexit vote however, is the inverse relationship between the pound and the FTSE.

If the election turns out as the polls are predicting, there could be some further strengthening in the pound, which could exert downward pressure on the stock market in the short term.