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Showing posts from June, 2018

Tax Loss Selling - Footnote

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Earlier in the year we reviewed weekly returns for the S&P/ASX Small Industrials Accumulation Index between January 2013 and January 2018. In the context of the previous blog entry, Tax Loss Selling, we went back to take a second look at that analysis (when we originally did these numbers, we were looking for any sign of the "January Effect" - it is often said that small caps generate their excess return for the calendar year in that one month but we don't see convincing evidence that this holds on the ASX).

This data shows the first week of June as typically the worst of the calendar year over the past five years and subsequent weeks in June also being lackluster.

Consistent with the chart from Wilsons in the previous blog entry, July in contrast has typically started off strongly and continued to power on.

These aren't projections - history may rhyme but doesn't precisely repeat.

Figure 1: Average performance of S&P/ASX Small Industrials Accumulation Ind…

Tax Loss Selling

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June is typically a volatile month for the Australian sharemarket as investors sell poorly performed investments in order to generate losses that offset gains realised throughout the financial year. This trend is thought to impact on smaller stocks the most.

The strength of the June trend is highlighted in Figure 1, from Wilsons. What Figure 1 doesn't show is that after tax loss selling is largely executed, the back end of June can benefit from less selling pressure.

Figure 1: Average monthly index performance since the GFC source: Wilsons Equity Research
Equitable Investors' review of the numbers suggests this year's tax-loss driven activity has probably been greater than in the prior year.

Focusing on the smaller stocks, we identified 205 industrial "tax loss" stocks with market caps between $20m and $200m that had generated negative returns in the first 11 months of the financial year.

Between May 31 and June 19, 68.5% of those stocks have generated an additiona…

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