In January of last year I laid out 13 unexpected events or surprise situations that were currently outside of the conventional consensus opinion that I felt had a reasonable chance of occurring (http://www.royalgazette.com/article/20130114/COLUMN05/701149987). Let’s go back and take a look at how these ‘surprises’ panned out:

1. Despite a floundering economy, the BSX Index climbs again. Specifically I stated that the BSX would tack on a high single digit gain. In fact it bested that — rising about ten percent. I also suggested that at least one major company, who suspended their dividend, reinstates a new one in 2013. Once again my expectations were confirmed when Butterfield AND Argus commenced paying dividends. This was a nice positive surprise!

Score: 1/1

2. Bermuda’s economy continues to stagnate. This, unfortunately, looks to be correct. An estimate from government disclosures in the most recent Bermuda Bond issue suggests nominal GDP growth of minus one percent for 2013. This number also jives very well with my expected range of slightly negative (barely single digits) as the “statistical bottom” comes in to play. I also suggested that two smaller reinsurers merge or another one is acquired in 2013. I’d say Markel’s purchase of Alterra on May 2, 2013 fits this call. Finally, I suggested the government begins the enactment of a radical new immigration policy involving a new road to permanent residency and potentially full citizenship. The Incentive for Job Makers Act of 2013, passed in December of last year, lays out a path for new Permanent Residence Certificates. There was also some positive discussion on the potential for citizenship granted to children born here. Definitely steps in the right direction! For getting all these right I still only get one point.

Score: 2/2

3. Global equity markets underwhelm. Pretty much wrong all the way around on this surprise. Consensus, in fact, was not bullish enough. The markets ripped higher this year trouncing the initial high target for the S&P 500 of 1,615 and ending the year at 1,848. I said European GDP actually contracts about two percent which appears to not even be close with Europe actually recovering with moderately positive GDP. Spain never got bailed out either. I’m not a big fan of France still — how can you invest and innovate when wealth is taxed at 75 percent marginal rates? If you don’t believe me think of the last great IPO you heard of coming from France... I’ll give you a few hours to ponder that. Ultimately, the suggested strategy of going long the S&P 500 Index and Italian stock market index while partially funding with a short position of French stocks would have made you money but I’m not giving myself a point. The trade in fact netted a nine percent gain with the two long positions and one short position.

Score: 2/3

4. Enough is enough; Japan gets serious about tackling deflation. I stated look for the yen to tank at some point to around 100/$ and the Nikkei 225 index to soar more than ten percent for the year. The yen ended the year at 105 to the dollar and the Nikkei 225 soared around 30 percent in US dollar terms. The strategy was to go long the WisdomTree Japan Hedged Equity Fund (Ticker: DXJ) which ended up about 43 percent for the year. I’d say that is a win.

Score: 3/4

5. Commodities rise then fall. Specifically, analysts come to realise that China will no longer be the dominant force in the commodities market because its primary growth aspect of capital spending and investments, very commodity intensive, begins to transition to more balanced growth of services and household consumption. Look for commodities to end flat to down. The S&P Goldman Sachs Commodity Index ended the year down about one percent. Check.

Score: 4/5

6. The US energy renaissance continues. Specifically I suggested that US oil production booms with shale oil production. This, I expected, to lead to a surprise drop of WTI crude to $80. WTI climbed about seven percent and ended at almost $100. No dice.

Score: 4/6

7. Bond yields DO NOT rise. Consensus was right here as well. After initially trading in a range bound fashion for five months as predicted, the Fed hinted at tapering and the bond market tanked. The recommended strategy suggested buying and selling at certain points on the iShares Barclays 20+ Years Treasury bond Fund (“TLT”). I suggested buying at 115 and selling at 130. We never saw 130 all year. TLT ended down about 14 percent on the year. Yes ladies and gentleman — bonds don’t always make money.

Score: 4/7

8. The search for income continues but the “special situations” rule the day. I suggested the hunt for yield would continue and two other sources of special income are Master Limited Investment Trusts (“MLPs”) and Business Development Corporations (“BDC”) would perform well. The Alerian MLP ETF (ticker: AMLP) was up about 20 percent with dividends and the ETRACS Wells Fargo BDCI ETN (ticker: BDCS) was up about 17 percent with dividends. Compare this to the SocGen Global Quality Income Index which posted a gain of only about 14 percent.

Score: 5/8

9. Buy and sell the housing recovery. This was somewhat of a “pair trade” — Housing price stability is positive for home builders but also regional banks. Home builders now look expensive, regional banks do not. Buying the SPDR S&P Regional Banking ETF (ticker: KRE) which rose some 47 percent and shorting (or avoiding) the iShares Dow Jones US Home Construction Index Fund (Ticker: ITB) which rose only about 17 percent was a profitable pair trade which was arguably the more popular type of strategy at the time.

Score: 6/9

10. Triple “A” ain’t OK. Although Exxon, Johnson & Johnson or Microsoft did not lose their AAA status, AAA-rated bonds lost more than four percent. The strategy called for avoiding the debt and buying the equities. Microsoft rose 44 percent, Exxon rose 20 percent and Johnson & Johnson climbed about 35 percent.

Score: 7/10

11. One more try ... Gold miners outperform the gold commodity. Remind me to never make a call or surprise on gold again. This is the second year in a row I got this wrong. Guess which surprise call I won’t have for 2014? The Market Vectors Gold Miners ETF fell 54 percent while gold itself collapsed “only” about 28 percent.

Score: 7/11

12. Ackman is wrong, Loeb and Chapman are right: buy Herbalife. The call was to ignore Ackerman’s distain for Herbalife (ticker: HLF) and side with Loeb and Chapman. We chose the winning team — HLF soared 173 percent.

Score: 8/12

13. The hedge fund collapse continues. Specifically I stated that another major hedge fund shop succumbs to an insider trading scandal. Say bye-bye to SAC Capital. I also suggested that fees begin to migrate to one percent and ten percent from two percent and 20 percent. There is definitely a trend here and we are also starting to see lower cost mutual funds set up with “hedge strategies” as well. I also suggested that the industry’s assets under administration slide ten percent or more. I am actually shocked to see them rise after having lost out to a 60 percent equity and 40 percent fixed income portfolio every year for 11 years in a row! That’s right, hedge funds have underperformed a 60/40 portfolio EVERY year for the last 11 years. Global hedge funds are up roughly 23 percent since 2002 and a 60/40 portfolio is up about 95 percent.

Score: 9/13

Overall about 70 percent of the forecasted surprises came to pass for 2013 (down from the 75 percent hit rate of 2012). Much higher than I would have anticipated given the nature of these out-of-consensus views.

In the next week or so I hope to publish my ‘surprises’ for 2014.

Nathan Kowalski is chief financial officer of Anchor Investment Management Ltd. The views expressed are his own.

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