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Adviser Fund Index: Looking back at predictions

In the mid-season questionnaire, the AFI panellists made several predictions for the end of 2006. More than 70 per cent of respondents correctly predicted that the FTSE 100 would be above 6,000. On the last day of trading – December 29 – it closed at 6,220.80.

Panellists said all three AFI indices would outperform strongly in the second half of 2006. In fact, the closing values of all three indices exceeded predictions. The survey results were based on 14 completed questionnaires returned by August 15.

The average Aggressive AFI value predicted by the 14 respondents for the end of 2006 was 141.1 compared with 136.3 on August 15. The end-of-year predictions for the Balanced and Cautious indices were 136.7 and 128.7 respectively. This represented a predicted increase of about 4 per cent for both indices from August 15 to the end of the year.

The most popular respon-ses were in the 140-145 range for the Aggressive index, 135-140 for the Balanced AFI and 125-130 for the Cautious index. In reality, the closing values for the AFI on December 29 were 151.5 for the Aggressive, showing an 11 per cent increase from August 15, 143.8 for the Balanced and 132.8 for the Cautious.

There was also a wide range of responses regarding expec-ted movements in interest rates and exchange rates by the end of 2006. Half the panellists expected British interest rates to remain at 4.75 per cent. Five expected the figure to be 4.5 per cent. One panellist expec-ted interest rates to rise to 5.25 per cent by the year-end. However, the last interest rate adjustment from the Bank of England, in November, brought rates up to 5.0 per cent.

Nine of the 14 panellists expected the Federal Reserve to raise American interest rates to 5.5 per cent. In reality, they were held at 5.25 per cent for the fourth time running. Elsewhere, 43 per cent of respondents correctly predicted the Bank of Japan’s interest rate to be held at 0.25 per cent until the end of the year. Most panellists expected the eurozone short-term interest rate to rise to 3 per cent by the end of the year. In fact, the European Central Bank lifted interest rates to their highest level for five years on December 7, raising its main rate to 3.5 per cent.

Eight respondents expected sterling to rise against the dollar by the year-end while the same number predicted that the euro would strengthen against sterling. In reality, the dollar closed at 1.957 to the pound on December 29 compared with 1.895 on August 15. The euro closed at 1.484 to the pound on December 29 compared with 1.482 on August 15.

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