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How To Get Some Of The Highest Yields In The World For As Little Risk As Possible

 April 20, 2012 10:27 AM


(By Street Authourity) Here's an old Wall Street saying that investors should "Sell in May and go away." While there's no identifiable rationale to explain why that should be good advice, there is an element of empirical truth. A study by Plexus Asset management shows that since 1950 the returns for the S&P 500 in the months of November through May were 8.1%, compared with just 2.4% for the period from May through October. (James Brumley, one of our talented analysts, recently warned investors about putting too much stock in this, though. Go here to read his take.)

The MSCI World Index, a popular index of global stock market performance, shows a similar seasonal pattern. In fact, returns for the MSCI World Index in the months of May through October over the same post-1950 era are negative. The old adage to sell in May has gained even more prominence over the past two years, as stocks have endured gut-wrenching corrections in the summers of 2010 and 2011, only to enjoy powerful year-end and New Year rallies.

I'd never recommend managing your portfolio using simplistic seasonal rules, but it's only prudent for investors to contemplate the potential for at least a short-term correction in global equity markets.

After all, for most global markets, the first quarter of 2012 was the best first-quarter showing since 1998. And the powerful global rally in risky assets of all stripes -- stocks, commodities, corporate and sovereign bonds -- suggests that the market is pricing in a lot sunnier outlook for the global economy today than it was six months ago.

Stocks certainly seem set up for at least a mild sell-off in May.

In my High-Yield International newsletter, one of the ways I manage risk in my portfolios is to own a number of low-beta stocks.


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