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2020 Gic outlook _asset

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.

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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.

Taxable fixed income

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 currency bonds.
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. financial institutions.

We are bullish on emerging markets debt. We think high-conviction exposures based on deep country and issuer-specific research can offer especially attractive risk-adjusted returns.

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 bias positioning.

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 inventories low.
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 exceed downgrades.

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.

Real estate

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 impact investing.
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 limited development.

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 remain critical.

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 remain elevated.

Contact us
Profille image of Dimitrios Stathopoulos
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.