Geopolitical risks and the Trump administration’s deliberately disruptive approach to foreign policy are reshaping investor behavior. Even as international and emerging markets equities offer compelling valuations, allocators like the University of Nebraska Foundation are scaling back their exposure.
Morningstar’s 2025 outlook forecasts “double-digit returns” for non-U.S. markets over the next decade, citing undervalued international and EM equities trading at discounts compared to overpriced U.S. stocks. Despite this, Brian Neale, chief investment officer for the university foundation’s $2 billion endowment, said the “continued strife in the Middle East” and “inability to accurately forecast the actions and policies of our current administration” are leading the foundation to be excessively cautious over non-U.S. equities.
“International and emerging markets stocks look more attractive today than they have before, but we’re reducing our exposure to those assets out of fear over geopolitics,” Neale told Institutional Investor.
Neale, the foundation’s investment chief since 2014, admitted that reducing exposure to international and emerging markets amid current valuations “could be a decision that’s not additive” to returns, though he acknowledged “it’s hard to beat the U.S. right now.” The endowment’s U.S. public equities portfolio returned 19.9 percent in fiscal 2024, with 59.1 percent of its public portfolio allocated to equities — and about 24 percent allocated to non-U.S. stocks. While the endowment has not yet determined its new allocation to international equities, Neal said it “will be below MSCI ACWI benchmark weights.”
Despite U.S. stocks having served the endowment well, concentration risk within the domestic large-cap space “continues to creep up.” To mitigate this, Neale said the endowment is diversifying “into small- and mid-cap stocks.” He added: “That said, every time I wake up, I read the news and always see the S&P is hitting a new high.”
Neale believes the Trump administration is making fundamental policy changes, such as with tariffs, at a pace that “will create uncertainty across markets.” But he noted that not all moves will have negative consequences. “Allowing for drilling again is probably going to benefit our [domestic] energy investments long term,” he said, and removing some regulations to let high-net-worth individuals invest more easily in private equity could be beneficial.
Although the endowment does not invest in crypto, Neale noted that what happens with digital assets could be “a good litmus test” for future regulation and prompt allocators to think about how to benefit.
Global uncertainty and questions over unemployment, inflation, interest rates aside, Neale believes that the U.S. economy “is in good shape.”
Even though the margin premium between private and public will likely keep compressing, the foundation CIO still believes that investments in private markets will outperform listed stocks and public fixed income over the next decade,” provided allocators select the right managers.
Neale said the foundation remains focused on adaptability rather than making big directional bets. “We’re vigilant and don’t prepare the portfolio for any specific economic outcome,” he said. “We’ll get some things wrong at the margin but are feeling pretty good about the direction we’re in.”
The endowment returned 14.5 percent net of fees for the 2024 fiscal year and 8.5 percent for the five years ended June 30, 2024.
