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Investment outlook

Best ideas across asset classes

Global Investment Committee
Bringing together the most senior investors from across our platform of core and specialist capabilities, including all public and private markets
Light at the end of the forest

Asset class outlooks

 

Equities

Saira Malik

Best ideas

 

Investment positioning

With macro risks elevated, we’re generally defensive when it comes to equities. Over the near term, markets are likely to be driven by inflation concerns, central bank policy, and earnings (which aren’t looking great). Slowing economic growth and ongoing geopolitical concerns also make it tough to be bullish toward equities.

Geographically, we prefer U.S. stocks (especially large caps) over non-U.S. developed and emerging markets given the relative economic resilience of the U.S. and ongoing dollar strength.

We’re particularly keen on dividend growers, as they tend to be more defensive, can weather volatility and provide income. We also like growth stocks that offer compelling fundamentals, solid pricing power and reasonable valuations.

We also see opportunities in private equity. While some existing investments may suffer from the lagged effect of market repricing, current vintages may be worth a look, especially if the world manages to avoid a hard landing.

 

Fixed income

Anders Persson

Best ideas

 

Investment positioning

Most bond sectors rallied over the past several months, and valuations are more in line with fundamentals. We remain concerned about ongoing central bank tightening (we think it will last longer than markets expect), and we see rising risks of recession in many parts of the world. All of this makes risk/return prospects for fixed income more challenging than they were a few months ago.

We suggest focusing on credits with durable free cash flow and solid balance sheets. Interest rate risk remains high, so we advocate taking on credit risk over duration risk. We favor higher-income sectors (chiefly high yield and loans), but would lean into the higher-quality segments.

U.S. high yield may seem like a counterintuitive choice given rising recession risks. But yields are compelling (currently more than 8%), defaults should remain low and the financial health of the overall market looks stronger than it did before the 2020 recession. A deep global recession would hurt high yield, but we think the sector is well positioned to withstand the more modest slowdown we anticipate.

We’re still negative toward EM debt, which is likely to struggle due to high inflation and the strong U.S. dollar.

Private credit is benefiting from strong deal flow. Top-tier private equity buyers are focusing on defensible assets right now, which enhances the risk-adjusted return proposition of the loans. The most attractive assets include service-oriented revenue models and assets with business model resilience and pricing power.

 

Municipals

John Miller

Best ideas

 

Investment positioning

Municipal market performance has improved, but the bumpy road continues as investors remain uncertain about the interest rate environment.

Municipals should be supported by an eventual moderation in inflation and the likelihood of a soft U.S. economic landing or mild recession. Interest rate volatility should eventually subside, leaving the market at attractive yield levels both on a relative and absolute basis. Combined with solid fundamentals and healthy credit conditions, investors should be enticed by the value created in the market.

We recognize we have an out-of-consensus view compared to most municipal bond managers. But we see value in both extending duration risk and increasing credit risk to seek out additional income and total return. Treasury yields have been more volatile than municipal yields, and we think defaults will remain low, even for lower-rated credits.

We see solid opportunities across investment grade and high yield municipals, And, in general, we prefer bonds backed by property taxes and see value in the energy and electricity generation sectors.

 

 

Real estate

Carly Tripp

Best ideas

 

Investment positioning

Private real estate is performing well. Higher market rents — particularly from industrial and housing properties — are translating into strong net operating income growth. Investors continue to view real estate as a key portfolio diversifier in a high inflation environment.

One area worth calling out: We are increasingly seeing value in retail sectors around the globe. The U.S. is actually experiencing more store openings than closings (especially in neighborhood retail, which has been particularly resilient during the pandemic), while European and Australian convenience and food-led retail offer compelling value. Asia-Pacific tourism and travel are also recovering, which should benefit tourism-related retail enterprises.

In contrast, we continue to have a negative view toward the traditional office sector. Vacancy levels remain high, tenant demand is low and hybrid work policies muddy the outlook for an eventual recovery. The medical office buildings sector, supported by the rise in outpatient procedures and aging demographics, remains an exception.

Across all sectors, we’re seeing ongoing opportunities in low-or-zero-carbon real estate investments and we expect demand for this trend will continue to accelerate.

 

Public & Private Real Assets

Justin Ourso
Jay Rosenberg

Best ideas

 

Investment positioning

The GIC strongly favors farmland in light of elevated inflation and geopolitical pressures creating supply issues. While input costs (namely fertilizer) are impacting profitability, row crop farmers should still generate above-average incomes due to strong commodity prices. We expect row crops across geographies to remain attractive, and believe farmland will remain a solid inflation hedge.

Across public real assets, we’re focused on balance sheet and refinancing risks, and generally favor infrastructure over real estate. Within real estate, we favor the U.S. and developed Asia-Pacific region over Europe, and multi- and single-family residential, necessity retail, net lease and health care over office and discretionary retail. We favor inflation-hedged infrastructure such as pipelines and waste, as well as regulated U.S. utilities and renewable energy. With the exception of renewable energy investments and toll roads, we continue to have a generally negative view toward European infrastructure and utilities.

Across private real assets, we remain heavily focused on clean energy infrastructure investments, including generation, storage and mobility-related themes. We continue to see compelling investments in solar and offshore wind generation, as well as renewable diesel opportunities in the form of oilseed processing.

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Endnotes
Sources
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.

Nuveen provides investment advisory services through its investment specialists.
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