Institutional investors are apprehensive about the stock market and U.S. economic recovery in 2021, according to a survey from Commonfund.
Of the nearly 300 investors representing $1.1 trillion in assets surveyed at the virtual Commonfund Forum earlier this month, 58% said they believed market returns in 2021 will be lower than average, while only 10% expected higher returns on average.
When asked what their top three concerns for 2021 were, the highest response — 76% — was the prolonged impact of the COVID-19 pandemic, followed by 60% citing a stock market valuation bubbles/narrowness, and 54% citing the expanding U.S. deficit.
The three lowest responses among the choices for potential economic concerns were 21% answering "low interest rates," and 5% each answering corporate debt levels and a "hawkish" Federal Reserve monetary policy.
"The global economy appears to be on a path to recovery, but investors remain justifiability cautious about the effects of the ongoing pandemic, narrowness of market returns and increasing deficit levels," said Mark Anson, Commonfund's CEO and chief investment officer, in a news release Monday announcing survey results. "We believe that one of the keys to successful investing through uncertain times is to seek out pockets of opportunity created by these imbalances, while remaining true to strategic asset allocation targets."
When asked about their own institutions, 67% of respondents said they are "cautiously optimistic" their asset pools will achieve a rate of return exceeding the consumer price index plus 5%, an increase from the previous forum survey in March 2019 in which 46% of respondents said they felt cautiously optimistic.
Nearly 50%, however, face obstacles in the form of their own boards and/or investment committees. When asked whether those entities fully understand and appreciate the role of private investments as a source of potential returns and diversification, 57% responded that their boards did understand. 34% said they were mixed, 6% said no and 2% were unsure.
When asked whether their institutions can invest in environmental, social and governance-focused strategies without sacrificing returns, 50% said yes, 30% were neutral, 11% disagreed or strongly disagreed and 10% were unsure.
The survey of executives from pension funds, endowments, foundations and other nonprofit institutions took place at the virtual Commonfund Forum held March 8-9.