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2022 midyear outlook: From pain to gain
Views from the Global Investment Committee
- Explore investments
- From pain to gain
- Portfolio construction themes: three things we know
- The economy and markets: key points to know
- Our best investment ideas
- Our highest-conviction trade: Municipal bonds have been unfairly beat up and offer compelling upside.
- Near-term risks favor battered public markets: The dramatic corrections across public equities, credit and real estate relative to their private market equivalents could represent rebalancing and upside opportunities.
- Growth may slow, but credit sectors look solid: We see compelling value in U.S. corporate high yield and loans, and expect a benign default environment.
From pain to gain
Saira Malik, Chief Investment Officer
Portfolio perspectives for turbulent times
In our previous outlook, we encouraged investors to tune out “noise” and focus on “signal” — economic and asset class fundamentals evidenced in hard data. We continue to endorse this approach, but acknowledge that even the most diligent followers of such advice have ample reason to bid good riddance to the first half of 2022.
Crossing this midyear milestone may elicit a symbolic sigh of relief, but turning a calendar page doesn’t alter market realities or address the matter of how best to position portfolios for the next six months and beyond. That’s the critical task in an environment where the noise has only grown louder, certain signals look less favorable and financial markets have doubled down on volatility.
In fact, as we enter the second half of the year, most of the first half’s significant headwinds are still in place: high levels of inflation, slowing growth, rising rates, Fed policy uncertainty and fallout from Russia’s war on Ukraine.
Not all is bleak, however. As we explain in our review of the economy and markets, we see some potentially better news ahead, including more moderate inflation, the ongoing resilience of the consumer and a Fed that might lighten its tightening touch after completing its initial round of outsized rate hikes.
This mix of measured optimism and elevated risks was the backdrop when Nuveen’s Global Investment Committee recently met to update our outlook and revisit best ideas for asset allocation and portfolio construction.
As a new step in this deliberative process, we asked our team of economic and investment specialists to think beyond the scope of their respective areas of expertise. The intentionality of this approach brought a truly cross-asset class perspective to the dialogue and debate, reflected in our asset class “heat map,” highest-conviction views and areas of disagreement, detailed in the following section.
More broadly, GIC members agreed on several key portfolio construction themes over the next 6 to 12 months:
- Fixed income credit sectors over equities. This preference is based on their more favorable risk/reward profile.
- Baby steps back to duration. With recession odds on the rise and bond markets already pricing in most of the pain expected from Fed rate hikes, it’s time to consider neutralizing duration underweights.
- Real assets vis-à-vis inflation. Infrastructure, farmland and commercial real estate may offer ways to combat high inflation — or benefit from it.
- Publics poised to lead. While there’s no denying the importance and value of maintaining a strategic allocation to private assets, beaten-down public markets currently offer extremely compelling upside potential in the near term.
Lastly, though we are long-term investors, we recognize that transitioning “from pain to gain” requires more than simply being patient, as if time could heal all investment wounds. Patience may be a virtue, but it’s not its own reward. That’s why our portfolio construction themes center on the search for value in specific asset classes where we expect our clients to be adequately compensated for the risks taken. This is the essence of Nuveen’s overall approach to pursuing successful outcomes in turbulent times — and all the time.
As Nuveen’s CIO and leader of our Global Investment Committee, Saira drives market and investment insights, delivers client asset allocation views and brings together the firm’s most senior investment leaders to deliver our best thinking and actionable investment ideas. In addition, she chairs Nuveen’s Equities Investment Council and is a portfolio manager for several key investment strategies.
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