Willis Owen: Dividend Inclusion Throws 'sell In May' Adage 'out Of The Water'

The DIY investment provider carried out analysis which found that where investors stayed invested they benefitted from the dividend payouts, which enhanced returns by approximately 40% over the last 33 summers.

"The inclusion of dividends in the equation blows the sell in May adage out of the water," said Adrian Lowcock, head of personal investments at Willis Owen. "They transform what might appear at first sight to be a negative performance into a positive one."

The traditional adage indicates it is best to sell UK equities at the beginning of May, only to re-invest on St Leger race day, traditionally in September, to avoid weaker performance in the markets over the quieter summer months.

However, according to Willis Owen's analysis, while the FTSE 100 did lose 17% in the summer periods from 1986 to 2018 as an index, staying invested during those same periods - when including dividends - would have added around 40% to total performance.

Furthermore, while FTSE All-Share as an index did fall by a total of 20% during the summer months from 1986 to 2018, the total return in this area rose by 34% when including dividends.

Lowcock added: "If investors take into consideration the impossibility of consistently predicting short-term trends and the costs of trading in and out of the market, then focusing on the long-term clearly becomes the best strategy. It is better for investors to keep in mind their personal goals, such as retirement, and ensure their portfolios are positioned to achieve that."

Willis Owen has emphasised that the sell in May adage has not proved true since the summer of 2015, meaning that investors who have bet on the adage applying to FTSE 100 over the past three years could have missed out on returns that included dividends of 18%.

Nonetheless, Lowcock has concluded: "That isn't to say sell-offs in the summer are uncommon. As such, it might be a good idea to keep some cash aside in case there is a big sell-off, which would create some potentially great investment opportunities."