2009's New Funds Indicate a Banner Year in 2010

(MoneyWatch)  The mutual fund industry is constantly fighting the last war, offering up a suite of products designed to capitalize on whatever style or sector has been hottest. There's no doubt that it's a great strategy for gathering assets -- you can rarely go wrong by selling the public what it wants. But there's also little doubt that these new funds are a lagging indicator, typically hitting the street just as what was once hot begins to cool: think internet stocks in 2000, REIT funds in 2005, or emerging market funds in 2007.

So it was with that history in mind that I took a look at the funds that the industry brought out in 2009. There's no denying that last year was a peculiar year in the markets. Stock markets bottomed out at multi-year lows in early March, only to come roaring back, with some of the market's riskiest sectors leading the way. All the while, investors questioned each advance, looking for signs that the market was ready to resume its slide as the global economy made slow progress towards recovering from a historic recession. Uncertainty ruled the day.

And that uncertainty was evident in the products the fund industry brought out last year. By my count nearly two dozen absolute return/tactical allocation/long-short funds were launched. While the strategies differ slightly, all purport to offer investors a way to participate in market rallies while also shielding them from declines. Think that concept was a hard sell in the middle part of 2009? Of course, history has demonstrated that managers who can actually deliver on that promise are very scarce, but remember, gathering assets is the primary goal.

The specter of future inflation loomed large over 2009 (and 2010 as well), which explains why some 25 new funds designed to offer inflation protection hit the market last year. Whether they invested in TIPS, gold, silver, timber, or a diversified basket of global commodities, inflation-fearing investors had an entire new suite of alternatives to choose from.

And for those folks who are just plain convinced that the market is going to resume its fall in the near future, the fund industry offered them even more ways to put their money where their mouths are, with bear market funds designed to allow investors to profit if the U.S., European, Brazilian, or Mexican stock markets tumble. Heck, you could even bet on a further decline in home prices, thanks to a housing bear market fund. (Well, actually, you can't any longer. The fund manager, MacroShares, announced recently that Major Metro Housing Down fund, and its sister Major Metro Housing Up fund, would cease trading on December 28.)

While it's a fool's errand to try to predict the market's movements over the short-term, if the mutual fund industry's market timing history is any guide, the spate of offerings designed to capitalize on the characteristics that have dominated the market over the past two years would indicate that we're in for a banner year in 2010.

That would be a silly bet to make, of course. But I'd wager that it's a better bet than, say, an ETF that tracks an index of Oklahoma-based firms. Yes, that was yet another new fund in 2009. Is this industry great, or what?