We asked 3 major investors what happens next in the market — None of them see big returns

The strong stock performance of the past year is unlikely to last, according to some of the biggest U.S. institutional investors.

The response by central banks around the world to the coronavirus pandemic has boosted equity returns, Mary Erdoes, JPMorgan Chase head of asset and wealth management, said Wednesday at CNBC’s Delivering Alpha conference.

“Since last year’s Delivering Alpha, markets are up 30 to 50%, clearly not normal,” Erdoes said. “We’re enjoying it, but this is not a normal time period.”

Stock returns are likely to be “much more muted” going forward, while volatility will remain the same, according to Jason Klein, chief investment officer of Memorial Sloan Kettering Cancer Center.

The CIO said that expectations for 10% average annualized returns should be closer to 5%.

“What had been tailwinds are now headwinds,” said Klein. To his eye, stock valuations are “stretched market wide” and could be vulnerable as the Federal Reserve pulls back the extraordinary support it has provided markets since 2020.

In response to bonds that offer negative real returns, big investors are seeking alternative investments that provide a yield and that aren’t correlated to stocks, according to Ashbel Williams, CIO and executive director of the Florida State Board of Administration. He manages more than $195 billion in assets for one of the largest U.S. pension funds.

He invests in assets including planes, trains, timber, and music and TV rights, he said. Bonds now make up a smaller percentage of his holdings, down to 18% or 19% from about 25% a decade ago, he said.

Another area that might warrant more investor attention is China, where equities have tumbled after regulatory crackdowns. Specific Chinese companies can be very attractive investments, she said.

“China has gone on sale,” Erdoes said. “Clients are underweight emerging markets and very underweight China in particular.”

There are also a “ton of opportunities” in Europe and mentioned their banks, which are still trading below tangible book value, she said.

“You want to look for the other areas of the world that might be able to play catch up,” Erdoes said.

Both Williams and Klein emphasized that now is a good time for teaming up with world-class active managers.

“If you own entire markets with the view that asset selection doesn’t matter, that’s great when the markets are going up,” Williams said. “But when things become really tough, and circumstances hit different industries and different companies in different ways….this is a time active management makes sense.”

The S&P 500 is up 31% over the last 12 months.

“The froth has continued,” Erdoes said. “Only time will tell how long that will go.”