This site has been created for exclusive use by institutional investors only and does not take into account investment objectives, financial situation or specific needs of any individual investor. Information should not be the sole basis for any investment decision.
If you are not an institutional client, consultant or financial professional and are looking for more information about mutual funds and other products at Nuveen, please visit our site at www.nuveen.com.
Past performance is not a guarantee of future performance. All investments involve some degree of risk including loss of principal. Investment objectives may not be met.
By agreeing you are confirming you are being truthful, acknowledging you have read the information above and accept the terms and conditions set out with this site and meeting the intended audience requirement for this site. Not all content on this site is appropriate or applicable for the general public and we cannot guarantee consequences with the use of this information by unauthorized or unintended users. Content on this site may not be redistributed and is for informational purposes only and does not constitute investment advice or provide a solicitation of an offer to buy any security.
Income and inflation: Play to your strengths
Why inflation risks are growingInflation risks have been a point of discussion among investors for years, yet they haven't materialized. But it does feel different now: Nuveen’s Global Investment Committee believes that the extraordinary easing of monetary policy and expansive fiscal policy we have seen over the past year (and more spending to come) will likely increase inflation risks.
We don’t expect inflation to rise tomorrow. But when virtually every global policymaker is using every tool available (with more force than during the global financial crisis) to accelerate economic activity, the probability of significant inflation risk is rising.
A challenge for all investorsInflation affects all investors, but the problem can be particularly acute for the TIAA General Account (GA) and other institutions that are ultimately responsible for helping people to fund their retirement. After all, inflation erodes the purchasing power of the income we pay to our participants. Because the GA is part of a U.S.-based insurance company, we are required by regulations to hold significant amounts of fixed income investments — and bonds are an asset class that can be hurt by rising inflation.
Play to your strengths with portfolio constructionThis leads us to the issue of portfolio construction in the current environment. Every investor has their particular risk tolerances, restrictions and goals, but we all also have our strengths. Investors should play to those strengths to manage their risks, including inflation.
For the GA, two of our main strengths are our capital strength and ample current liquidity. We regularly conduct stress tests to ensure our portfolio has more than enough liquidity to meet our spending needs, which allows us to invest a significant percentage of our overall assets into more illiquid private investments such as real estate and a variety of real assets including agriculture, timber, farmland and infrastructure. These investments have the dual advantage of providing solid yields in today’s low inflation environment while also offering the potential of a natural inflation hedge.
Other investors will of course have varying strengths and risk tolerances. Traditional pension plans or individuals with less investment restrictions and higher risk tolerances often consider public equities or commodities to manage their inflation risks. Large institutional investors willing to invest globally could also benefit from the various rate differentials created by differing inflation expectations between countries around the world.
Don’t position for one outcome; construct a resilient portfolio designed for all economic scenarios.
Resiliency requiredOne final takeaway: It’s important to not to position for one outcome, but rather to construct a resilient portfolio designed for all economic scenarios. Sometimes that might mean sacrificing some returns to manage different risks, but ultimately it means playing to your strengths, and taking on the risks you can afford in order to meet your return objectives.
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.