You may be familiar with the old market adage “Sell in May and go away” – a reference to historical underperformance of equity markets during the months of May through October. Given that markets experienced extraordinary volatility in the early months of 2020 as a result of the COVID-19 pandemic, some investors might be thinking “Sell in May” is good advice. But getting out of the market can also incur costs to investors. This prompts the question – how can investors seek to manage volatility risk while remaining positioned to take advantage of market movements when they occur?

Vacation Time: By the Numbers
On average, over the past 20 years international markets as measured by the MSCI EAFE Index1 underperformed by nearly 6% during the period from May to October relative to the period from November to April – returning on average -0.49% vs. 4.89%. Looking at Chart 1, we can see that investors who sold and stayed away avoided losing an average 20% from May to October in 5 of the past 20 years: 2001, 2002, 2008, 2011 and 2018. On the other hand, investors that were not fully invested in 2003, 2009 and 2017 missed out on an average 22% return.

Volatility in early 2020 resulted in one of the worst periods of market underperformance of the past 20 years, with the MSCI EAFE Index losing -14.21% from November 2019 to April 2020. While central banks and policymakers appear committed to mitigating the economic fallout from the COVID-19 pandemic, volatility risk may remain elevated through the second half of 2020. Prior to COVID-19, the two widest negative deviations for the November to April time period were followed by marked May to October drawdowns. The first occurred in November 2000 to April 2001 – when the MSCI EAFE Index was down 8.01%. A -18.4% May through October drawdown followed. The second occurred from November 2007 to April 2008, when a -9.21% loss in the index was followed by a -41.2% drawdown.

A Look at the “Sell in May” Time Periods: 2000 - 2020
  May–October November–April
 Past performance is no guarantee of future results. It is not possible to invest in an index.

Reading the Reviews
It is possible to draw the conclusion from the data summarized above that in terms of long-term returns on a before-tax basis, investors who remained invested consistently over the past 20 years would have benefited from selling in May and returning in November given the negative average return for that period.

However, it is important to put these conclusions in the broader context of the reality experienced by investors. Taking into consideration the longer-term behavior of markets is important, particularly when thinking about the tax and transaction costs that can be associated with moving in and out of portfolio positions throughout the year. It is also important to consider investor behavioral patterns and biases and understand that timing is critical. Consistently applying investments and divestments would have been necessary to realize the full benefit of potential gains, irrespective of the state of markets or the economy.

Advice for Travelers
At Seeyond, we believe that a better solution may be to utilize strategies that incorporate tools and characteristics designed to help attenuate volatility while remaining fully invested. These strategies can also help investors avoid the need for constant and expensive portfolio churn as well as remove the “human” element required to implement such a strategy.

For example, minimum volatility (“Min Vol”) strategies seek to deliver market-like returns over the long term, but with less volatility than experienced by the market. To demonstrate, let’s consider Chart 2 below, which shows the range of periodic returns from May through October and November through April over the past 20 years for the MSCI EAFE Index and an international minimum volatility index (MSCI EAFE Minimum Volatility Index).2

In Chart 2, we can see that over the past 20 years, the dispersion of returns in the May through October period is much wider than the dispersion of returns for the November through April period. This is true for both the traditional index and the representative minimum volatility index. In addition, the dispersion of returns is significantly narrower for the minimum volatility index than for the traditional capitalization-weighted index. Lastly, the average periodic return for the minimum volatility index is higher in both periods. This data suggests that over the past two decades, a minimum volatility approach had the potential to materially reduce volatility without negatively impacting average return.

Dispersion of Periodic Returns Over the Past 20 Years
(Rolling 6mos, May–October and November–April)

Dispersion of Periodic Returns Over the Past 20 Years (Rolling 6mos, May–October and November–April)
Source: Seeyond and Morningstar. Past performance is no guarantee of future results. It is not possible to invest in an index.

Active Exploration
The Natixis Seeyond International Minimum Volatility ETF (MVIN) is among the min vol strategies available to investors. MVIN seeks to deliver on a dual investment mandate – yielding attractive returns with the potential to beat index performance over full market cycles, while working to significantly reduce volatility and drawdowns. Minimum volatility investment strategies come in all shapes and sizes, but Seeyond believes that active management remains a key component of volatility risk management. MVIN seeks to capture capital appreciation but with less volatility than experienced by equity markets. Less volatile investments can help decrease the risk of emotional portfolio decision-making, which can lead investors to make the wrong decision when volatility spikes.

MVIN has demonstrated its potential to buffer market volatility in turbulent market periods. MVIN saw a -6.2% decrease during the 2018 market drawdown versus a -13.8% decrease in the international Index.

Travel Safely
Selling in May has the potential to help investors emotionally, but historical data suggests it has little effect on downside risk in international equity markets. What’s more, it can lead to increased costs and tax consequences. Instead, investors may be better off diversifying into minimum volatility, which is designed to help them become less dependent on day-to-day market gyrations in equity markets. Such considerations may be particularly worthwhile through the second half of 2020, as global economies adjust to the “new normal” of a post-COVID-19 world.
1 International Index: The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the US and Canada. With 921 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

2 The MSCI EAFE Minimum Volatility (USD) Index aims to reflect the performance characteristics of a minimum variance strategy applied to the large and mid-cap equity universe across Developed Markets countries* around the world excluding the US and Canada. The index is calculated by optimizing the MSCI EAFE Index, its parent index, in USD for the lowest absolute risk (within a given set of constraints). Historically, the index has shown lower beta and volatility characteristics relative to the MSCI EAFE Index.

ETF General Risk: Exchange-Traded Funds (ETFs) trade like stocks, are subject to investment risk, and will fluctuate in market value. Unlike mutual funds, ETF shares are not individually redeemable directly with the Fund, and are bought and sold on the secondary market at market price, which may be higher or lower than the ETF's net asset value (NAV). Transactions in shares of ETFs will result in brokerage commissions, which will reduce returns. Active ETF: Unlike typical exchange-traded funds, there are no indexes that the Fund attempts to track or replicate. Thus, the ability of the Fund to achieve its objectives will depend on the effectiveness of the portfolio manager. There is no assurance that the investment process will consistently lead to successful investing. Equity Securities Risk: Equity securities are volatile and can decline significantly in response to broad market and economic conditions. Foreign Securities Risk: Foreign securities may involve heightened risk due to currency fluctuations. Additionally, they may be subject to greater political, economic, environmental, credit, and information risks. Foreign securities may be subject to higher volatility than US securities, due to varying degrees of regulation and limited liquidity. Currency Risk: Currency exchange rates between the US dollar and foreign currencies may cause the value of the fund's investments to decline.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed above may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted.

Before investing, consider the fund’s investment objectives, risks, charges, and expenses. Visit for a prospectus or a summary prospectus containing this and other information. Read it carefully.

ALPS Distributors, Inc. is the distributor of the Natixis Seeyond International Minimum Volatility ETF. Natixis Distribution, L.P. is a marketing agent. ALPS Distributors, Inc. is not affiliated with Natixis Distribution, L.P.