Santa, Market Rallies and the Seven (Fund) Giants

This week, we’re talking Santa Rallies and looking at which seven funds are the professional fund selectors’ favourites.

I think we're now officially allowed to talk about Christmas. I remember unapologetically scowling at Christmas music in Tesco in October, however the tree is now up in the Mackay household. It won't win any prizes for decoration or enthusiasm – I managed to persuade the teenagers to put some tinsel and about 4 baubles on before they remembered they were too cool for it and skulked back to their rooms and TikTok, leaving the dog and I to finish things off, as I felt a moment of solidarity with the angel who could use some Botox and a new skirt.

Santa’s importance in our house has also diminished, but I'm quite interested in the big red jolly man for other reasons. The so-called 'Santa Rally'. This basically identifies the curious trend of stock markets rising in December.

The ‘Santa Rally’ phenomenon was identified by Yale Hirsch, founder of the Stock Trader’s Almanac, in 1972. The Stock Trader’s Almanac has compiled data over the 73 years from 1950 to 2022 and - looking at the S&P 500 - showed that a Santa Rally occurred 58 times (or roughly 80% of the time). The time frame considered includes the last 5 trading days of the year and the first 2 of the New Year.

Before you all jump on your stock sledges, this is a trend, not a given. In 2018 for example, the S&P 500 fell by over 10% in the week before Christmas, fuelled by concerns about interest rates and US-China trade wars. Bah humbug.

It also seems that Santa feels more benevolent towards the UK. The FTSE 100 has, on average, outperformed both the S&P 500 and Japanese Index during December. According to the analysts at Nutmeg, if we look at 40 years of stock market performance in December, the UK’s main market has returned, on average, 2.5% to investors, compared to the S&P 500’s 1.5% during the month.

Why so jolly?

There are lots of theories behind this. Performance is typically reported in calendar years, so there can be lots of rebalancing and tidying up, taking profits to manage tax, or ‘dressing up’ portfolios by adding to stocks which have performed well over the year. Traders may also invest in seasonal bonuses.

Some point to a general feeling of optimism and seasonal happiness on Wall Street.

Others think it’s because institutional traders down tools, leaving trading to retail investors who tend to be more optimistic and bullish. Seasonal happiness?! Bullish??? These theories are a pretty good indicator that Wall Street has been dominated by men. If they’d asked middle-aged women the week before Christmas, they would have been snapped at by people worrying about spare bed linen, needing a bigger freezer, managing their alcohol intake with the in-laws descending and how to cut through the menopausal brain fog to remember where the kids’ presents are hidden. I digress…

Seven Favourite Funds

It’s one thing feeling positive about markets. It’s another knowing which funds to pick to take advantage of this. Last week, a reader asked me how to go about picking the best funds for his portfolio. It’s a damn good question, as there are thousands of options out there, all tooting their horns.

I’ve always deferred to those who do this all day, every day, whilst maintaining what I like to think is a healthy scepticism about human fallibility and error. Most investment platforms have teams of fund analysts whose job is to review data, meet managers and compile their preferred fund lists. Essentially, lists of their favourite funds, although after the Woodford disaster and the winds of litigation, you will see them dancing around to avoid words like ‘Best’ or ‘Favourite’. We’ve aggregated the fund shortlists of 6 leading platforms, who between them look after 71p in every £ invested by British retail investors, and highlighted those funds with the weight of consensus behind them. There are 7 funds which appear on 4 or 5 of these lists, and 17 funds which appear on 3 of the preferred funds lists.

I find this consensus view an interesting (but not infallible) way to sift through the options, and you can always sense check these funds with independent research houses like Morningstar or Trustnet for yet another opinion.

And in other news…

This week we’re also featuring an article from Monks Investment Trust (looking for growth stocks with above average earnings growth), an update on gold’s prospects in 2025 from VanEck and a view on financials from Polar Capital. I was interested to read that in the last twelve months, financials have overtaken global markets by quite some margin – a leading global financials index (MSCI Financials) returned 44% compared to 34% from a mixed global shares index (MSCI World).

Have a great weekend everyone. The angel, the dog and I will be hiding from Storm Darragh and the teenagers!

Holly

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