In this year’s Investment Competition 163 participants answered 20 demanding propositions put to them as if they were an Investment Analyst / Economist. It is time for your mid-year performance review. Some have made happy their Portfolio Manager boss, while others have some explaining to do!

With the first half of the financial year complete, based on the key messages from the majority of participant views your Portfolio Manager boss has made the following comments as part of your ‘balanced scorecard’:

1. The oil price doesn’t have much chance of rising above US$75.00/bbl • Pretty good so far, the oil price is up, but not by too much 2. The Japanese 10-yr bond yield is highly likely to remain negative • Not impressed. Looking wrong here, although the BoJ is targeting 0.0% for the 10-year bond yield so you might yet be saved. 3. The S&P ASX 200 price index is expected to remain under 6,000 • The index is up but still below 6,000, so you’ll looking ok 4. There is not much chance that 5-yr credit spreads in Australia will blow out to more than 200bp • Good call. Credit spreads have even contracted since 30 June. 5. It is quite unlikely that Australian house prices will fall by more than 5% • Well done. That now looks pretty safe as houses. 6. The iron ore price is expected to stay above US$40/t
• The iron ore price is much higher.
7. The Japanese economy is not expected to fall into near recession
• Too early to call, but looking good.
8. Melbourne weekend residential auction clearance rates will remain above 65% next Autumn
• Clearance rates are holding up, but let’s see how it turns out.
9. US equities are expected to perform solidly, with the S&P 500 index expected to rise to above 2,200
• Good call. The S&P 500 index is above 2,200 as you called it.
10. The AUD/USD exchange rate won’t see a lot of downside and should remain above 68.0 cents.
• The AUD/USD rate is up since 30 June. Well done.
11. China is unlikely to see a manufacturing recession with the PMI holding above 47.0
• So far so good, although with China data you can never be sure.
12. Volatility on the Australian equity market is likely to remain modest at under 20.0
• The VIX is down and volatility has been low.
13. The RBA is unlikely to cut rates more than once in the financial year
• We’ve got one cut, and markets are not pricing any more. Top of the class!
14. The Fed is unlikely to raise rates more than once in the financial year
• We’ve had one rate increase by the Fed. One more is looking on the cards.
15. CBA is expected to be a better performer than BHP
• Oh no. BHP is up 42% and CBA is up 14%. What sort of stock analyst are you?
16. The US unemployment rate is expected to remain below 5.0%
• So far so good, but it is close.
17. The gold price is expected to remain below US\$1,500
• Well done. It has remained pretty flat.
18. The Australian 10-yr government bond yield will be below 2.0%
• You missed the biggest call of the year – the bond market selloff
19. It is harder to call where Australian inflation-linked bonds will trade, but there may be modest downside from 0.90%
• Not good. I know you weren’t that sure, but inflation-linked yield have backed-up, not fallen.
20. We have no idea if Greek bond yields are going up or going down!
• Fair enough. No one seems to know that!

Your ‘balanced scorecard’ of +8 is an ‘Excellent’ outcome. Your score comprises +13 for your views that are looking as if they will be correct; -5 for your views that are looking as if they will be wrong; and 0 for the two questions that it is too early to make any comments upon.

The following tables shows the initial level of each proposition and its current status which has been used to rate you in the ‘balanced scorecard’.

### ‘Cash-Out’ factors for each proposition

Each proposition was scaled depending on the responses from participants in the competition, somewhat like a parimutuel betting pool. The scaling factors for each proposition were published during August 2016 in the following article: Wealth Management Investment Competition 2016-2017

To determine the mid-year performance for each participant, each proposition was given an assessed probability by this author. By its very nature, the assessed probabilities are highly subjective and indicative only. For each proposition, based on the assessed probability a Yes/No ‘cash-out’ factor has been calculated. It should be noted that this competition does not offer a ‘cash-out’ option to its participants, so it is only used for illustrative purposes. The ‘cash-out’ factors are shown in the following table:

Top ranking participants

Each participant started with 20 points. Applying the ‘cash-out’ factors to the responses of each participant gives a current score. At mid-year, the top score is 29.50. The bottom score is 14.37. The median score is 20.0. The following table shows the current top 5 participants in the competition.

 Rank Name Score 1 Colin Grenfell 29.50 2 Stephen Woods 27.84 3 Chao Gan 27.09 4 Mark Hancock 26.82 5 Mudit Gupta 26.77

The person who responded ‘unsure’ to all twenty propositions remains on 20 points!

The correlations and other details

There is close relationship between the mid-year ranking of participants and how ‘bullish’ they were rated at the commencement of the competition. The bulls are winning!!

Much of the volatility between individuals that is not explained by the ‘bullish’ factor relates to the participant’s response with regard to the 10-year Japanese bond yield remaining negative. The ‘No’ response had a very high scaling factor, and so far it is ahead.

Summary

Your Portfolio Manager boss is pretty happy, but there is still a long way to go in this financial year. As we have seen during the second half of calendar 2016, anything could still happen from here!

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