Yield portfolio – surviving another market correction

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Key points

  • Market falls have been steep, but not yet beyond forecasts.
  • End of year forecast of 5,900 is still possible.
  • Yield portfolio (-3.1%) has outperformed the market (-4.6%).

The last month or so has been miserable for most investors on the ASX 200. Event after event (Ukraine, ISIS, Gaza, Hong Kong, and Ebola, etc.) bombarded world order. On top of that, the effect of bilateral sanctions from the Russia-Ukraine situation have taken their toll on German economic performance with the latest stats showing falls of around 5% on the likes of exports and industrial production.

Still in the box

While the market tumble has been merciless, it hasn’t (yet) been out of ‘the box’. Each six months I push out a 12-month forecast of the ASX 200 for the calendar or fiscal year ahead. I not only try to predict the ending number for the index, I also try to pick the high or the low along the way (all using scientific methods) – and those limits define ‘the box’ in my terminology. Of course, if the low is realised, the high is now much less likely as the remaining time period is shorter and the distance further away – and vice versa. At the start, the high and the low are equally likely.

In Chart 1, I show my July 1st 2014 predicted high, low and end point for FY ’15 (e-o-y) together with the index to the close on Monday 13th October. While the financial year started well, reaching 5,659 on September 2nd, the period since has already wiped off all of the gains for calendar 2014. However, at the time of writing, the market’s last close was only six points above the low forecast (dotted line). In that sense, the end of year forecast of 5,900 is still in the gun-sights but the high is now much less likely!

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