25th Apr '21 by Edmund Shing

13 comments 4350 reads

Summary:

Seasonality favours Low Volatility, Defensive equity investing over summer
Low volatility, quality dividend strategies make a come-back
Clean Energy: Buy on the dip?

New Podcast: How to Buy Low, Sell High

Perhaps an over-ambitious podcast title! But in this podcast, we discuss market timing and some proven investment strategies that have worked well over time.

How to Buy Low, Sell High

In the event of an economic recession or a negative exogenous shock, could investors lose all their money on the stock market?
Is it possible to reliably capture most of the upside and avoid some of the downside?
What are some smart strategies for improving return vs. risk?
Active vs. Buy-and-Hold investing? What is the best approach?
Does technical analysis help to predict market trends?

Seasonality favours Low Volatility, Defensive equity investing over summer

As I have previously pointed out, the old stock market idiom “Sell in May and Go Away” (until October) is indeed good advice in general, particularly when applied to investing in Continental European or UK stocks.

But there are some strategies that still deliver positive returns on average over the summer months. These are Low Volatility and Defensive equity strategies in Europe.

Low Volatility Factor is better over Summer

Low and minimum volatility factor indices (which one can buy via ETFs) have generated small but positive returns (1.0%) on average over the May-September (inclusive) period, while the benchmark STOXX Europe index has typically declined by 1.7% on average over this same period.

Looking at defensive stocks (companies that are not economically sensitive in general, including sectors such as Health care, Utilities and Food & Beverages), we can see a similar pattern emerging. Since 2005, European defensive stocks have gained 2.4% over the summer months, while cyclical stocks have delivered only a flat return on average over the same period.

Defensive stocks better over Summer

Note: average returns over 2005-2020
Source: BNP Paribas, STOXX

Low volatility, quality dividend strategies make a come-back

In keeping with this emphasis on more defensive equity investing over the summer, low volatility and quality dividend strategies are starting to perform well once again, after a long period of…

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William K

25th Apr '21

Very helpful Edmund. And thanks for mentioning clean energy. Fortunately I got rid of most of my ICLN in mid-February before the prices really started to fall (along with the solar etf TAN). Less fortunately I'm still holding a significant amount that are down around 30%. I didn't sell because I expected them to regain value and I still do. With the eye of faith, one can see the green shoots of recovery (no pun intended). Both the 30 week and 40 week moving averages are still trending upwards, and the price range over the last 5 weeks has been tight. President Biden's latest speech on climate change was encouraging, despite the sanctimonious rhetoric. No plans to buy more on the dip, but no plans to sell either.

njoydev12

Thank you. This is very interesting. Just had a look at the FAN ETF. It looks like an US etf -can one buy an US etf in the UK? I thought not but I could be wrong.

JohnEustace

I don't know of a UK ETF that is just wind power companies. I have individual holdings in Vestsas, Orsted, and TPI Composites which are all in the top ten holdings of the ETF. I might look at adding Seimens Gamesa. It's not that easy to get a pure exposure - a lot of the companies involved have large industrial businessess in other areas.

https://etfdb.com/etf/FAN/#hol...

Thornabian

26th Apr '21

Thinking of sectors which are likely to have demand surprises exceed expectations, i would certainly think clean energy would be up there over the next 10 to 15 years. Every developed nation just increased their reduction targets and most companies (like Amazon) are investing heavily in removing their carbon footprint.

I own Canadian Solar and TPI composites.

Canadian Solar are essentially a Chinese company producing panels in Shanghai with polysilicon from Xinjiang with sufficient presence in Canada to qualify as local. They seem to trade at a "China discount" due to concerns about human rights issues there.

From Bloomberg: The world’s green power surge depends on polysilicon made in China’s remote Northwest. No one really knows what’s going on inside the facilities.

It's also an issue in the UK: Around 40% of solar panels used in the UK are from Chinese firms that have been accused of exploiting forced labour camps in the region of Xinjiang.

Snowbum

Encavis AG - ECV (CAP on HL platform)

This is an EU solar farm play. Has pulled back to support at ~17 Euro, looks good for entry or top up just now imo. (I hold)

Nice bull flag on the weekly with double doji showing & daily looking constructive after a recent higher low last week....

https://www.tradingview.com/x/...

Shawn Qu (founder and CEO) moved to Canada in 1987 as a student and set up Canadian Solar in 2001 after getting his PHD from the University of Toronto with his own savings. It now operates on 6 continents with manufacturing in Canada, China, Indonesia, Vietnam and Brasil.

This obviously long pre-dates the Xinjiang events, so it is seems nothing more than smear and rumour because the founder is Chinese by birth.

Candian Solar also isn't quoted in the articles you sent referring to Xinjiang, it is focusing on their competitors, JinkoSolar and Daqo mainly.

https://www.urap.ca/canadian-f...

They seem to operate a large solar farm in Xinjiang.

They do and it employs only 7 people. Xinjiang is also 620,000 sq feet in size which is about the size of Iran....

TStubbs

27th Apr '21

It will be interesting to see if the traditional dip happens as the traditional summer holiday period is disrupted by Covid- maybe it will happen later than usual? Or not at all this year.

KevinS1

1st May '21

I always thought Iran was bigger than that - the size of 7 football pitches is very small for such a large population. They seem to make a lot of noise across the world for such a small country.......................Are you sure its only 620,000 square feet?

I have polar views regards the summer period. In some ways the economy seems to be booming with things returning to normal which could signal continued good results, increasing EPS for many companies etc etc.

On the other hand, there will be no tourists coming to the UK (big spending Americans, Chinese etc) and overseas holidays will be massively curtailed. This could result in some poorer results for some companies, although I appreciate the UK holiday industry will be swamped with demand from homebound brits wanting to staycation.

In addition I can see inflation coming - raw material prices increasing, and in my own experience all my services/costs seem to be going up by well over CPI. This should be good for equities in the short-term but if things spike too quickly it could cause some concerns.

I also wonder if the lockdown boom really is going to make a difference - whilst there is a lot of pent-up demand for eating out, partying, holidays etc we need to remember that significant numbers of people have lost their jobs and their spending will be curtailed.

All in all I have no idea. Some days I convince myself to move towards more in cash and others I think I'll keep riding the wave. Who knows?

UK_Investor_8888

Re, the easing of lockdown:-

We still have face nappies, have to sit outside pubs and restaurants, old ladies wearing perspex windscreens, Covid Nazis, anti-social distancing, busy bodies, queues... its obvious there is a long way to go before "the brakes are taken off" and "the gas peddle has a foot down on it" so to speak. "They" are still causing economic damage rather than repairing and rebuilding.

I fear its the Geopolitical that will be the next thing to happen. Biden looks like he could keel over if you said "boo" to him, and Iran, China, Russia, and North Korea are all posturing for a geopolitical test knowing The US is weakened by internal distractions.

Market Musings 25/04:21: Buy Clean Energy on the Dip?

Summary:

New Podcast: How to Buy Low, Sell High

How to Buy Low, Sell High

Seasonality favours Low Volatility, Defensive equity investing over summer

Low volatility, quality dividend strategies make a come-back

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Edmund Shing

13 comments

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