What the experts say

last updated 8 January 2015

Testing a market truism

“Sell in May and go away” is ancient stock-market wisdom, said Sam Stovall in Barron’s. The saying comes from England, where investors have been told for centuries not to return to the market until the St. Leger Stakes horse race in September. Is there any truth to this hoary proverb? Yes. Since 1945, the Standard & Poor’s 500-stock index has recorded its biggest gains from November through April, advancing 6.8 percent (excluding dividends) in those months, compared with an average overall gain of 4.1 percent. Likewise, the S&P 500 has advanced only 1.3 percent, on average, from May through October. Instead of retreating entirely from stocks during the summer months, however, investors should consider selling the S&P 500 and rotating into small-cap, consumer, and health-care index funds.

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Fund manager Chris Davis isn’t one to kick financial stocks when they’re down, said Scott Cendrowski in Fortune.com. Davis, who’s “the son and grandson of investing legends, both named Shelby Davis,” is still buying instead. Though the Davis New York Venture fund has recently underperformed, Davis is holding firm, reasoning that banks aren’t going away: “Making a spread on money is about the oldest business there is.” They’re also cheap. Wells Fargo is trading at only eight times earnings, despite outperforming the broader market over the past one-, three-, and five-year periods. And banks will stay cheap until investors get over their post-crisis jitters. To quote Davis’s grandfather: “Financial stocks are the opportunity to buy growth companies in disguise.”

You don’t have to believe in a real estate rebound to make some money in the sector, said Amy Hoak in MarketWatch.com. Real estate investment funds have delivered outsize returns lately: The benchmark FTSE NAREIT All REITs index rose 24.3 percent during the 12 months ending March 31, in part because slow sales of single-family homes have allowed property owners to raise rents. For income investors, a “major attraction” of REITs is that they’re required to pay out at least 90 percent of taxable income as dividends. The only trouble? The REIT surge may already be over. Morningstar analysts are warning that the overall real estate market won’t be healthy again until employment rises.