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Investment Outlook

2024 2Q outlook: Adapting to high tide

Global Investment Committee
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Adapting to high tide

Saira Malik, Chief Investment Officer

Originally written and recorded by a Jamaican trio in 1967, “The Tide Is High” made its biggest splash with the now-classic 1980 cover version that topped the charts around the world. Thematically simple, the song’s familiar chorus acknowledges challenging circumstances while expressing the narrator’s resilience (“I’m holding on”). It’s an apt soundtrack for today’s investors as they acclimate to a high-tide environment of their own.

As we observed in our previous outlook, Past the peak, but not downhill yet, inflation and interest rates remain elevated. We see little reason to expect they’ll recede much further from their recent high-water marks any time soon, although some potentially strong crosscurrents might roil the surf. Favorable economic growth trends, for example, could be countered by geopolitical escalations or an unwelcome return of broad inflationary pressures.

The key to successful investment outcomes when the tide is high is to maneuver with both feet firmly forward (to “hang ten” for surfers) instead of holding your breath in passive anticipation of being tossed randomly by the next big surge.

Amid the salt and spray of this kinetic seascape, our current outlook is focused on the following portfolio themes:

Keep your balance with bonds. The dramatic rise in yields during the past two years has created meaningful opportunities to capture value in fixed income assets, although the risk/reward tradeoffs vary widely across and within sectors. For the most part, we’re eyeing higher-quality segments within non-investment grade categories, including high yield corporates, senior loans, municipal debt and private credit.

Beware swimming against the equity market currents. Even amid concerns that stock valuations continue to bubble up, it’s difficult — and unnecessary — to avoid equities altogether. We don’t advocate simply going with the flow, however. Rather, we see barbelled exposure to both defensive and higher-beta areas of the market as a way to help optimize the risk-adjusted performance of equity allocations.

Catch the next real estate wave. During 2023, we pegged private real estate as a modest “underweight” in our heat map, but have now upgraded our view to neutral as the asset class appears to be touching bottom. This shift does not represent an all-in endorsement, especially given sustained woes in the office property market. But we have taken note of a trend toward fair-to-inexpensive costs for new real estate transactions, improving investor appetites in the real estate space and a number of intriguing investment ideas in select sectors.

Whether the tide is high, low calm, or subject to rip currents and rogue waves, investing in an increasingly complex global environment can be increasingly turbulent. But diversified, long-term investors who adapt to changing conditions while staying focused on their long-term goals may find the rewards of “holding on” well worth the effort.

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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All market and economic data from Bloomberg, FactSet and Morningstar.

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature.

Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Performance data shown represents past performance and does not predict or guarantee future results. Investing involves risk; principal loss is possible.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. For term definitions and index descriptions, please access the glossary on nuveen.com. Please note, it is not possible to invest directly in an index.

Important information on risk
All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Equity investing involves risk. Investments are also subject to political, currency and regulatory risks. Dividend-paying stocks are subject to market risk, concentration or sector risk, preferred security risk, and common stock risk. Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of income. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Credit risk refers to an issuer’s ability to make interest payments when due. Below investment grade or high yield debt securities are subject to liquidity risk and heightened credit risk. Non-U.S. investments involve risks such as currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. Investing in municipal bonds involves risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. The value of the portfolio will fluctuate based on the value of the underlying securities. There are special risks associated with investments in high yield bonds, hedging activities and the potential use of leverage. Portfolios that include lower rated municipal bonds, commonly referred to as “high yield” or “junk” bonds, which are considered to be speculative, the credit and investment risk is heightened for the portfolio. Credit ratings are subject to change. AAA, AA, A, and BBB are investment grade ratings; BB, B, CCC/CC/C and D are below-investment grade ratings. As an asset class, real assets are less developed, more illiquid, and less transparent compared to traditional asset classes. Investments will be subject to risks generally associated with the ownership of real estate-related assets and foreign investing, including changes in economic conditions, currency values, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties. Because infrastructure portfolios concentrate their investments in infrastructure-related securities, portfolios have greater exposure to adverse economic, regulatory, political, legal, and other changes affecting the issuers of such securities. Infrastructure-related businesses are subject to a variety of factors that may adversely affect their business or operations, including high interest costs in connection with capital construction programs, costs associated with environmental and other regulations, the effects of economic slowdown and surplus capacity, increased competition from other providers of services, uncertainties concerning the availability of fuel at reasonable prices, the effects of energy conservation policies and other factors. Investors should be aware that alternative investments including private equity and private debt are speculative, subject to substantial risks including the risks associated with limited liquidity, the use of leverage, short sales and concentrated investments and may involve complex tax structures and investment strategies. Alternative investments may be illiquid, there may be no liquid secondary market or ready purchasers for such securities, they may not be required to provide periodic pricing or valuation information to investors, there may be delays in distributing tax information to investors, they are not subject to the same regulatory requirements as other types of pooled investment vehicles, and they may be subject to high fees and expenses, which will reduce profits. Alternative investments are not appropriate for all investors and should not constitute an entire investment program. Investors may lose all or substantially all of the capital invested. The historical returns achieved by alternative asset vehicles is not a prediction of future performance or a guarantee of future results, and there can be no assurance that comparable returns will be achieved by any strategy. As an asset class, agricultural investments are less developed, more illiquid, and less transparent compared to traditional asset classes. Agricultural investments will be subject to risks generally associated with the ownership of real estate-related assets, including changes in economic conditions, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties.

Nuveen, LLC provides investment services through its investment specialists.

This information does not constitute investment research as defined under MiFID.

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