Investors upbeat on dealing with next market crisis, reveals report

May 31, 2019
Organizations better prepared for future volatility than in 2007

Despite the possible negative ramifications of the US-China trade talks and other threatened tariff walls, institutional investors are bullish when it comes to dealing with the next serious case of market volatility, reveals a study by Santa Monica-based investment consultancy Wilshire Associates.

A whopping 95 percent of institutional investors surveyed report being at least ‘somewhat confident’ in their organization’s ability to successfully navigate market volatility, according to the survey.

Among that group, 39 percent feel ‘very confident’ and 56 percent are ‘somewhat confident’, while a mere 5 percent report that they ‘do not feel very confident’.

When asked to compare their preparedness today for a bear market with how well prepared they were in 2007, less than a third (29 percent) of respondents feel ‘far more prepared’. But more than half of institutions – 58 percent – feel ‘more prepared’ than in 2007 and the remainder (13 percent) report feeling the same level of preparedness as 12 years ago.

‘If history teaches us anything, it is that markets do not go up forever in a straight line, so it is reassuring that many institutions have been proactive in their preparation for this inevitability,’ says Steve Foresti, CIO at Wilshire Consulting, the investment advisory arm of Wilshire Associates, in a statement.

‘But with roughly six in 10 institutions feeling anything less than ‘far more prepared’ for a bear market than in 2007, and the same number feeling only ‘somewhat confident’ about weathering volatility, there’s opportunity for improvement.’

When it comes to which type of investments will generate best market returns in the next 12 months, investors primarily look to equities, with 21 percent of respondents citing US equities and 20 percent citing emerging market equities as offering the best potential returns over the next year.

Most institutions expect geopolitical events to be the most likely trigger for a sustained downturn. Two in five investors identify the US-China trade situation as being the potential epicenter of the next market correction or downturn. A quarter of survey respondents expect US monetary policy to be the likely trigger and another 14 percent feel the 2020 US election could lead to a sustained downturn.

‘While it is nearly impossible to predict what might trigger a sustained market correction, institutions can make sure their portfolios are well diversified to account for various risks and market scenarios,’ adds Foresti.

‘As investor perceptions of preparedness for market turbulence can often differ from actual readiness, running portfolio stress tests can be a valuable technique to pre-experience an institution’s preparedness.’

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