Fearlessly forecasting 2019; at least 4 of these things will happen

Your Funds

Fearlessly forecasting 2019; at least 4 of these things will happen

A forecaster is someone who predicts the future and retains some credibility when explaining why it didn’t happen.

I’m not a forecaster. I’d typically rather wait for an event to happen than to try to anticipate in advance how it will unfold.

And yet, for more than two decades, I’ve started each year trying to foretell the big stories of the coming 12 months for the mutual-fund business. As a general rule, two-thirds of my visions actually materialize, with the others either being a bit early or flat-out wrong.

Thus, I expect all of the following to happen in 2019; you should expect that some of them will:

• Variable and index-linked annuities being the big sales push.

The stock market’s recent downturn and its prospects for more pain ahead puts variable and indexed annuity products in the spotlight because they’re for investors who want to capture the market’s growth while protecting against its downturns.

These products have always been good for the sellers — with high commissions and fee/cost structures that aren’t always transparent — but they only sell in times when investors are nervous.

That time is now.

There are new developments in annuities and many more ways to structure these insurance contracts since the last time bear-market conditions made them attractive; the big sales pitch now is that there is something for everyone.

Don’t fall for it; the reality is that indexed and variable annuities are a good choice for a very small percentage of potential customers.

• No true cryptocurrency fund or ETF, but several efforts to approximate one.

For all of the hype surrounding cryptocurrencies, there has yet to be a true mutual fund or exchange-traded fund that allows investors to make a diversified play on Bitcoin and its peers, or that can act like a trading vehicle for crypto the way physical gold and commodities funds do.

Don’t expect one in 2019. Securities and Exchange Commission officials have been clear that until their concerns over investor protection in cryptocurrencies can be answered — specifically issues about how easily cryptos can be stolen or manipulated on exchanges — they won’t approve a Bitcoin fund or anything like it.

Expect providers to come up with new ideas on the edge of a crypto fund — no one is giving up, and several companies see the value in jumping into the space early — but the pure play on Bitcoin in ETF form that many investors are waiting for is more than a year off.

• Investors dumping “value investing” in favor of “low-volatility investing.”

With volatility back and with a vengeance — and with value investing having lagged growth/momentum investing for most of the decadelong bull market — there’s a sea change coming.

Value investors look for securities they think the market has underpriced, relative to their intrinsic value. Value investors look for cases where the market overreacts to news events, creating price movements that are out of line with the company’s fundamentals.

While low-vol investing — simply put, buying stocks with lower price fluctuations — has been a favorite with institutional money managers for decades, only recently has it attracted average investors through dedicated funds and ETFs.

Those issues have proved themselves, in general, to be strong performers, so unless value strategies can shine through the current downturn and the tough sledding ahead, investors and advisers are likely to build portfolios that skip value as an asset class, favoring instead low-vol strategies for those core holdings.

• More ultracheap funds, but no new “zero funds” competition.

Fidelity Investments in 2018 introduced funds that charge nothing for expenses. Vanguard responded by cutting costs and other fund companies took notice. The move to zero is the ultimate step, as far as firms can go, so don’t be surprised when most major fund companies answer with one or more ultracheap funds to round out their lineup and appeal to new investors. Expect more fee reductions too.

What you won’t see is other major fund firms matching Fido by going to zero on costs. That’s not a step that works for firms lacking Fidelity’s big brokerage connections, so they will come close and declare competition without matching step for step.

• Alternative funds pitched again as, well, viable alternatives.

Alternative funds came to the fore after the financial crisis of 2008, following strategies that were designed to make money regardless of what happens on the market, often by using derivatives, futures and other complex investment ideas to make money holding something that is different from the traditional stocks, bonds and cash of the standard portfolio.

Generally speaking, alternatives disappointed investors, and have been mostly unloved since. The love songs will start again now that the market looks troublesome; new alternative funds — and the few good ones that have ridden out the tough times — will be the talk of the business, even though most lack a track record that supports the hype.

• Flailing investors make things worse.

Investors have a horrible record of making moves at the worst of times, buying high and selling low as it were. This is a year to guard against that tendency.

The economy is not falling into the tank. While GDP growth should fall to 2.5 percent or less, that’s still reasonable; unemployment will fall below 3.5 percent and the Federal Reserve will reach the end of its cycle of rate hikes. There’s a good chance that recession can be staved off until 2020, at which point all sorts of interesting things can happen in a presidential election year.

So a severe and long-lasting downturn isn’t likely in the offing in 2019, but investors used to the decadelong upswing will feel like it is, and may act like it.

This year, many investors will inflict more long-lasting damage to their own portfolio than the market does, no matter its gyrations.