Sunday, 29 April 2012

Sell in May? The Case of XIU

As April comes to a close, it is time once again to think about seasonal portfolio strategies. In one of my previous posts, I showed how a seasonal portfolio strategy applied to the TSX provides higher returns and lower risk than a buy and hold strategy.Here is a chart showing how three simple investment strategies for the XIU ETF  compare. The XIU is the most widely traded ETF in Canada and forms the basis of many investment portfolios. The returns are calculated from total returns (price returns plus dividends) over the period July 2000 to March of 2012. The MA(10) switch portfolio uses a moving average trend following strategy by comparing monthly closing prices with a moving average of length ten. Buy or hold the XIU when the monthly close of the TSX is above the 10 month moving average and sell the XIU and invest in 3 month T bills if the monthly close falls below the 10 month moving average. The seasonal switch portfolio invests in the XIU during the 6 month period November to April and then at the end of April the portfolio is sold and the money held in 3 month Treasury bills. The chart shows how a $100 investment made in July of 2000 has performed.The MA(10) switching strategy outperforms the seasonal switch portfolio which in turn outperforms buy and hold.


  1. (1) For replication purposes should the 10 month moving average be equuivalent to 304 days or 300 days.
    (2) I would be interested in the downside deviation figures also as investors are more sensitive to volatility on the downside ("regret") than on the upside ("I am a stock picking genius"). Yes, I am inferring that people are risk neutral on the upside but risk averse on the downside; I fully admit that this goes against what Fama & French and finance orthodoxy teaches.

    1. The 10 month moving average corresponds to approximately 200 trading days, so the 10 month MA is consistent with the 200 day MA.

      Downside risk measures are useful and something I could put in a future table.