With Retailers, it’s ‘When’ Not ‘What’

  • SumoMe

I’ve been seeing a number of panicked missives lately regarding the retailing sector.  They typically go something like this:

“Despite new highs for most of the major market indexes, the retailing sector has been struggling – and in some cases hit hard – therefore it is clearly (paraphrasing here) THE END OF THE WORLD AS WE KNOW IT, AHHHHHHHHHHHHH……………………..”

Or something along those lines.  And the truth is that they may be right.  But as it turns out, with the retailing sector it is typically more a question of “when” and not “what” (or even WTF for that matter).

(See also Months to Beware of in 2017)

Recent Results

The concerns alluded to above are understandable given recent results in certain segments of the retailing sector. Figure 1 displays the stock price action for four major retailers.  It isn’t pretty.

(click to enlarge)1Figure 1 – Major retailers taking a hit (Courtesy AIQ TradingExpert)

So if major retailers are performing poorly one can certainly see why someone might extrapolate this to conclude that the economy is not firing on all cylinders and that the recent rally to new highs by the major averages is just a mirage.  And again, that opinion may ultimately prove to be correct this time around.

But before swearing off of retailing stocks, consider the following.

Retailers – When not What

For our test we will use monthly total return data for the Fidelity Select Retailing sector fund (ticker FSRPX).  Figure 2 displays the growth of $1,000 invested in FSRPX only during the months of:

*February, March, April, May, November, December

2Figure 2 – Growth of $1,000 invested in ticker FSRPX only during the “favorable” months since 1986

For the record:

*An initial $1,000 grew to $50,274, or +4,927% (this test does not include any interest earned during the months out of FSRPX).

*# of years showing a net gain = 27

*# of years showing a net loss = 4

*Average UP year = +17.0%

*Average DOWN year = (-3.4%)

*Maximum UP Year = +50.0% (1990)

*Maximum DOWN Year = (-5.9%) (1994)

The Year-by-Year Results appear in Figure 3

Year % +(-)
1986 26.2
1987 15.8
1988 12.2
1989 16.9
1990 50.0
1991 45.5
1992 8.0
1993 4.6
1994 (5.9)
1995 3.0
1996 26.1
1997 18.1
1998 45.7
1999 4.0
2000 1.8
2001 12.5
2002 (0.1)
2003 18.5
2004 11.3
2005 10.3
2006 0.1
2007 (2.8)
2008 (4.7)
2009 44.9
2010 24.5
2011 4.6
2012 10.8
2013 16.6
2014 11.5
2015 6.1
2016 9.2

Figure 3 – Year-by-Year Results for  “Favorable” Months since 1986

The Rest of the Year

If for some reason you had decided to skip the months above and hold FSRPX only during all of the other months of the year, your results appear in Figure 4.4Figure 4 – Growth of $1,000 invested in ticker FSRPX only during the “unfavorable” months since 1986

For the record:

*An initial $1,000 grew to $1,037, or +3.7% (this test does not include any interest earned during the months out of FSRPX).

Summary

Is the retailing sector guaranteed to generate a gain during our “favorable” months in 2017?  Not at all.  Still, given that retailing is presently beaten down a bit and the fact that the worst full year loss during the favorable months was -5.9%, it may be time to think about taking a look (although – as always, and for the record – I am not “recommending” retailing stocks, only pointing out the historical trends).

Still, as the old saying goes, the results below are what we “quantitative types” refer to as “statistically significant”.

*Favorable months since 1986 = +4,927%

*Unfavorable months since 1986 = +3.7%

Jay Kaeppel

6 thoughts on “With Retailers, it’s ‘When’ Not ‘What’

  1. Jay, why those months? Is there an explanation as to why they might outperform? Otherwise, the results strike me as ‘cherry picking’ and might not be as significant as first proposed.

  2. Jay, According to M*, ~42% of FSRPX is in 2 stocks. That’s OK if this is true of the entire sample space but if that % changed during the period, this analysis is half right. best, j

    1. That is an excellent point and something to consider before diving in. On Fidelity website FSRPX Top 10 holdings comprise 77% of the portfolio. Not sure how this compares with the past but based on FSRPX history they have done pretty good job managing the portfolio. Jay

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