Does September spell danger for investors?

29 August 2013

Tensions in the Middle East, concerns over oil supply, the slowdown in China and jitters over a potential tapering down of ‘QE’ make a heady backdrop as we enter a month prone to market volatility

Research by Bestinvest reveals that, based on long-term data, September is the month with the worst average total return on the FTSE All Share Index (-0.88%) and with one of the highest incidences of negative returns from equities (48.15% of the time). In fact the month of September has seen six market slumps since the 1990s, including Black Wednesday, 9/11 and the collapse of Lehman Brothers (see appendices).

Of course it is virtually impossible to predict short term market movements, but volatility has increased notably in recent days as a result of escalating tensions in the Middle East and against a backdrop of market jitters over the extent of the slowdown in the Chinese economy and a potential tapering down of ‘QE’ by the US Federal Reserve in September.

Jason Hollands, Managing Director of Bestinvest, commented: “Markets never rise in a linear fashion so after a stellar run for a number of developed markets, the risk of pull back – albeit one that could be short-lived - is clear.”

He explained that over the summer months, investors have increasingly focused on the impact of a significant deceleration in China’s growth story and fixated on a potential tapering down of QE at some point. Despite this actual trading volumes of shares have been low.

Hollands added: “However, in recent days it is tension in the Middle East that has come to the fore, as potential military action against Syria beckons following the apparent use of chemical weapons against the civilian population. A broader conflict across the Middle East would threaten global oil supply and this is leading to fears that soaring energy prices might act as a brake on the fragile global economic recovery.”

“These concerns have been fuelled by the leaking of alleged conversations between the Saudis and the Russians, suggesting a secret deal to create greater control over global oil prices in exchange for Russia dropping support for the Assad regime but also the actions of an armed group shutting down of pipelines connecting Libya’s western oil fields with its ports. This has seen Libyan oil output fall to the lowest level since the toppling of Gaddafi.”

“Given this febrile atmosphere, crude oil prices have been spiralling upwards while equities have been under pressure and traditional bear-market assets such as gold have spiked.”

Hollands cautioned private investors against taking rash action however: “In our view long-term investors need to keep calm and hold their nerve rather than get distracted by the white noise of current events. Markets hate uncertainty and are likely to be erratic over the coming weeks, both in respect of fast moving events relating to Syria but also ahead of the next meeting of the US Federal Reserve on 17-18 September. For those with a long-term strategy and new funds to invest, using periods of market weakness to build positions is a sensible strategy.”

- ENDS -


Chart A: FTSE All Share Index – average incidence of negative returns by month

Source: / Lipper

Chart B: FTSE All Share – average total returns by month (since 1986)

Source: / Lipper

September – danger month

Much of the reason for the low average figures cited above comes down to the impact of six notable summer crashes – four of which occurred in September. These were:

    • 1992 (-11.6%) – when high German interest rates were putting strain on the European Exchange Rate Mechanism and the UK was additionally squeezed by a rapid depreciation of the dollar. Things finally cracked on Black Wednesday on 16 September when the UK was ejected from the ERM, which ultimately marked a turning point in UK’s fortunes
    • 1998 (-12.6%) – on 17 August Russia devalued its currency, defaulted on domestic debt and declared a moratorium on payments to foreign creditors, sparking a global sell-off


    • 2001 (-18.4%) – markets crashed followed the 11th September terrorist attacks on the World Trade Center and Pentagon


    • 2002 (-21.2%) – this was the second leg of the bursting of the “dot com” bubble, stocks began to slide again in March, but dramatic sell offs happened in July and September


    • 2008 (-13.0%) – the credit crisis was playing out dramatically. This period was followed on 15 September by Lehman Brothers filing for bankruptcy and the US Fed bailing out of AIG on 15 September


  • 2011 (-10.9%) – sharp sell-off in August due to fears over contagion in the Euro debt crisis and the loss of the USA’s AAA-credit rating on 6 August

Important information:
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.

About Bestinvest:
Founded in 1986, Bestinvest has grown to become a leading private client investment adviser, looking after £5 billion of assets for more than 50,000 clients. We offer a range of investment services from Select for self-directed investors to Investment Advisory and Investment Management services for clients who do not have the time or inclination to manage their own investments.

All of our services are underpinned by rigorous research aimed at identifying those fund managers we believe will deliver long-term superior performance. We also have a team of expert financial planners with nationwide coverage to help clients with their pensions, retirement or Inheritance Tax planning. At Bestinvest, we pride ourselves on offering the highest levels of professionalism and expertise with transparent, competitive prices. We are pleased that our greatest source of new business is from personal referrals from existing clients.

Bestinvest has won numerous awards including UK Wealth Manager of the Year 2013, Best Wealth Manager for Investments 2013, Best Stockbroker for Customer Service 2012 and 2011 Self Select ISA Provider of the Year as voted by readers of the Investors Chronicle and the Financial Times.

Headquartered in Mayfair, London, Bestinvest employs more than 200 staff and has an extensive network of regional offices. The company is one of the fastest-growing private client advisory firms.

About Tilney

Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years.  Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.

We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.

Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.