Hello all... I knew I hadn't posted in a while, but I had no idea the last post was back in August. For those curious, this will not be the start of regular posting, though I have a few things I may share in the next few months.
Also... this definitely not the world's best strategy, but it seemed like the way to highlight it given the desire for investors to flock to excess confidence. In fact, there is no legit reason I can think of that explains why this seasonal pattern should outperform going forward, BUT the results (both in and out of sample) are good enough that I won't be ignoring them.
For the better part of six years, I have provided an update on the "Secret Sauce" allocation strategy as soon as I start seeing all the "sell in may, go away" articles that always come this time of year. I didn't have to wait long.
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Fine time to ask, then: Is an old-timey sell-off overdue, especially with âSell in May and go awayâ season approaching?
Which brings me to the Secret Sauce, amazingly now in its 6th year of in sample testing.
What is the Secret Sauce?
An alternative to the "sell in May, go away" strategy, Secret Sauce is sell the S&P 500 in May and then invest in the Long Government / Credit bond index (rather than sit in cash). The "strategy" takes advantage of data mining that showed the Long Government / Credit index outperformed the equity market for the May through October time frame over the 34 years between 1974 and 2008.
The amazing thing is that since I first revealed the Secret Sauce back in July 2008, the results keep getting better. The massive outperformance since 1974 (14.9% vs 10.5% annualized returns) with lower volatility (12.3% vs 15.7% monthly standard deviation) was met by even larger outperformance over the past few years (21.3% vs 7.3% returns over the last 12 months, 17.3% vs 4.4% annualized over the last five) resulting in $1 invested in the Secret Sauce in January 1974 now being worth $227 vs. $1 in the S&P 500 being worth $50.5 (assuming no fees, transaction costs, or taxes).
Source: S&P / Barclays Capital