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2021 4Q outlook: Past peak growth, but a long way to go
Viewpoints from the Global Investment Committee
Way back at the end of 2020, our year-ahead outlook featured the theme, “Dark tunnel. Bright light.” While we saw strong potential for economic and market upside, we also anticipated a difficult path ahead. As it turned out, that upside scenario materialized quicker than we expected, and investors are actually already focusing on when the current cycle might end — and what that ending could look like. That’s causing both investment opportunities and investment risks to shift rapidly. Amid this changing environment, Nuveen’s Global Investment Committee still sees opportunities across asset classes and remains committed to offering our clients ideas for how to navigate financial markets.
More from the Global Investment Committee
- Views from the TIAA General Account
- Past peak growth, but a long way to go
- Five portfolio construction views
Views from the TIAA General Account
Nick Liolis, TIAA General Account
Combining ESG with financial outcomes
Interest in responsible investing among governments, policymakers, asset managers and investors shows no signs of slowing. By the end of 2020, assets under management with environmental, social and governance (ESG) objectives reached a record of nearly $37.8 trillion, per Bloomberg. But the evolution and use of different factors has been uneven.
When it comes to ESG investing, the G – governance – appears well in hand. Institutional investors are long practiced at proxy voting and engaging with company boards and management. The E – environmental factors, especially climate change – are in sharp focus, as governments, seeking to limit global warming, consider different policy options and as investors increasingly make the connection between the science of climate change and capital markets. Strategies to decarbonize businesses, portfolios and the economy, including commitments to net zero carbon targets, are generating action. The S – the social component – however, looks less clear cut.
It seems that the market’s attitude and approach to the social side of responsible investing is changing. For many years, U.S. insurance companies were encouraged by some state regulators to have a small portion of their portfolio in socially oriented investments. In the past, this was often perceived as “doing good,” while potentially sacrificing return potential. But over time, we found that these types of investments can deliver compelling risk-adjusted returns for our portfolios.
The TIAA GA has invested over $1 billion in social impact projects, across private equity, real estate and real assets, over the past decade. We’ve focused on themes such as affordable housing, financial inclusion and broadening diversity. We’ve done this not only because we want to be a responsible investor but, more importantly, because it contributes to our fiduciary duty of delivering retirement income to our participants. It has allowed us to diversify and spread risk across a wider range of assets while seeking attractive returns.
Just as investors have made the connection between climate change and investment returns, and are directing capital to solutions, we expect similar connections to be made for social inequalities and underserved areas of the market, especially as many of these inequalities have become increasingly apparent during the pandemic.
Underserved and previously excluded groups represent a growing majority of consumers and an untapped market. We believe inclusion and diversity in company leadership and portfolio management teams should lead to better financial performance and better outcomes for clients. An increasingly broader understanding of these factors should create a virtuous cycle in which capital markets can attract funds for investments with social goals as well attractive risk-return profiles. Eliminating disparities in wealth should grow the economy and the opportunity set for all investors — not just those with a focus on responsible investing. Social impact investments will no longer be categorized just as “doing good,” but will also be judged on returns to capital.
As an investor, we want to be able to identify these trends and capitalize on them. This allows us to drive capital to profitable projects that benefit society, offer appealing returns and diversify our portfolio.
As part of his participation in Nuveen’s Global Investment Committee, Nick Liolis offers his perspective as an institutional investor and asset allocator. Neither Nick nor any other member of the TIAA General Account team are involved in portfolio management decisions for any third-party Nuveen strategies.
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. Past performance is no guarantee of 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.
A word 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. These risks may be magnified in emerging markets. Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of income. 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. Socially Responsible Investments are subject to Social Criteria Risk, namely the risk that because social criteria exclude securities of certain issuers for non-financial reasons, investors may forgo some market opportunities available to those that don’t use these criteria. 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.
Nuveen provides investment advisory services through its investment specialists.