The world of mutual funds is always changing. That may come as a shock to actual fund investors who think they are buying into securities that can be tucked away unchecked for eons.

Leaders become laggards. Laggards become leaders. Passive investments in actively managed funds are never as dull as the process might seem.

Now that we have 2007 in the rearview mirror, I'm going to make some predictions about what the coming year holds for the industry and its investors.

International funds will continue to outperform their stateside rivals.
There's a reason seven of the active recommendations for Champion Funds subscribers are mutual funds that specialize in international investing. There's a brave new world out there, with many economies growing substantially faster than our own. Burned by California's Yahoo! (Nasdaq: YHOO)? Have you checked out China's fast-growing (Nasdaq: BIDU)? Thanks to obvious demographic trends, many of tomorrow's market leaders will be foreign operators.

Tack on the gravy of a depreciating greenback in funds that don't hedge the currency risk and you have a one-two punch of upside potential. No portfolio should consist exclusively of international stock funds, but they should definitely be part of every portfolio for the sake of diversification and potential capital appreciation.  

More closed-end funds will convert to conventional open-ended funds.
I love the closed-end fund universe, especially when discounts begin to widen. That is exactly what is happening. Over the past year, the average discount to net asset value (NAV) for closed-end funds has grown -- and at the end of December, the median discount was 9.9% (compared with the 2007 median of 5.3%).

What does this mean? Glad you asked. Closed-end funds are mutual funds that trade on exchanges. They are not the same as the exchange-traded funds (ETFs) that are so popular now. They all trade throughout the day, but ETFs are typically low-cost index funds. Closed-end funds tend to be actively managed funds. Unlike traditional funds that trade at the end of the day based on their NAV, closed-end funds fluctuate based on investor demand throughout the trading day.

Attractive open-ended funds and a growing selection of ETFs have affected the demand of closed-end funds. In other words, it's a buyer's market. You can buy the typical closed-end fund for almost 10% less than its actual value. Swapping $0.90 for a dollar is a great deal, even if there are no assurances that the funds will trade at -- or above -- NAV.

It's even a sweeter deal when you consider that closed-end funds can be managed without concerns about cash inflows or outflows because the number of shares remains constant. A redemption simply means selling shares to someone else on the stock exchange.

I believe that several frustrated closed-end funds will bite the bullet in 2008, eliminating the discount by converting into traditional funds. This will narrow the discounts on the remaining funds. In other words, it's not a bad time to begin nibbling in that space.

Publicly traded mutual fund companies will beat the market in 2008.
The year 2007 was a good one for many fund companies. T. Rowe Price (Nasdaq: TROW), Invesco (NYSE: IVZ), Eaton Vance (NYSE: EV), and comeback kid Janus (NYSE: JNS) all topped the market averages last year. Cohen & Steers (NYSE: CNS) was a rare exception, but the company's emphasis on real estate mutual funds sealed its fate.

Good times for the industry will continue in 2008. Investors who fled the equity markets only to be burned as condo flippers will come back. Yield chasers who will see their money market yields shrink as the Fed continues to lower rates in 2008 will come back. The fund companies are there, anxiously waiting with open arms -- and open applications.

In the market for prediction No. 4? Here it is: A free, 30-day trial subscription to Champion Funds will make you a more productive fund investor. The year is young. Take those 30 days now instead of kicking yourself later.

Longtime Fool contributor Rick Munarriz always owns a mutual fund or two, even in a portfolio of stocks. He does not own shares in any of the companies in this story. Yahoo! is a Stock Advisor pick, and Baidu is a Rule Breakers recommendation.The Fool has a disclosure policy.