Dice Percentages

Wall Street Pundits & Prognosticators: How did they do in 2021?

Dice Percentages

A new year brings fresh opportunities for active fund managers to reset investors' expectations for the next 12-months. This might seem like a rather short period in which to judge an investment plan's ability to meet someone's overarching financial goals. Still, financial pundits come out in full force around this time each year, stepping into the limelight by proclaiming "this time will be different."

To help you filter through such noise, we thought it might be worthwhile to look back at how some of their predictions for 2021 turned out.

Below is a sampling of what we found. It's not intended as a comprehensive overview of projections made by any particular active manager. Instead, we're simply trying to provide a glimpse of the sort of mixed-messaging that investors attempting  to time markets so commonly run into from star managers and large fund complexes this time of year. 

Fidelity 

In its "Outlook 2021" report for global financial markets distributed through Fidelity's international group, the fund company's managers warned a "new reality" was coming. This "required" investors in a new year to start "looking beyond traditional asset classes." In particular, they recommended investors stock up on "alternatives, currency pairs and long-volatility strategies." 1

Not mentioned in this 2021 Outlook piece was how much more expensive these types of funds can be for the end-user, both in terms of higher fund expense ratios and costs associated with trading in less-liquid markets. Along these lines, it's worth noting that alts cover a wide range of different styles and hedging techniques.

Independent investment researcher Morningstar breaks such alt funds into several different groups. To get an idea, though, consider that its broad "multi-strategy" alts category returned 6.86% in 2021. Meanwhile, equity market-neutral funds gained an average 6.95% for the year. 

By contrast, the IFA U.S. Large Value Index returned 28.07% in 2021. Its cousin benchmarks covering U.S. Small Cap Value (38.8%), Global Real Estate (30.96%), International Value (18.7%) and Emerging Value (12.41%) all did significantly better on the year than either alts equity category. 

To be fair, Fidelity shied away in this Outlook piece from providing hard numbers for their guesses on economic growth, consumer spending and the like. But they did in general suggest that "banks and oil companies will remain under pressure." 

Both sectors proved to be relatively strong performers in 2021. For the year, funds focused on financial stocks — including banks — returned on average 32.33%, according to Morningstar. At the same time, equity funds categorized by the independent research shop as targeting the energy sector gained an average of 44.81% in 2021. (A traditional implementation of a globally diversified IFA Index Portfolio held financials as a top sector entering 2022. Energy, too, had a significant weight — roughly double that of the S&P 500's, according to Morningstar data.)

Vanguard

The indexing pioneer, which now markets itself as one of the largest active fund managers in asset management, predicted in its economic and market outlook report for 2021 "a sharp acceleration in job growth, and an unemployment rate near 5% at the end of 2021." 2

While they got the basic trajectory right, members of Vanguard's investment strategy group underestimated the scope and scale of America's rebound following a global coronavirus pandemic. At the end of the year, the government reported the unemployment rate at 3.9%. 

In terms of gross domestic product growth, Vanguard undershot projections for the U.S. with a forecast of 5% for 2021. The Commerce Department in January 2022 announced full-year 2021 GDP growth of 5.7%. Meanwhile, Vanguard at year-end 2020 forecast China's economic growth at 9%. That turned out to overshoot 2021's actual figure of 8.1%, according to the Wall Street Journal. 3

Bank of America

The parent of Merrill Lynch forecast that 2021 would likely be a year of transition following the Covid-19 pandemic. Heading into 2021, BofA projected U.S. economic growth at 4.5% for the following 12-months, according to a Bloomberg report ("Here's How High The Stock Market Will Go in 2021," Jan. 3, 2022). This forecast by BofA was even lower, of course, than that of Vanguard's strategists. 

The bank's forecasters were also reported by Bloomberg to be expecting the Federal Reserve to hold-off until the second-half of 2024 to start making any new hikes in short-term interest rates. In reality, the Fed announced in December 2021 that it will begin the work of fighting inflation, starting with tapering of its bond-buying program. In early 2022, Fed policymakers told Reuters they expected to start raising rates soon, possibly as early as March.4

Wells Fargo

The bank's market pundits set end-of-2021 targets for the S&P 500 index at 3,900, according to Bloomberg. That would've represented about a 6% upside over the course of the year. 

In reality, the blue chip benchmark of domestic stocks closed the year at 4,766 points, some 22% higher than Wells Fargo had originally forecast. 

Morgan Stanley

While generally bullish about prospects for a new year, the investment bank in its 2021 market outlook piece struck a cautious tone. "Now in 2021, amid hope and excitement that the pandemic might soon be behind us as vaccines are distributed, investors may actually find it tougher to generate the kind of stock market returns we saw last year in the midst of the COVID-19," wrote Andrew Slimmon of Morgan Stanley Investment Management. 5

The globally diversified and passively managed all-equity IFA Index Portfolio 100 returned more than 25% (25.38%) in 2021. Even portfolios that added fixed-income into the mix finished the year with solid gains. The IFA Index Portfolio 70 (30% in bonds and 70% in stocks) gained 17.29% in 2021. 

A 50-50 combination of stocks to bonds still wound up with a double-digit percentage gain: The IFA Index Portfolio 50 returned 11.89% on the year.

DoubleLine Capital

Jeffrey Gundlach, founder and chief investment officer of DoubleLine Capital, early in his career made a name for himself by predicting sharp — and often dire — movements in normally staid bond markets. These days, he presides over a diversified investment firm that actively runs mutual funds spanning a mix of global equities and fixed-income markets.  

In early 2021, he cautioned of "extraordinarily high valuations" in stocks and that "things are definitely changing." During an interview with CNBC early in the new year, he predicted that the "leadership of the United States being a top-performing market for 10 years basically has seemed to reverse." He added: "I suspect this is not a short-term phenomenon." 6

By year's end, Gundlach didn't seem so clairvoyant. The outperformance of domestic stocks in 2021 spanned asset classes and geographies. In fact, it really wasn't even close. For example, the IFA U.S. Large Value Index gained 28.07% on the year. By comparison, its sister benchmark covering developed international large cap value stocks returned 18.70%. The IFA Emerging Markets Value Index gained 12.41% in 2021.

In small caps, the same pattern prevailed: The IFA U.S. Small Cap Value Index returned 38.80% while the IFA International Small Cap Value Index gained 15.90%. The IFA Emerging Markets Small Cap Index returned 14.58% in 2021. 

T. Rowe Price

In recent years, turbulence in China's equity markets has been a hot topic. As a result, it was noteworthy when fund manager T. Rowe Price published a forecast that came out strongly bullish for the Asian giant's equity markets.

"We are positive on the outlook for the fundamentals for Chinese equities in 2021, when a more consumer-led recovery is expected to take hold," wrote Wenli Zheng, a regional portfolio manager at T. Rowe Price, at the end of 2020. 7

Unfortunately for short-term minded investors who listened to such a prognosis, 2021 didn't wind up as a banner year for stocks in China. With large companies like the Evengrande Group and Didi Global suffering significant business disruptions and garnering major headlines around the world, stock mutual funds and ETFs focused on the region lost an average of 7.44% in 2021, according to Morningstar. 

It was a lot worse for smaller companies, pointed out the Wall Street Journal. In late 2020, the paper noted that by some estimates, "2021 is shaping up to have been the worst year for China's small entrepreneurs in a long, long time." 

The article added: "China's economy as a whole is struggling, but the pain is concentrated at the bottom — small firms, which account for an outsize percentage of employment, are paddling especially hard." 8

This is just a sampling of what prominent traders and fund managers were prognosticating for the year at the beginning of 2021. As a new year gets underway, IFA's wealth advisors suggest that as much as such pundits might try to persuade you 2022 will be different — or, at least novel enough to contemplate making significant portfolio changes —it still makes sense to stick to a longer-term financial plan. 

If you're feeling tempted to make portfolio tweaks, we like to recommend you take our Risk Capacity Survey. This online tool is often used by IFA clients to reassess whether they own the most risk-appropriate portfolio given each investor's unique financial situation.

As a result, we invite all IFA clients who haven't already to discuss creating an individually tailored financial plan with their wealth advisors. We offer such a holistic planning tool on a complimentary basis. If you've already started such a process, we also encourage you to check back with your advisor when major life events happen or notable changes in your financial goals take place. 

In our view, a good financial plan should serve as an ongoing guide to how to grow wealth – not as a document that's set-in stone.


Footnotes:

  1. Fidelity, "Outlook 2021," 2020.
  2. Vanguard, "Vanguard economic and market outlook for 2021: Approaching the dawn," December 2020. 
  3. The Wall Street Journal, "China GDP Grew 8.1% in 2021, Though Momentum Slowed in Fourth Quarter," Jan. 16, 2022.
  4. Reuters, "Fed sees March rate hike, but no roadmap after that," Jan. 31, 2022.
  5. Morgan Stanley, "Stock Market Outlook 2021: Bull Market, But Buckle Up," Feb. 5, 2021. 
  6. CNBC, "Jeff Gundlach says stock market valuations are extraordinarily high, supported only by the Fed," Jan. 11, 2021. 
  7. T. Rowe Price, "China Market Outlook 2021," December 2020. 
  8. The Wall Street Journal, "Chinese Small Businesses' No Good, Very Bad Year," Dec. 31, 2021. 

This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. There is no guarantee investment strategies will be successful.  Investing involves risks, including possible loss of principal. Take the IFA Risk Capacity Survey (www.ifa.com/survey) to determine which portfolio captures the right mix of stock and bond funds best suited to you.  For more information about Index Fund Advisors, Inc, please review our brochure at https://www.adviserinfo.sec.gov/ or visit www.ifa.com.