The “Hamptons Effect” has little to do with the housing market or even with the Hamptons.
Instead, Stifel’s Christopher Growe and his colleagues use the term to describe the fact that food stocks tend to rally into the final trimester of the year.
They coined the term because the timing of the rally coincides with the end of summer, when many Wall Streeters are back from vacations and Labour Day breaks in the Hamptons.
Investors have historically piled into food stocks late in the year to “in part help sustain portfolio returns with defensive and consistent performers,” Growe explained in a note on Monday.
He continued (emphasis added):
“The data supporting the Hamptons Effect is compelling — in the last trimester of the year, the Food stocks have outperformed the S&P 500 in 26 of the past 47 years, but the degree of outperformance is stark — the food stocks have averaged a 5.5% return in the final trimester of the year against the S&P 500’s average return of 3.2% since 1969.
In addition, the Hamptons Effect has been in effect in 4 of the past 5 years suggesting a strong late year performance for the food stocks in relation to the S&P 500 in recent years.”
As always, the caveat here is that past performance is not an indicator of future results. However, Growe finds this pattern “compelling”, also observing that food stocks are outperforming the S&P 500 by 730 basis points this year.
They are being lifted by strong earnings growth due to cost savings, high dividend yields, and the continued potential for mergers and acquisitions, Growe said.
“On an absolute basis, May, October, November, and December are the best months to own food stocks with the majority of stocks outperforming in these months,” Growe wrote.
Growe added that the group trades at a 30% premium to the market, which is well above its historical average.
Stocks that Stifel rates a “Buy” include General Mills, Kraft Heinz and TreeHouse.
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