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4Q 2019 outlook

Risks seem to be rising and investors are confronted with uneven economic growth. We’re calling for a tougher climb but we still see investment opportunities for our clients.

Play defense, but stay in the game

Late last year, Nuveen’s Global Investment Committee’s 2019 Outlook told investors to Expect a tougher climb. For the first few months of this year, that scenario didn’t really play out, as risk assets rebounded strongly from the late-2018 sell-off. But since then we’ve started seeing cracks in the system: uneven and slowing economic growth, rising trade tensions, broader political uncertainty, higher volatility and falling and even negative interest rates. These changes have of course complicated life for investors of all stripes — and they also fed into a lively discussion at our GIC meeting in September.

In many ways, most of these risks aren’t really new: We have been worrying about the pace of economic growth since pretty much the end of the global financial crisis, and since that time we’ve experienced market corrections and interest rate volatility.

But in other ways, these risks are starting to feel more acute. The rates environment in particular seems troubling, and it’s a topic we (rightfully) devoted quite a bit of time to at our recent meeting. The shifting rate environment affects everything from portfolio positioning for our equity, fixed income and alternatives portfolios to how we price private market deals. And, for sure, lower and negative rates make it tougher for our clients to find the yields they need to maintain income levels or fund their liabilities. At the same time, we’re getting the sense that political risks are growing. We’re starting to see trade-related problems work their way into the economic data for the worse. And that’s without even considering growing tensions in the Middle East or the messy Brexit situation.

So what does all of this mean for our investment outlook and — more important — investment positioning? Our main macro takeaway from our meeting is that we think economic growth will remain troubled, but we don’t see a recession over the next year. Related, we think interest rates will remain depressed for some time. And that means investors should probably expect lower returns across asset classes than they enjoyed over the last few years: There’s that tougher climb.

That’s why we are continuing with our view that it makes sense to stick with more defensive positioning across asset classes. As we said in our midyear outlook, that means things like focusing on quality defensive growth stocks, seeking more resilient yield opportunities in fixed income and looking for yield and diversification benefits throughout real assets, real estate and other alternatives. But turning more defensive is not the same thing as adopting a risk-off stance, and all of our asset class leaders and portfolio managers remain committed to being fully invested and to finding opportunities to help our clients meet their financial goals.

If one consistent investment theme clearly emerged in our last Global Investment Committee meeting, it was that selectivity matters more than ever. We broadly agree that we’re approaching the end of a very long economic and market cycle, which means the easy money has already been made. From here, investors must remain nimble, look for tactical opportunities to capitalize on volatility and construct portfolios with increasing care.

Risks seem to be rising. Investors are confronted with uneven economic growth, the increase of negative interest rates around the world and rising geopolitical uncertainty. We’re calling for a tougher climb when it comes to investing from here, but we are continuing to find multiple investment ideas for our clients.

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Dimitri Stathopoulos
United States
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