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Government bonds did fund managers

Even French 10-year bond yields are trading below 1% now. Did fund managers see that coming, or were they caught by surprise?

Fund management groups started the year in consensus: a large majority thought government bonds would lose more than 5% in the subsequent 12 months. From December 2012 to December 2013, markets indeed lost some ground: the Barclays Global Treasury Index lost a marginal 0.11%.

Massively wrong, but catching the trend

Since then, returns have been positive each month, and have been growing over time. Fund manager sentiment has pulled up somewhat, but managers remained too negative for the entire year. In six out of 12 months, fund manager sentiment came up to neutral territory, enabling fund managers to still ‘get it right’ at three occasions.

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Methodology: in the graphs, we compare what fund managers predicted would happen to the index over the following 12 months (the bars) to the actual performance (the dots). The bars use the left-hand scale and go from -100 (all managers think the market will drop 5% or more in the following 12 months) to +100 (all managers think the market will rise 5% or more in the following 12 months). The dots use the right-hand scale to what actually happened to the market. The red line indicates a 5% market gain. If the spots match the bars then mangers predicted correctly. For the manager predictions, Skandia collects every month the house views of 15-20 global fund management groups.

Blame the central bankers 

Three out of 12 is definitely not a score to be proud of. But the fund managers have some excuses. Central bank action, or anticipation by investors on such action, drives government bond yields. It is difficult, if not impossible to anticipate on this one year ahead. At least, they adjusted their negative expectations gradually over the year, thereby actually following the direction of the markets one year ahead. Their starting point was just way too negative.   

 

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