Fund sees zero-return market in 2019

LONDON— Investors nursing some of the worst losses in a century shouldn’t live in hope for a relief rally next year — markets will merely tread water, according to the prognosis of a $43-billion (U.S.) fund.

Tighter financial conditions, a U.S. economy in the late winter of its expansion and cracks in credit markets will flatten cross-asset returns even as the global economy stays on an even keel, according to Fidelity International.

“There are not going to be that many opportunities to buy something at the beginning of the year and watch returns accumulate as the year goes by,” multi-asset fund manager Bill McQuaker said in a briefing in London. “The return potential isn’t there.”

It’s a case of diversify or be damned as the broad market, or the beta, stagnates. “In 2017, every beta was positive, in ’18, every beta negative — in ’19, every beta zero,” said McQuaker, who’s part of a global team that manages $43 billion for institutional and retail clients.

The investor has pared equity allocations and is bullish on gold, with selective exposures to high-yield and developing-economy bonds. The U.S. fund giant is also finding solace in alternative investments including hedge funds, insurance and aircraft leasing — assets that typically have a lower correlation with risk markets like stocks.

The prospect of a stagnating market next year on the heels of an atrocious 2018 is an aboutturn from the bull run enjoyed in the aftermath of the crisis as relentless monetary stimulus juiced credit and stock prices across the board.

Some 90 per cent of assets — 63 out of 70 — have handed investors losses in U.S. dollar terms, more than any previous year going back more than a century, as of mid-November, according to Deutsche Bank AG. Last year, merely one of the 72 tracked assets delivered negative total returns.

Still, Fidelity is projecting stimulus in China and continued U.S. growth albeit at a slower pace. But all the signs suggest the business cycle is turning.

General Electric Co.’s emergency asset sales, for example, are “troubling,” and underscore how debt and equity markets face a multitude of headwinds next year, according to McQuaker.

“That worries me because one of the biggest positives for the U.S. market ever since 2009 has been companies that have been happy to use cash to buy back equities,” he said.