Reasons to boost equity exposure in November
1st November 2017 13:26
by Stephen Eckett from ii contributor
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Since 1990, the FTSE All-Share index has seen an average return of 0.7% in the month of November, with positive returns in 15 of the past 27 years. This ranks November in the middle of the 12 months for equity performance, although the month has been noticeably weak in recent years.
The significant feature of November is that it marks the start of the strong six-month period of the year (November to April, an aspect of the 'Sell in May' effect). In other words, investors should be increasing exposure to the market (if they haven't already done so in October).
Since 1981, interest rate setters on the US Federal Open Market Committee (FOMC) have had eight scheduled meetings per year. Each meeting is two days long, with a policy statement released at the end of the second day (1 November this month). Many academic papers have studied the effect of these FOMC announcements on financial markets.
One such paper found large average excess returns on US equities in the 24-hour period immediately before the announcements (an effect the paper called the 'Pre-FOMC Announcement Drift').
According to this paper, "about 80% of annual realised excess stock returns since 1994 are accounted for by the pre-FOMC announcement drift" – a quite amazing finding.
A similar effect can be seen for the UK equity market as well. The average daily return for the UK market in the 24 hours before the FOMC statement is 0.33%, over 10 times greater than the average daily return on all other days
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.
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