Do you have an international strategy?
October 2, 2018

EXTRAORDINARY PROFITS FROM ORDINARY SHARES
WINNING STOCK MARKET STRATEGIES

The old adage: “Sell in May and go away” is well known. It certainly seems that during the winter months equities perform much better than during the summer. This is best explained by the fact that these markets are mostly dominated by players and investors in the Northern Hemisphere – after all this is the home of the American and European exchanges.

It certainly seems that the money managers do prepare for the Northern Hemisphere summer by selling shares and reducing their exposure and risk before the vacation period in July and August.

The utilisation of this Halloween effect can dramatically increase the returns of a dynamic trading strategy.

The return on government bonds also display seasonal characteristics, but it seems, very interestingly, that this is precisely the inverse of the stock pattern.

A research piece by Jeroen Blokland shows exactly how this has worked over the last few years.

According to Blokland, you can significantly enhance your return by just switching between equities and bonds twice a year. How easy is that!

The seasonality in stock prices is pretty well documented but the seasonality of bond returns is a pretty new argument and yet it is the combination of these two patterns that could provide interesting returns.

Blokland gives examples: During the period November – April the average return on the S & P 500 has equalled 8.5%, against a much lower return of 2.4% in the period May – October. The difference of, 6.1%, looks pretty amazing.

Now the best period to invest in bonds is the opposite but not exactly. The best period is between June and November (not May and October) a “move” of one month. During this period the return has averaged 5.0% against just 1.9% between December and May. The seasonal return difference is more than 3%.

So the seasonal effect is pretty impressive with the switching strategy increasing returns by a massive 8.8%.

And the strategy is easily implemented using general indices and pretty cost efficient as it only requires two transactions per year.

Fenestra is again particularly proud of its investment performance in 2018. In this regard I have a table set out below indicating the twenty stocks that declined the most last year. The startling fact is that Fenestra did not BUY or HOLD any of these shares during the entire course of 2018. This points to significant out-performance of the market.

 

The 20 worst-performing shares in 2018:

ShareMarket Cap (Rmn)Closing price, Zac
(31/12/2017)
Closing price, Zac
(31/12/2018)
% Chg.
Acendis
Health Ltd
1,8801,770416-76.5%
Rebosis
Property Fund Ltd
3,056988269-72.8%
Fortress
Reit Ltd-B
37,5194,2201.420-65.6%
Blue
Label Telecoms Ltd
4,9431,492541-63.7%
Steinhoff
International H NV
7,413465172-63.0%
Resilient
Reit Ltd
24,22213,5635,700-58.0%
Stadio
Holdings Pty Ltd
2,854805349-56.6%
EOH
Holdings Ltd
5,4416,7443,082-54.3%
Aspen
Pharmacare Holdings Ltd
61,53927,75013,482-51.4%
Tongaat
Hulett Ltd
7,53811,4635,579-51.3%
Intu
Properties Plc
28,6464,1952,114-49.6%
Nepi
Rockcastle Plc
65,29121,35711,300-47.1%
Coronation
Fund Managers Ltd
14,4647,3904,135-44.0%
Tradehold
Ltd
2,5451,7821,005-43.6%
Mediclinic
International Plc
44,33010,6386,013-43.5%
British
American Tobacco Plc
1,076,46682,95046,930-43.4%
Omnia
Holdings Ltd
5,83514,7898,450-42.9%
Trencor
Ltd
4,9594,8002,855-40.5%
Tiger
Brands Ltd
51,96946,00027,37840.5%
Lonmin
Plc
2,3731,408839-40.4%

If you are not happy with your portfolio performance or would like a second opinion, please do not hesitate to contact Fenestra for a free, independent, objective and confidential review of your portfolio.

Leave a Reply

Your email address will not be published. Required fields are marked *