The threat of protectionism and a trade war between the U.S. and China are high on the watchlists of European asset owners, as the resulting return of volatility hit their investments in the first quarter of 2018.
Asset owners reporting portfolio updates for the three months ended March 31 watched a revival in stock market volatility eat away at returns. These negative returns followed positive, and in some cases stellar, investment returns for previous quarters and years.
The Cboe Volatility index jumped 81% in the first quarter, and was volatile within that period, rising 125% from Jan. 3 to March 3. Global stock markets, meanwhile, fell 3% in late February as talk ramped up of additional tariffs on imports and goods between the world's largest economies.
Pension fund executives are now watching closely for developments in conversations among world leaders and the impact on portfolios. Some also are looking to find opportunities.
"This heightening level of volatility is very positive in our opinion, because we think markets needed to consolidate. We would be worried if markets continued to rally," said Gregoire Haenni, chief investment officer of the 12.8 billion Swiss franc ($12.9 billion) Caisse de Prevoyance de l'Etat de Geneve, Geneva, Switzerland. CPEG's performance for the first quarter was -1%, following a 2017 full-year return of 9.5%.
Mr. Haenni said the fund's macro indicator "turned red" in February, and executives took profits. Following the market correction, "we bought some positions back — this is typical — (as we felt they were) supported by positive fundamentals."