National Mutual throws out the crystal ball

We would all like to be able to predict the future. No longer would you be left carrying an umbrella on a sunny day but more importantly you would be very well off financially. Investing with the benefit of hindsight is easy but it’s the future that counts.

At National Mutual we have constructed a range of leading indicators. These tools help us to anticipate what should happen in the future given what has occurred in the past. Investment strategist Darryl Briggs has developed a variety of leading indicators which are proving of considerable assistance in our decision making process. With the aid of significant computer power and a large database we can identify the factors that drive changes to the economy, various industrial sectors, individual company share prices and the financial markets as a whole.

Our analysis depends upon successfully identifying those factors which lead or drive changes and dismissing those that lag. For example, the unemployment rate has only limited explanatory value because it does not lead changes in economic activity or GDP. Changes to the unemployment rate follow changes to activity levels in the economy. As the economy improves so unemployment naturally falls. By way of contrast, interest rates do provide a lead as to what might happen to the economy in time. If interest rates decline, the cost of servicing a mortgage declines and eventually new house building will pick up as a consequence. In fact, our modelling shows that is exactly what happens although, to be fair, interest rates are not the only factor impacting on new house building.