Time for more defense
Nuveen’s investment theme in 2019 has been Expect a tougher climb. A straightforward declaration, but one with nuance and range: For the first half of the year, the emphasis was still on “climb.” Recently, however, the “tougher” part has been getting the upper hand. That was certainly the case at the midyear meeting of Nuveen’s Global Investment Committee
, where we debated what’s been happening in the markets, where we might be headed and, of course, what it all means for our clients’ portfolios. As you’ll see in this outlook, we don’t think we’re at the end of the current economic cycle, but we do think it makes sense for most investors to look for more defensive positioning while staying invested—and to rely on the benefits of a flexible and nimble, active management approach.
2019 has, so far, been a year of confusion and contradiction. We’ve all been intensely focused on issues such as the escalating global trade war, but up until relatively recently, markets have largely shrugged off these threats. And we’re seeing broader political uncertainty in the form of growing populism (i.e., nationalism) that weighs on investors’ minds even if it hasn’t yet affected long-term values. At the same time, central bank policy (especially in the U.S.) took a sharp turn from hawkish to dovish without much really changing from a fundamental perspective.
This sort of confusion is exactly why we established the Nuveen Global Investment Committee. Increasingly, our conversations with our clients are much more about holistic portfolio construction and less about specific products we manage. We’re talking to them about issues such as how to generate additional yield, how to better incorporate responsible investing practices into their portfolios, how to shift to a more defensive position without abandoning long-term goals, and how different asset classes and different investment types can work together to meet those goals.
So where did we land after these discussions? The headline: We think the second half of the year will be tougher than the first. At the start of the year, we pointed to a trade war escalation as the downside scenario. And now we need to acknowledge that this has come to pass. In addition, we’re focusing on the possibility of a weaker economic environment over the coming months. And we don’t think we have seen the end of downside corporate earnings revisions.
But we’re not suggesting getting out of the markets. Far from it. All of our asset class leaders and portfolio managers remain committed to finding opportunities in their respective markets at all times—that’s our job, after all. But we’re also working to more actively mitigate possible downside by focusing on quality defensive growth stocks, identifying more resilient yield opportunities in fixed income and finding yield and diversification benefits throughout real assets, real estate and other alternatives.
And all members of the GIC agree now is a time to focus on selectivity, a theme that runs across all of the asset classes we manage. That means diligent research, focused risk management and careful portfolio construction. The good news is that this environment also plays into the benefits of Nuveen’s broad, diverse and deep investment platform and our overall portfolio approach on behalf of our clients.
All market and economic data from Bloomberg, FactSet and Morningstar
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