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Investment Outlook

Best ideas across asset classes

Global Investment Committee
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Asset class outlooks

 

Equities

Saira Malik

Best ideas

 

Investment positioning

Stocks have enjoyed a strong rally, but despite (or perhaps because of) recent price increases, we retain an overall neutral view toward global equities. Continued strength in the global economy, and especially remarkable resilience in the U.S., provide a solid foundation for stocks. However, valuations have become stretched thanks to what we believe are overly dovish expectations for interest rate declines and monetary policy. We are also carefully watching earnings revisions patterns and expect volatility to pick up, which causes us to favor mostly defensive positioning combined with select risk taking.

In addition to the themes covered in our portfolio construction discussion, our main areas of focus are identifying high-quality companies that offer a combination of attractive valuations and good earnings growth prospects, with the potential to grow and defend their margins during a potential economic slowdown. This leads us to favor global infrastructure companies and U.S. large cap dividend growers.

U.S. mega-cap tech companies have been the primary driver of recent market gains. We appreciate the long-term structural tailwinds, solid business models and potential for AI-related innovation in this space, but we are wary about heightened valuations and lofty earnings expectations. Within the technology space, we are focused on the software and semiconductor industries that could benefit the most as we approach a slowdown or recession.

Private equity markets continue to struggle, but we see increased interest in this space and expect deal activity to improve over the coming quarters. 

 

Fixed income

Anders Persson

Best ideas

 

Investment positioning

Inflation remains sticky but is slowly receding. And while interest rates are not declining as dramatically or quickly as many hoped at the start of the year, we expect a gradual decline to materialize over the course of 2024. Even if rates remain elevated for longer than expected, current yield levels across bond markets offer solid income prospects.

For investors still positioned short in duration, we suggest extending duration to closer to neutral. Within the municipal bond market, we think it makes sense to adopt a longer-than-average duration stance now: The municipal bond curve is significantly steeper than the U.S. Treasury curve, offering potential for current income as well as total returns when and if rates decline.

Our key theme is flexibility and diversification across credit sectors versus over- or under-allocating to any one area. Within that context, however, we see more opportunities in high yield (especially the higher quality areas), which offers strong credit profiles and attractive yields, and in senior loans, which should benefit from a continued higher-for-longer rate environment. We also see opportunities in the preferred space. Spreads are approaching historical averages, fundamentals are solid and investor demand appears quite strong.

We also remain quite positive toward municipal bonds (including taxable municipals for non-U.S. investors). In addition to their longer-duration profiles, municipals offer attractive relative yields, solid fundamentals and compelling technical factors with high current demand and low new supply.

We remain highly constructive toward private credit markets, especially if any economic slowdown proves to be shallow or mild, as we expect. 

 

Real estate

Carly Tripp

Best ideas

 

Investment positioning

As discussed in our portfolio construction themes, we believe private real estate markets are experiencing a key inflection point, and headwinds have mostly faded. We continue to observe signs of distress, especially in the office sector. But we see more positive signals for the asset class as a whole: Most global rate increases are in the rearview mirror, property sales show signs of increasing, and private equity buyers have been reentering the market to take advantage of distressed opportunities. From a valuation perspective, prices have been declining for well over a year, and we think real estate is in a bottoming process.

Two areas we highlight as particular opportunities are U.S. medical office and global senior housing properties. Medical offices enjoy low vacancy rates, a restrained supply pipeline and the demographic tailwinds of an aging population. Senior housing benefits from the same demographics, and we believe fundamentals are improving given the slow pace of new construction.

We continue to favor real estate debt over equity, as the interest rate environment has stabilized, lenders have decent pricing power and rate cuts appear on the horizon. 

Public & private real assets

Justin Ourso
Jay Rosenberg

Best ideas

 

Investment positioning

Public infrastructure has long been a favored asset class for the GIC. Our positive outlook stems from reasonable valuations along with predictable cash flow and the ability to withstand a potentially weaker economy and still-relatively-high inflation. We are especially positive on technology infrastructure such as data centers, which enjoy strong growth prospects from AI-related innovation; North American and European regulated utilities, which offer compelling valuations along with a generally constructive regulatory environment; and toll roads, which feature strong, durable fundamentals.

Public real estate remains compelling as well, given generally positive fundamentals with a more constructive interest rate backdrop. We especially like data centers, an investment that overlaps infrastructure and real estate, senior housing investments that enjoy limited supply and favorable demographics, as well as shopping centers that are anchored by grocery or necessity stores that could withstand a slowdown in discretionary spending.

Private real assets continue to benefit from many of the same trends as their public counterparts. Regarding infrastructure, we see digital and power infrastructure poised to take advantage of AI demand generation (data center development, renewable power needs, fiber facilitating deployment and connectivity). We continue to focus on energy-transition-related infrastructure globally as well, given the decarbonization objectives and need for private capital. We also see opportunities in agribusiness investments, such as contract manufacturing for the quick-serve restaurant sector, which is exhibiting durable growth trends.

We remain generally positive toward farmland as a long-term investment. Relative yields may be slightly less appealing currently, but farmland still benefits from structurally higher inflation trends and growing food scarcity. In particular, we see compelling opportunities in U.S. row crops, which are experiencing high demand relative to supply. 

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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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