Investment Ideas Home Page
If You're Going Away in May, Don't Go Far
May 8, 2017
The saying “Sell in May and go away” hints at a seasonality to the stock market—historically stocks have underperformed in the six-month period starting in May and ending in October, compared to the six-month period from November to April.
According to FactSet data, since 1928 the S&P 500 Index has gained, on average, about 5% from November through April while adding less than half of that—2%—from May through October. And, the last month of those six-month periods has included some spooky Octobers. Some investors believed they wouldn't be missing much to sit out, starting in May.
In the shorter 10-year period shown below, S&P outperformance November to April has been the case just half of the time, five out of the last 10 years. (Of course, with the 2008-2009 global economic crisis and the quantitative easing that was implemented in response, some would argue that the last decade was an anomaly.)
In and of itself, "Sell in May and go away" is less relevant to mutual fund investors, who seek to build wealth by remaining invested over market cycles, let alone calendar years. Timing the market is a risky strategy—those who do often miss the market’s best days (see post).
But when equity investors “go away,” where do they go?
There are three possibilities. They might move to:
- Cash/money markets and wait to reinvest in November
- Short-term or intermediate term fixed income in order to earn some yield while waiting to reinvest in equities
- A liquid alt, such as Calamos Market Neutral Income Fund (CMNIX), which seeks to minimize volatility and still provide exposure to equity markets in the event of a May to October rally.
The graph below compares the May to October performance of the three options over the last 10 years.
In all but three instances, CMNIX was the better alternative for those choosing to sit out six months of the year.
Because when the S&P moved, CMNIX participated.
(click image to enlarge)
In summary, for clients with long-term investment objectives, we don’t advocate portfolio moves triggered by the month of the year. But in those instances (and this year may prompt more of them) when the instinct is to “go away,” CMNIX is an alternative to getting completely out of the market.
Financial advisors, please see the Calamos Market Neutral Income Fund for full year fund performance and additional information or talk to your Calamos Investment Consultant at 888-571-2567 or email@example.com.
Before investing, carefully consider the fund’s investment objectives, risks, charges and expenses. Contact 800.582.6959 for a prospectus containing this and other information. Read it carefully.
Alternative investments may not be suitable for all investors. This information is provided for informational purposes only and nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based on any information provided herein.
Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. The views and strategies described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.
Class I shares are offered primarily for direct investment by investors through certain tax-exempt retirement plans (including 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans and non-qualified deferred compensation plans) and by institutional clients, provided such plans or clients have assets of at least $1 million. Class I shares may also be offered to certain other entities or programs, including, but not limited to, investment companies, under certain circumstances.
Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load of 2.25%.* Had it been included, the Fund’s return would have been lower. For the most recent month-end fund performance information visit www.calamos.com. *Prior to 2/28/17, the Fund had a maximum front-end sales load of 4.75%.
The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index comprised of U.S. investment grade, fixed rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and ten years. Formerly known as the Lehman Brothers Aggregate Bond Index.
The S&P 500 Index is generally considered representative of the U.S. stock market.
The Citigroup 30-Day T-Bill Index is generally considered representative of the performance of short-term money market instruments.
Unmanaged index returns assume reinvestment of any and all distributions and, unlike fund returns, do not reflect fees, expenses or sales charges. Investors cannot invest directly in an index.
An investment in the Fund(s) is subject to risks, and you could lose money on your investment in the Fund(s). There can be no assurance that the Fund(s) will achieve its investment objective. Your investment in the Fund(s) is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund(s) can increase during times of significant market volatility. The Fund(s) also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund’s prospectus.
The principal risks of investing in the Market Neutral Income Fund include equity securities risk consisting of market prices declining in general, convertible securities risk consisting of the potential for a decline in value during periods of rising interest rates and the risk of the borrower to miss payments, synthetic convertible instruments risk, convertible hedging risk, covered call writing risk, options risk, short sale risk, interest rate risk, credit risk, high yield risk, liquidity risk, portfolio selection risk, and portfolio turnover risk.
Covered Call Writing: As the writer of a covered call option on a security, the fund foregoes, during the option’s life, the opportunity to profit from increases in the market value of the security, covering the call option above the sum of the premium and the exercise price of the call.
Convertible Securities Risk: The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also, may have an effect on the convertible security’s investment value.
Convertible Hedging Risk: If the market price of the underlying common stock increases above the conversion price on a convertible security, the price of the convertible security will increase. The fund’s increased liability on any outstanding short position would, in whole or in part, reduce this gain.
Convertible Securities Risk: The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security’s investment value.
Treasury Yield Curve Rates: These rates are commonly referred to as "Constant Maturity Treasury" rates, or CMTs. Yields are interpolated by the Treasury from the daily yield curve. This curve, which relates the yield on a security to its time to maturity is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of quotations obtained by the Federal Reserve Bank of New York. The yield values from the yield curve at 6 months fixed maturity. This method provides a yield for a 10 year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity.
Morningstar Market Neutral Category: These funds attempt to reduce systematic risk created by factors such as exposures to sectors, market-cap ranges, investment styles, currencies, and/or countries. They try to achieve this by matching short positions within each area against long positions. These strategies are often managed as beta-neutral, dollar-neutral, or sector-neutral. A distinguishing feature of funds in this category is that they typically have low beta exposures (< 0.3 in absolute value) to market indexes such as MSCI World. In attempting to reduce systematic risk, these funds put the emphasis on issue selection, with profits dependent on their ability to sell short and buy long the correct securities.
There can be no assurance that the Fund will achieve its investment objective.
The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE