International Seasonality Strategy For Stocks

Seasonality has long been used in trading and investing: the idea that certain patterns in market returns repeat at similar times each year. In his book Quantitative Investing: Strategies to Exploit Stock Market Anomalies for All Investors, Fred Piard explores annual seasonality effects and proposes systematic rules to exploit them.

The Allocate Smartly blog independently tests Piard’s annual seasonality strategies and reports long-term results, highlighting both the strengths and the limitations of this approach.

Related reading: –Seasonal trading strategies

What Is Piard’s Annual Seasonality Strategy? Rules

Piard’s annual seasonality strategy is a variation on the classic “Sell in May and Go Away” idea – the notion that equity markets tend to perform better in certain months than others – but with a country-specific twist.

The tested version combines two of Piard’s annual seasonality rules into a single strategy:

• From November through April, allocate 25% to Singapore stocks (EWS) and 25% to Brazil stocks (EWZ).
• From October to December and again March to April, allocate 50% to Germany stocks (EWG).
• Any part of the portfolio not allocated to these positions is held in cash.
• Rebalancing occurs monthly, with trades executed at the close of the last trading day of each month.

Piard’s original version allowed placement of unallocated funds into long-term U.S. Treasuries (TLT), but the Allocate Smartly test opts for cash instead, avoiding long duration bond exposure when out of equities.

Why This Strategy Might Work

Annual seasonality, patterns in returns based on the calendar year, has been documented in academic research going back centuries. Historical data suggests that markets often exhibit persistent seasonal performance patterns in different regions.

The core idea is simple:

• Buying certain markets during historically strong months.
• Avoiding them during historically weak months.
• Keeping capital in cash (or other safe assets) when not invested.

When seasonality lines up with investor behavior and macro trends, this can translate into higher long-term returns in theory.

Backtest Results and Performance

According to Allocate Smartly, the combined Piard strategy has been backtested from 1970 to the present, with results shown net of transaction costs.

The site includes performance charts (including rolling 12-month returns) comparing the strategy versus a buy-and-hold global equity benchmark (ACWI). These charts illustrate how frequently the strategy has both outperformed and underperformed ACWI by large margins (greater than 20%).

A few key performance takeaways from the article:

• Long periods of underperformance occur quite frequently and can be deep, especially when the seasonal patterns don’t align with broader market trends.
• In certain years (e.g., 2022), the strategy greatly outperformed, while in others (like 2024), it performed poorly.
• Over multi-decade horizons, the historical performance supports the existence of annual seasonality, but seasonal effects are not consistent year-to-year.

Pros and Cons: What Investors Should Consider

Allocate Smartly provides a thoughtful perspective on the strengths and limitations of Piard’s approach:

Pros

• Offers potential long-term excess returns versus passive global equity investing.
• Low correlation with many other tactical strategies, making it useful in diversified portfolios.
• Historically persistent effects across multiple markets.

Cons

• Frequent underperformance: The strategy often significantly trails the benchmark for extended periods.
• Overfitting risk: Targeting specific smaller markets (Singapore, Brazil, Germany) may work historically but could be capturing noise rather than a true structural anomaly.
• Low turnover: The strategy’s infrequent trades make it hard to detect early if it stops working.
• Tax inefficiency: If used in taxable accounts (especially in the U.S.), frequent closing of positions within a year is costly.

The article cautions that seasonality alone should probably not be the core of a portfolio. Instead, it suggests seasonality strategies might be best used as a small allocation within a broader set of diversified strategies.

Conclusion

Piard’s Annual Seasonality strategy is a systematic, rules-based way to exploit calendar effects in international equity markets. While long-term historical data shows seasonality can matter, the strategy’s performance can be volatile and unpredictable year-to-year. For investors willing to tolerate drawdowns and hold over decades, seasonality may offer some long-term edge, but it also carries risks that make it unsuitable as a standalone approach.