The press love a good prediction story as they help sell papers and drive traffic to their publishers' websites. In addition, a prediction based article is a fairly easy piece of journalism as all you have to do is ask a panel of experts what they think will happen in the future and then mash it into a story. Reader's love it, including me. But it always baffles me that once the predictions are published they are never revisited in the future and assessed for their accuracy, Why not??
Perhaps if they did then they will be shown to have no value? Or maybe the opposite would be true?
A year ago Citywire asked 91 wealth managers which asset class they believed would offer the best total returns over the following 12 months. Well, the 12 months are up and as far as I can tell Citywire have not revisited the predictions. So instead I have decided to and the results are interesting.
The table below sums up the performance of each asset class along with the wealth manager predictions. I've ranked each sector by the their actual performance rank as then by their predicted position.
|Sector||Performance %||Rank||Predicted rank|
|Emerging Market Shares||10||3||1|
|Developed World Equities||5.55||6||2|
|UK Corporate Bonds||4.55||7||11|
|International Sovereign Debt||1.47||10||4|
|UK Treasury Bills||0.46||11||8|
The table paints a clear picture and while the consensus of wealth manager opinion backed emerging market shares it was in fact commodities fuelled by further quantitative easing that trumped the sectors. In addition, the wealth managers were wide of the mark with their backing of developed world equities. Perhaps the most startling error of judgement was their aversion to property, and global property in particular. Very few managers predicted the sector's recovery.
So what does this tell us? Well for one thing you shouldn't bet your mortgage on expert opinion. Listen to them by all means, let's not forget these guys are the market so will push up prices if they chase the same assets. But you can not legislate for macro events and their impacts (the EU sovereign debt crisis, the Japanese Tsunami etc) ahead of time. Wealth managers can't predict the future, although they may have an educated guess.
If nothing else this gives a snapshot of the reliability of wealth manager predictions – which is a bit hit and miss. I have no doubt that this will add fuel to the 'anti fund management' fire but you must remember that the above figures are sector averages, with a wide range of underlying returns and sub sectors.
So what can we expect from 2011? I'll leave that to other people to get wrong.