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The stock market adage “sell in May, go away” philosophy has no legs, says Avery Shenfeld, chief economist with CIBC World Markets.

This mantra is based on the premise that stocks have a stronger return period from November to April. Subsequently, stocks should be sold off at the start of May when they are still robust.

This strategy defies the textbook theory about efficient markets.

The theory that equity returns can be recovered from November to April is inconclusive. “If you look hard enough, such random patterns will emerge just about everywhere, but fail to be predictive,” says Shenfeld.

Moreover, if this theory were true, stocks would need to be sold off at the beginning of April. Over time, this pattern would cause investors to sell their stocks in an earlier month, eventually, changing the mantra to sell in April, then, March, et cetera.

TSX data (Shenfeld chose 1987) show that historically the November to April period have been stronger periods for stocks. However, if you remove the three market crashes that occurred during the alleged worse period for stocks, the data becomes less statistically significant.

Dropping the three outliers — the crash of 1987, the Russian default / LTCM dive of August 1998 and the September / October credit freeze — and there’s not enough evidence to show that May to October periods are really a bad period to hold stocks.

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Hedge funds miss April rally

The defensive position taken up by some Canadian hedge fund managers may have prevented them from capitalizing on April’s equity market rally and in some cases causing a few to post losses.

For April 2009, the Scotia Capital Canadian Hedge Fund Performance Index finished down 0.61% on an asset weighted basis and up 1.59% on an equal weighted basis. The index underperformed both the TSX composite and the S&P 500 index on both an asset weighted basis and equal weighted basis.

However, global equity markets continued their strong rally throughout April. News about Chrysler’s bankruptcy and uncertainty about the global pandemic swine flu did not affect investor sentiment too much. In the U.S., better-than-expected corporate earnings and positive economic data appeared to have more sway on investor confidence. The S&P 500 finished up 9.39% — its highest return since 2000.

The TSX also participated in the equity rally, though to a lesser extent than the U.S. The index finished the month up 6.93%.

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Canadian couples working through tough times

A recent poll from the Winnipeg-based Investors Group show that, despite tough economic times, some Canadian couples have made greater efforts to improve their communication about financial matters.

The poll, which included married and common-law Canadians, indicated that in the past 12 months, 39% of couples said they tried harder to work with their partners to making financial decisions. Twenty-five percent indicated they are talking about money matters more often.

Further findings from the poll show that 45% of couples have scaled back their lifestyle expenses, 18% reported enjoying life less and 13% of the respondents said they feel depressed.

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Mavrix accepts GrowthWorks bid

Mavrix Fund Management announced today that it has agreed to sell off all of its issued and outstanding common shares for $0.25 per common share to GrowthWorks Ltd. and its wholly owned-subsidary 1796862 Ontario Ltd.

The transaction is subject to court approval and must be approved by two-thirds of the votes cast by Mavrix shareholders at a shareholders meeting slated for June 24, 2009. If approved, the transaction is expected to be completed on June 30, 2009.

Once the arrangement is completed, Mavrix shares will be de-listed from the TSX.

(05/22/09)