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2020 outlook: asset allocation

Cross-asset views that assess risk-adjusted return potential for the next 6 to 12 months

Portfolio construction views

These forward-looking cross-asset views draw on experts across the firm, as well as the Global Investment Committee, to help drive allocation positioning within diversified portfolios designed for longer-term, total return investors.

Asset allocation highlights
  • We are taking on more risk in select asset classes balanced by broader defensive positioning.
  • In equity markets, consistent with that broader defensive posture, we think growth is still a better bet than value and have a clear bias toward large caps over small caps. We are more positive on non-U.S. developed equity markets, which offer attractive valuations. While both non-U.S. developed and emerging equity markets stand to benefit from stabilization or improvement in trade risk, we maintain a neutral view in emerging markets as a result of additional geopolitical risks.
  • Within fixed income, we are comfortable with more duration risk than credit risk, and a more normalized yield curve has caused us to drop our views on short-term fixed income by a notch. We prefer allocations to investment grade credit over other U.S. credit sectors and remain positive on emerging markets debt investments. At the same time, we think loans and non-U.S. developed fixed income markets are starting to offer more fair value, so this may be an opportune time to consider adding back exposure.
  • We prefer longer duration and higher yielding areas of the municipal markets, as fundamentals remain sound and default risks appear low.
  • Alternatives can provide solid income and capital appreciation opportunities as well as expanded diversification potential. Given the wider range of returns, the hunt for idiosyncratic risk to meet overall portfolio goals and targets remains critical. This is particularly so in the later stages of the economic cycle, so research and selectivity appear key.


2020 gic_asset allocation

Investing in 2020: Diversification carries the day

In many cases, investors have been reacting to uncertainty by moving large parts of their portfolios to cash. We disagree with this approach. Instead, we favor broadening market exposures to more opportunities and risks. Put another way: Diversification is our highest-conviction trade idea. Reaching long-term objectives is already hard in today’s low-yield environment. And given that we think investors need to lower their return expectations, overallocating to cash now is only making the challenge harder.

We believe investors should be staying invested to reach their goals. We have much higher conviction that conscious asset allocation decisions and careful security selection are better ways to reach long-term goals than tactical moves in and out of cash. In our view, diversification is about much more than simply having a combination of assets with low correlations in a portfolio. It includes diversity of research, idea generation, time horizons, assets, sectors, themes, managers, styles, approaches, factors, views, geographies and investment policies.

Proper portfolio construction is complicated. But we hope the ideas expressed in our 2020 Outlook can help our clients better structure their investment portfolios.

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Dimitri Stathopoulos
United States

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.


The MSCI All Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from 24 local currency markets. The S&P 500 is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. The Bloomberg Barclays High Yield Corporate Bond Index measures the USD-denominated, high-yield, fixed-rate corporate bond market. The Bloomberg Barclays Municipal Bond Index covers the USD denominated long-term tax-exempt bond market.

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. Foreign 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 excludes 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 suitable 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.

This information does not constitute investment research as defined under MiFID. In Europe this document is issued by the offices and branches of Nuveen Real Estate Management Limited (reg. no. 2137726) or Nuveen UK Limited (reg. no. 08921833); (incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3BN), both of which entities are authorized and regulated by the Financial Conduct Authority to provide investment products and services. Please note that branches of Nuveen Real Estate Management Limited or Nuveen UK Limited are subject to limited regulatory supervision by the responsible financial regulator in the country of the branch.