Seasonal Investing

Investors and traders follow various investment themes and concepts. Some prefer trading in and out on a daily, weekly or monthly basis. Some investors prefer more long term – looking at investment horizon in years and decades. There is also a middle ground, where traders/investors use a season as a horizon – aptly termed seasonal investing. Some investors consciously subscribe to this method and pursue this form of investing, while some investors follow it subconsciously. The latter form is driven more by the media than any other method. Right on cue, the media starts focusing on certain industries and sectors during certain parts of the season – for e.g., oil & energy during summer months, utilities during winter months etc. For most sectors, there is off and on-season and this article explores them in more detail. Note that this is not the same as cyclical or non-cyclical sectors of the economy.

Seasonal Investing

When it comes to seasonal investing, there are some common concepts people follow – although the validity of such concepts has been questioned more recently. For e.g., a common theme that has been followed for many years is Sell-in-May-and-Go-Away, which suggested that investors can get better returns if they stay invested only between October and May. This was suggested based on the fact that markets was fairly depressed during the summer months when people preferred being outdoors enjoying the good weather. However, we have seen that this is not necessarily true over the last few years. Investors who sold in May missed out on a great rally during the summer months in the yesteryears. The reason is quite unknown – although I suspect either the presence of QE or increased buybacks from companies. The other reason I suspect is the access to technology and the stockmarkets. With the advancements in cellular technology, investors are now able to access and stay on top of the markets anytime anywhere.

Irrespective of the reasons, there are still some seasonal trends when we watch closely. The following figure illustrates the details. The green blocks are in-season – i.e., stock prices for companies in that industry are more elevated. Some industry experts are confident enough to pinpoint whether the season starts in the beginning, middle or end of the month. The image below contains only sectors on which I could find data. I am not sure if sectors such as Industrials and Healthcare (ex-pharma) have seasonal affect (if you are aware of such data, please feel free to share with me and I will update this image).

Seasonal Investing

Seasonal Investing Trends

For investors and traders who want exposure to this concept, you can access this through an ETF. I was able to find only one ETF that uses seasonal investing and constantly rotates in-and-out of the stocks. It is traded on the Toronto Stock Exchange from Horizons ETF. The ETF is Horizons Seasonal Rotation ETF (HAC.TO). If this concept is sound, theoretically the ETF should have a constantly increasing price. Following is the 5-yr trend (note that the ETF has only been around since Nov 2009).

HAC

Conclusion

Seasonal investing may or may not work for you. So, it is imperative that you proceed with caution if you decide to pursue this methodology. While I am not a trader who moves in and out of stocks, I find it interesting enough. Of course, for long term investors, this is not recommended as the concept relies on buying and selling constantly. While I do not recommend timing the market, the only recommendation I would have for long term investors is to take advantage of these trends and buy the stocks that you would normally buy while it is off-season.

Do you consciously or subconsciously subscribe to this idea? Share your thoughts below.

11 thoughts on “Seasonal Investing

  1. I’ve heard of this, and also heard that October is the worst month historically for investors. Interestingly, if you overlay the TSX index over the HAC.TO, the ETF has outperformed the index over the past 5 years with lower volatility. For people who don’t like buying and selling constantly (me), this may be a good investment.

    • Hi Brian,
      Most data seems to point that September is the worst month for stocks, but again, that didnt really happen this year. The HAC has quite a low beta – so it might not be a bad option.

      Best wishes
      R2R

  2. R2R,

    I haven’t heard of this before, so thanks for the enlightenment. I do not subscribe to this way of investing, simply because I love to invest regularly. I have monthly investments in some companies and always trying to scour enough funds to make more purchases throughout the month. Thanks for sharing!

    • Glad to bring it to your attention, Agent. Its an interesting theory and something to keep in mind. One takeaway for long term investors like us, is to check on the off-season stocks to buy. Essentially avoid buying stocks while the media is focused on it night and day 🙂

      Best wishes
      R2R

  3. I’ve heard of this idea, but honestly I’m too lazy to subscribe to it. Besides, doesn’t a period of depressed prices mean my dividends buy more shares? Seems like more of a reason to stay invested, you know?

    • Hi DD,
      Yes, that is a valid point. I do not fully subscribe to this idea either…although I have sometimes in the past used a variation of this – where I wait for the media to get bored with one company and stop covering it day-in-day-out. Once the media hype dies out, and the short term traders have started looking elsewhere, I move in for my long term buys.

      cheers
      R2R

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