Trade wars and protectionism pose the greatest threat to the global economy and markets, a survey of two hundred institutional investors representing endowments, foundations, and public pensions finds.
Conducted by asset management firm Commonfund at its annual forum earlier this month, the survey found that 42 percent of respondents cited trade wars and protectionism as the greatest risk to performance over the next twelve to twenty-four months, followed by rising interest rates (23 percent) and an asset bubble in a major economy (18 percent). While a majority of respondents were "cautiously optimistic" that their own organizations would be able to achieve Consumer Price Index (CPI) + 5 percent — a rate of return sufficient to cover inflation, distributions, and investment costs — over the next ten years, they were more apprehensive about U.S. markets in the near term. More than half (58 percent) said they expected the S&P 500 Total Return Index for year-end 2018 to underperform its twenty-year annual average of 7 percent, while half believed the current bull market was nearing its end and 70 percent were "somewhat concerned" about the likelihood of a 20 percent correction in the U.S. stock market over the next two years.
"Looking ahead, the fact is, achieving CPI + 5 percent will be harder as this long bull market and business cycle continue to age," said Commonfund president and CEO Catherine Keating. "We've learned over the years that Congress can change tax rates and the Federal Reserve can change interest rates, but that even together they can't repeal the business cycle. Our clients approach the next phase of this cycle with portfolios at all-time highs, and the experience of weathering prior cycles. Our advice to them is to stick with their investment policies, to focus on liquidity needs, and to recognize that over time their greatest risk is not having sufficient exposure to equity markets, both public and private."