Geopolitics and Monetary Policy Expected to Ignite Next Downturn

SANTA MONICA, Calif.–(BUSINESS WIRE)–Institutional investors are self-assured when it comes to navigating the
next bout of market volatility, according to a new survey conducted by
Wilshire Associates (Wilshire®). Roughly 95 percent of the 75
institutional investors surveyed reported being at least somewhat
confident in their organization’s readiness to successfully navigate
market volatility. Among that group, 39 percent feel very confident and
56 percent are somewhat confident. Five percent reported that they do
not feel very confident.

When asked to compare preparedness today for a bear market with how well
prepared the organizations were in 2007, fewer than one-third of
respondents (29 percent) feel “far more prepared.” More than half of
institutions (58 percent) feel more prepared than in 2007 and the
remainder (13 percent) reported 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,” said Steve
Foresti, Chief Investment Officer of Wilshire Consulting. “However, with
roughly six-in-ten 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.”

Predicting What’s Next

Institutions are a mixed bag when it comes to what type of investments
will generate best market returns in the next 12 months. Investors will
primarily look to equities, with 41 percent of respondents citing US or
emerging market equities to bring about the greatest market return over
the next year (21 percent and 20 percent, respectively). Fixed income
was the next most highly-cited investment opportunity, with 29 percent
of respondents choosing international and US fixed income as creating
the greatest opportunity. One-fifth believe alternatives will generate
best market returns and 10 percent will look to real estate.

Most institutions expect geopolitical events to be the most likely
trigger for a sustained downturn. Two out of 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
anticipate 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,” added
Foresti. “Since 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.”

For more information, please visit www.wilshire.com.

About Wilshire Associates

Wilshire Associates, a leading global financial services firm, provides
consulting services, analytics solutions and customized investment
solutions to plan sponsors, investment managers and financial
intermediaries. Its business units include, Wilshire Analytics, Wilshire
Consulting, Wilshire Funds Management and Wilshire Private Markets. The
firm was founded in 1972, providing revolutionary technology and acting
as an early innovator in the application of investment analytics and
research to investment managers in the institutional marketplace.
Wilshire also is credited with helping to develop the field of
quantitative investment analysis that uses mathematical tools to analyze
market risks. All other business units evolved from Wilshire’s strong
analytics foundation. Wilshire developed the Wilshire 5000 Total Market
Index and became an early innovator in creating integrated
asset/liability analysis/simulation models as well as practical models
in risk budgeting through beta and active risk analysis. Wilshire has
grown to a firm of approximately 270 employees serving the needs of
investors around the world. Based in Santa Monica, California, Wilshire
provides services to clients in more than 20 countries representing 500
organizations whose assets total approximately US $9 trillion.* With ten
offices worldwide, Wilshire Associates and its affiliates are dedicated
to providing clients with the highest quality products and services.
Wilshire® and Wilshire 5000® are registered service marks of Wilshire
Associates Incorporated. Wilshire 5000 Total Market Index℠ is a service
mark of Wilshire Associates Incorporated.

Please visit www.wilshire.com
Twitter:
@WilshireAssoc

*Client assets are as represented by Pensions & Investments (P&I),
detailed in P&I’s “Largest Retirement Funds” and P&I’s “Largest Money
Managers (U.S. institutional tax-exempt assets)” as of 9/30/17 and
12/31/17, and published 2/5/18 and 5/28/18, respectively. The data in
this release are copyrighted and owned by Wilshire Associates
Incorporated.

Contacts

Tess Rodriguez
Prosek Partners
[email protected]