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2020 outlook: asset class views
A focus on responsible investing and views across all major asset classes.
Responsible investing helps drive investment performance
Interest in responsible investing (RI) has exploded in recent years, with investors and asset managers alike focusing on incorporating environmental, social and governance (ESG) factors into their portfolios. But RI is still often misunderstood.
At Nuveen, we believe that RI and ESG factors are not about excluding certain investments or asking, “What don’t we buy?” Rather, we infuse RI into more and more of our investment processes as one of many critically important factors we use to mitigate risks and add alpha for our clients.
Increasingly, we are adopting these factors across all of our asset classes. We’re focusing on a range of investment themes, including climate resilience investments in real estate and real assets; low carbon, ESG municipals, and green bonds in our public investments; and additional ideas you can see in the following asset class discussions.
A “less bad” environment provides breathing room
Best ideas: We are seeing more value in European
stocks and think China could benefit if trade issues abate. We
are also bullish on Brazil given ongoing economic reforms
and relative insulation from trade-related risks.
Opportunities and positioning
Value has been outperforming growth since the
summer. We think this trend may still have a
few months of life in it. Unless economic growth
accelerates to above-trend levels, however, we believe
quality growth areas of the market look better in the
long term, including health care services companies or
companies that dominate their markets.
Geographically, we’re seeing better value in Europe
(Germany in particular) and think China could benefit
if trade issues ease. We also like Brazil for its ongoing
economic reforms and relative insulation from global
trade issues. Looking at global sectors, financials
continue to look attractive across global markets.
We’re employing ESG factors across portfolios,
including focusing on companies with high-quality
boards that are better able to ensure long-term
shareholder value creation.
Private equity remains a valuable diversifier to
public markets. But the entry point is challenging,
due to higher valuations resulting from strong 2019
performance and increased competition for deals.
Risks to our outlook
Corporate earnings growth will likely remain sluggish
in 2020, and stock valuations are higher today than
they were a year ago. This may limit opportunities for
the broad market, making selectivity a key factor.
We are also concerned about unknown outcomes from
the 2020 U.S. elections that could result in higher taxes
or a more stringent regulatory backdrop, which would
be a negative for stocks.
Late cycle positioning, but not end of cycle
Best ideas: Focus on diversification to generate
income using flexible multisector strategies. We are
particularly favorable on select emerging markets hard
Opportunities and positioning
We expect the 10-year Treasury yield to remain between
1.5% to 2% in 2020 supported by low inflation, modest
growth and central bank liquidity. This “lower for longer”
environment leads us to be comfortable taking on
duration and spread risk.
Across credit markets, we believe investors should
upgrade quality and increase liquidity. We see better
opportunities in the investment grade market than
in high yield. The U.S. consumer should remain
resilient, favoring mortgage-backed and consumer related securitized assets. From a sector perspective,
we like debt and preferred securities issued by U.S.
We are bullish on emerging markets debt. We think
high-conviction exposures based on deep country and
issuer-specific research can offer especially attractive
We would also note that the growth of ESG scoring
methodologies by ratings agencies is consistent with our
long-held view that RI factors remain critically important
to the overall investment process.
Private credit markets remain supported by healthy
fundamentals. Liquidity premiums remain an attractive
way to enhance income across corporates as well as select
structured finance transactions, project finance and
credit tenant lease deal flow.
Risks to our outlook
Stronger-than-expected economic growth and inflation
would work against our longer-duration, higher quality
Additionally, a reigniting of trade issues and/or a
stronger U.S. dollar would create a challenging backdrop
for emerging markets debt and risk assets generally.
Fundamentals and technicals look attractive
Best ideas: High yield municipals look attractive
given their income advantage and low correlation to
other asset classes. This area of the market may benefit
from spread contraction and sector-specific factors
such as opportunities in land-secured bonds, which look
particularly appealing as active first-time buyers keep
Opportunities and positioning
The municipal market has shown strong performance
in 2019. Municipal-to-U.S. Treasury yield ratios
declined steadily in the first half of the year, but
jumped in September due to a surge in supply. Ratios
now sit around their long-term averages. It is possible
ratios could ultimately move lower as we head into
2020, since January typically experiences a lighter
supply environment coupled with inflows.
Credit fundamentals are still extremely stable and
marginally improving year to date. Credit spreads have
been stable in the aggregate, and overall municipal
credit quality remains sound. Defaults remain low and
are dominated by idiosyncratic project risks rather
than systemic risk. And credit upgrades consistently
Beyond fundamental factors, municipal bonds look
attractive from a technical perspective: Demand is
strong and supply is tight. Municipal fund flows have
been at record highs this year. We also expect net
negative new issuance in 2020, which should further
benefit municipals from a technical perspective.
Risk to our outlook
The biggest risks we see for municipals is a reversal
in accommodative monetary policy. Additionally,
investors always need to be on the lookout for possible
credit events (which is why we think an intense focus
on credit research remains warranted). Finally there is
some concern that segments of the municipal market
may be overvalued, but we think ample opportunities
remain available, especially for those investors who can
benefit from the after-tax advantages of municipals.
Focus on diversification and stable income
Best ideas: A consistent theme is investing in a
wide range of “global cities” that offer scale, growth,
sustainability and resilience. In the U.S., we like niche
sectors, such as life sciences and data centers. In Europe,
we are focused on housing, student accommodation and
Opportunities and positioning
Global economic and region-specific risks such as Brexit
appear to have receded. And the two main risks for real
estate markets (oversupply and excessive debt levels) do
not appear present. We continue to see value in real estate
markets, especially in terms of income generation.
Pockets of the retail market are proving unloved by
occupiers and investors alike, with changes in consumer
patterns, e-commerce and technological advancements
challenging how, where and when we consume. The
office sector is adapting to the growing presence of
flexible space operators and a more discerning tenant
base; but overall demand and real estate performance
has been challenged by economic headwinds and
We continue to favor defensive growth areas that produce
solid income. In particular, we like alternative real estate
sectors such as medical technology locations (which
benefit from a global aging population), data centers
(which should benefit from the launch of 5G networks)
and multifamily housing (as co-living trends are
on the rise).
Across all sectors, we are putting environmental
sustainability at the forefront of our investment strategies.
Risks to our outlook
Risks of an unexpected rise in interest rates have waned.
But a material economic slowdown would hurt real estate.
We are also focused on political risks associated with
the U.S. elections that could result in additional rent or
commercial property regulations. Regulatory changes in
some European housing markets could also present risks.
Private and public real assets
Sticking with defensive positioning
Best ideas: We are positive on toll roads in politically
stable environments that have solid traffic patterns, such
as in Australia and France. We also like regulated utilities,
especially those with electricity transmission exposure that
will continue to benefit from increasing investment demand.
On the private side, we are finding good opportunities in
agricultural investments focused on sustainability and
healthier diets, as well as purpose-driven private equity
investments in financial services, education and health care
focused on underserved consumers.
Opportunities and positioning
The broad macro backdrop continues to look somewhat
challenging for both public and private real assets. Easier
global monetary policy has been promoting additional
liquidity, which has been a plus. But slow global growth
means that downside risks remain relatively high.
Geopolitical uncertainty (including in the Middle East,
Hong Kong and Chile) has added to volatility.
As such, we think it makes sense to focus on more
defensive areas of the real assets market. In the public
markets, defensive growth areas look more attractive than
more cyclical sectors. REITs and listed infrastructure
have performed well in 2019, and have income and
stability characteristics that should continue to appeal to
investors. We have an especially favorable view toward
the logistics and data center industries.
Within public infrastructure, we like utilities and toll
roads, and prefer more highly regulated utility companies
with no or low exposure to commodity prices.
On the private real assets side, farmland and timberland
asset values remain supported by low global interest rates.
Issues such as trade volatility, the multiyear drought in
Australia and the expansion of African Swine Flu in Asia
require investors to approach these asset classes with
careful selectivity, however.
Although we continue to be constructive on agribusiness
private equity generally, broad valuations appear rich
with debt levels creeping higher. Discipline and sourcing
Broadly speaking, we see solid opportunities in impact
investing, as investors are increasingly focusing on
finding investment solutions to social and environmental
challenges. For example, we are pursuing investment
options in infrastructure-related renewable energy
generation and storage facilities as well as private equity
investments in inclusive growth and resource efficiency.
Risks to our outlook
Rising interest rates would work against defensive
positioning in the public real asset space. Likewise,
stronger-than-expected growth would boost the more
cyclical areas of the market.
Additionally, trade issues continue to represent risks
across all real assets. We think ongoing uncertainty on
this front will likely mean that market volatility will
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.