2022 4Q GIC outlook: Not out of the woods yet
Views from the Global Investment Committee
- Not out of the woods yet
- Portfolio construction themes
- The economy and markets
- Our best investment ideas
- The risks causing elevated volatility (especially inflation) are likely to persist, but we are not anticipating a deep or prolonged recession.
- Markets may offer better value now than they did a few months ago, but we would caution investors to be wary of value traps.
- We prefer a mostly defensive stance and see better opportunities in credit markets compared to equities. We also like real assets such as farmland.
Not out of the woods yet
Saira Malik, Chief Investment Officer
Finding the path forward
Our previous outlook, “From pain to gain,” offered a cautiously optimistic view on market performance and portfolio construction amid one of the most volatile investment environments in memory. That guarded perspective and positioning yielded mostly positive results for much of the summer, but investor confidence dissipated in the face of relentless global central bankers determined to rein in historically elevated levels of inflation — even if doing so meant sacrificing economic growth.
Looking toward the balance of 2022, one thing is clear: We are not out of the woods yet. Both the global economy and global investment markets continue to be waylaid by familiar risks.
That doesn’t mean investors have to wander the woods with no trail markers. In the U.S., for example, even if the Federal Reserve’s inflation-fighting pushes the economy into recession, the combination of resilient labor markets and household balance sheets leads us to believe that any such downturn would likely be mild and relatively short-lived.
As you’ll see in this report’s detailed discussion of portfolio construction and our revised asset class “heat map,” we are focused on three primary themes:
- Preparing for the inflation fever to break is more than a short-term investment play. Because it’s impossible to predict exactly when inflation will finally peak, we continue to favor real asset categories that historically have proven less volatile, weathered high-inflation periods well and provided diversification benefits.
- The bear won’t be morphing into a bull any time soon. Nuveen’s data-driven Bear Market Tracker offers signals as to when equities may find their bearings and begin to move closer to bull market territory. Based on current readings, this is unlikely to happen in the near to medium term, so we are maintaining a somewhat bearish view toward equities.
- Avoid getting trapped. While bear traps in the woods may be easy for the human eye to spot, value traps in investment portfolios can be less obvious. Relying too much on what appear to be attractive short-term valuations can ensnare investors in ways that greatly diminish long-term outcomes. We suggest ways to avoid these traps while staying attuned to genuine value opportunities when they arise.
There’s no question this has been a confounding and challenging year for markets, and we still have a way to go before we emerge from the murk of bearishness into the light of “normalcy.” In the meantime, we continue t0 seek glimmers of incremental economic progress and asset allocation ideas to help investors stay on the path toward their long-term objectives.
As Nuveen’s CIO and leader of our Global Investment Committee, Saira drives market and investment insights, delivers client asset allocation views and brings together the firm’s most senior investment leaders to deliver our best thinking and actionable investment ideas. In addition, she chairs Nuveen’s Equities Investment Council and is a portfolio manager for several key investment strategies.
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. For term definitions and index descriptions, please access the glossary on nuveen.com. Please note, it is not possible to invest directly in an index.
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. 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 exclude 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 appropriate 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.
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