Best ideas across asset classes

Asset class outlooks

• Equities
• Fixed income
• Real estate
• Public & private real assets

Equities

Saira Malik

Best ideas

• As has been the case for some time, our most-favored area is dividend-growers, which tend to be high-quality companies that have strong free cash flow levels and solid profit margins.
• This area of the market also offers consistent income and tends to be less susceptible to volatility.

Investment positioning

We remain neutral toward public equities, although differentiation is growing within and across markets. Stocks have rallied over the last few months, thanks in part to diminishing recession fears, but a narrow slice of the technology sector has driven much of the increase. We’re not ready to call an end to the rally, but the headwinds of high interest rates, persistent inflation and geopolitical uncertainty create risks. Equity valuations looked rich even before the rally, and we are wary of possible earnings deteriorations. Continued volatility is likely, and we favor overall defensive positioning combined with select risk taking.

Our defensive focus leads us to prefer listed infrastructure and U.S. large cap stocks, especially dividend-growers and high-quality growth companies within tech industries like software and semiconductors. As for risk taking, we see opportunities in select emerging markets that feature relatively attractive valuations, improving earnings and a potential boost should the U.S. dollar weaken. Brazil and Mexico are particularly appealing, based on valuations and a better inflation outlook.

In contrast, we’re less favorable toward non-U.S. developed markets, many of which are still hiking interest rates and facing economic weakness (Germany is already in a recession). Additionally, we’re not yet comfortable enough to upgrade our view on U.S. small caps, although this segment tends to perform well coming out of a recession.

As discussed in our portfolio construction views, we see more value and opportunities within private equity and expect deal volume to climb in the coming quarters.

Fixed income

Anders Persson

Best ideas

• Our highest-conviction themes center around a flexible and diversified multi-sector approach, with a view toward modestly extending duration and focusing on higher-quality credits.
• For municipal bonds, we see compelling opportunities in both high yield credits and bonds with maturities greater than 15 years, which appear relatively undervalued.

Investment positioning

Fixed income markets overall appear attractive. Although some areas of the world will still likely see rate hikes, we think the U.S. is approaching or at the end of that cycle. We expect improved stability as yields enter a less volatile trading range before the Fed begins easing in the second half of 2024. As such, current yields represent a relatively attractive entry point and investors may consider extending duration to create a more durable yield profile.

We are growing more wary about spread levels and favor higher quality segments of the credit market. We anticipate credit spreads will widen over time, when it would make sense to add credit risk, but we don’t expect that will occur for the next several months.

Our overall portfolio focus is on flexibility and diversification across credit sectors versus over- or under-allocating to any one area. Within that context, we favor investment grade bonds and see value in senior loans, which offer attractive spread levels compared to other credit sectors. We also see value across securitized credit and select emerging markets debt regions experiencing more advanced hiking cycles and solid economies. For high yield, we continue to favor the BB area of the market, but believe that the strong rally and corresponding spread tightening has made valuations look more fair.

Municipal bonds remain very healthy. Fundamentals and technical conditions are solid, and the longer-duration profile of municipal bonds should be a tailwind if rates are near their peak. We are generally focused on longer duration across the municipal yield curve and see value in taking on credit risk thanks to the solid backdrop.

We remain highly constructive toward private credit markets, especially if the recession that may be looming turns out to be shallow or mild, as we currently expect.

Real estate

Carly Tripp

Best ideas

• In addition to the above, we remain focused on “global cities” experiencing growing, educated and diverse populations with a particular focus on the health care, industrial and housing sectors.

Investment positioning

Although the doom-and-gloom headlines surrounding real estate markets continue to create noise, we believe the headwinds facing private real estate are fading. We continue to observe signs of distress, especially in the office sector. But we also see positive signals: Buyer interest is growing as rates look more stable in the months ahead, and real estate valuation losses are moderating. Fundamentals remain sound, and we expect negative technicals will improve over the coming quarters.

We continue to favor real estate debt over equity, as the interest rate environment appears to be stabilizing and lenders retain pricing power.

U.S. medical offices enjoy low vacancy rates, limited supply availability and tailwinds from an aging population. We also like the senior housing sector, especially in markets like the U.S. and Japan, where demographics are favorable and new construction levels are low.

Public & private real assets

Justin Ourso
Jay Rosenberg

Best ideas

• In public markets, our best ideas in infrastructure are pipelines and waste management companies; in real estate, we favor gaming, shopping center and senior housing-focused REITs.
• In private markets, we continue to focus on investments that align with climate transition, such as clean energy and renewable fuel sources, as well as strong global demand for protein and healthy foods.

Investment positioning

Nuveen’s Global Investment Committee has emphasized public infrastructure for some time. In addition to the benefits of predictable cash flow and the ability to withstand a potentially weaker economy, this area of the market has lagged public equities this year, making prospects even more compelling. We’re more confident of opportunities in Europe given encouraging developments related to war, energy and politics, and we also see still-strong fundamentals in North America (especially in the waste and pipeline sectors). Importantly, the yields and good credit characteristics of high-quality debt and preferred securities issued by infrastructure companies should allow them to outperform if the economy slows.

We remain favorable toward public real estate, especially considering its underperformance — and resulting attractive relative valuations — on the back of rising interest rates. Real estate fundamentals remain strong in most sectors, with especially bright outlooks for gaming REITs, senior housing, shopping centers and data centers. We’re less constructive on the office sector.

Private infrastructure continues to benefit from solid fundamentals and supportive government policy. We prioritize assets with growth profiles that can better withstand discount rate changes and repricing. Of particular interest are clean energy generation and storage, infrastructure services in the transportation sector, and certain digital infrastructure assets.

Farmland is also an area of focus. We especially like crops supporting biofuels, where prices are climbing due to increasing demand (especially from China) and ongoing shortages caused by the Russia/Ukraine war.