Outlook express

In recent years, the end-of-year outlook piece has practically written itself. Again and again, the sell-side has prided itself in predicting a further uptick in global growth, more upside for US equities in particular, and a tougher time for bonds. 

Things look a little different this year – bonds may have finally started fulfilling some of the bearish predictions made from 2012-2017, but it’s equities that are the real poser. A topsy-turvy year has made it hard to work out exactly what the status quo is at this point, let alone where we go from here.

With so much up in the air, we’ve scanned the investment bank outlooks in our inbox in a bid to identify 2019's consensus picks. Wealth managers will have their own views on whether whether they should follow this latest crowd or take the other side of the bet.

After years of bullish forecasts, many analysts do profess this is the beginning of the end - or at least the end of the current cycle. Phrases like turning point (Morgan Stanley) or late-cycle blues (Barclays) are prominent.

As a result, general agreement has settled on a rather different prediction this year: it's time to be more positive on EM and more bearish on the dollar. Both feel uncomfortable places to be at the moment - here, at least, forecasters aren't resting on their laurels.

But when it comes to US stocks, there aren't that many willing to rock the boat. A relatively defensive approach is widely counselled, but few predict outright falls. The consensus here is that US equities will end the year up a few per cent.

And whatever you make of the actual arguments, outlooks are worth reading for the increasingly absurd way they justify their obligatory numerical forecasts. And so to Goldman, which thinks there’s a 50 per cent chance of the S&P rising by 400 points (a 15 per cent jump) next year, a 30 per cent chance of it falling 100 points, and a 20 per cent chance of an 800 point increase.

But the top prize must go to Oppenheimer’s asset management arm, which said yesterday it was delaying its own 2019 projection for the S&P until the end of the week, “to allow the current correction to run its course”. The assumption contained therein perhaps says more than a 2019 price target ever could.

Trackers still on track

ETFs are causing something of a stir at the moment – but not in the way providers would have liked. The weekend’s news of a $3.1bn withdrawal from UBS’s ETF business (perhaps triggered by its own wealth management arm) is an extreme case, but business hasn’t boomed as much as many had hoped.

That’s partly understandable when you consider all that’s been going on in markets. As with their active peers, the weight of ETF money is still firmly in the equity arena, and that means lower inflows at times of nervousness.

Results elsewhere, however, put a slightly different twist on proceedings.

In the UK, sales of tracker funds have also fallen this year as overall risk asset sentiment has soured.

But whereas retail sales of all open-ended funds are on course to total little more than a fifth of last year’s total, tracker funds have passed the 70 per cent mark with two months still to go. That doesn’t look like a sector that has much to fear from falling markets.

But small and mid-sized providers in both the tracker and ETF space are still facing a fight for survival: more and more business continues to flow to the very largest players, and further salvos in the passive price war are only going to make that pattern more visible.

Gold funds: Getting physical

Yesterday morning we linked to the price war in gold ETFs taking place across the Atlantic. An hour later came the news that Invesco was cutting the fee on its UK Physical Gold ETF by five basis points to 0.24 per cent.

In the US at least, increased price competition isn't translating into increased interest. That makes sense: headwinds for the precious metal might fade away if the US dollar does struggle next year, but gold's failure to outperform during a volatile year has left many doubting its merits.

Some wealth managers on this side of the pond have also shown signs of losing faith in bullion. That said, there are plenty who still retain exposure as an insurance policy. The majority do so via ETFs, as the chart below (drawn from our database) shows.

As the figures suggest, it's no coincidence that Invesco's price cut brings its offering one basis point cheaper than iShares'.

Passive exposure is understandably the go-to option for DFMs. But a handful do back active funds investing in gold miners despite the torrid time they've experienced over the past few years.

That's continued into 2018, a year in which physical gold ETFs have managed to grind out positive returns in sterling terms but active funds are sitting on double digit losses. The exception is Investec Global Gold, which has managed to produce a small positive return.