Do Equity Fund Investors Usually Try to Avoid the Summer Doldrums?

We are now at that point in the year when investors constantly hear about the virtues of selling in May and going away until fall. This is not unfounded advice; it is generally accepted that the U.S. equity markets underperform during the summer. Our colleagues at AlphaNow recently looked at the historical returns of the S&P 500 and its underlying sectors during this period. Click here.

They got us wondering if the theory holds true for mutual fund investors. In the chart below we look at the difference in net flows for U.S. domestic mutual funds during the summer months (May through October) versus the rest of the year. Of the 21 years examined, 14 showed stronger net-inflow numbers during the nonsummer months. For two-thirds of those years investors were either less willing to buy or more willing to sell during the summer months. And, although domestic equity mutual funds have attracted nearly $40.6 billion in net new money so far this year—for the group’s strongest start in nine years—the volumes have already begun to soften as we get into May. The group’s four-week moving average is now at its lowest point since the second week of January this year.