Here's an old Wall Street saying that investors should "Sell in May and go away." While there's no identifiable rationale to explain why that should be good advice, there is an element of empirical truth. A study by Plexus Asset management shows that since 1950 the returns for the S&P 500 in the months of November through May were 8.1%, compared with just 2.4% for the period from May through October. [James Brumley, one of our talented analysts, recently warned investors about putting too much stock in this, though. Go here to read his take.]
The MSCI World Index, a popular index of global stock market performance, shows a similar seasonal pattern. In fact, returns for the MSCI World Index in the months of May through October over the same post-1950 era are negative. The old adage to sell in May has gained even more prominence over the past two years, as stocks have endured gut-wrenching corrections in the summers of 2010 and 2011, only to enjoy powerful year-end and New Year rallies.
I'd never recommend managing your portfolio using simplistic seasonal rules, but it's only prudent for investors to contemplate the potential for at least a short-term correction in global equity markets.
After all, for most global markets, the first quarter of 2012 was the best first-quarter showing since 1998. And the powerful global rally in risky assets of all stripes -- stocks, commodities, corporate and sovereign bonds -- suggests that the market is pricing in a lot sunnier outlook for the global economy today than it was six months ago.
Stocks certainly seem set up for at least a mild sell-off in May.
In my High-Yield International newsletter, one of the ways I manage risk in my portfolios is to own a number of low-beta stocks. In finance, risk is typically measured using volatility -- the more a stock or bond tends to move, the riskier it is to hold. Beta is a measure of relative volatility, typically using the S&P 500 as a basis for comparison. It's a simple measure to interpret -- stocks with a beta above 1.0 are more volatile than the S&P 500, while those with a beta below 1.0 are less volatile than the S&P.
While low-beta stocks may not be completely immune from broader market corrections, many of my low-beta favorites held up well during last summer's global stock market rout. And thanks to their above-average dividend payouts, my low-beta holdings offer investors some return on their money even if global markets trade sideways.
With these points in mind, I scoured global markets looking for stocks with U.S.-traded ADRs (American depositary receipts) and a beta relative to the S&P 500 of 0.80 or less. This means the stocks meeting this screen would need to be roughly 20% less volatile than the broader average. In addition, I eliminated all stocks that don't currently offer a dividend yield of at least 4% and trade more than 15,000 shares per day on average in the United States.
The results should give us a list of high-quality international stocks that easily trade on American exchanges, carry sizable dividend yields -- and don't gyrate with the wild swings of the broader stock market. Here's what I found...
Action to Take --> Many of the stocks in this table combine the safety of a business like utilities or telecommunications with the high-growth of an emerging powerhouse like Brazil or China. I think any of the stocks above could be worth holding through the summer and beyond. In fact, several of these stocks are already in my High-Yield International portfolios.
-- Paul Tracy