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Investment outlook

Portfolio construction themes

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

Section 2

The world seems to have arrived at an inflection point. We are calling it “Past the peak,” as we appear to have moved beyond the height of interest rate hikes, inflation and economic acceleration. But past the peak doesn’t mean a sharp decline. While inflation is easing around the world, we expect rates and economic growth to plateau for a couple of quarters ahead of rate cuts and a mild recession in the U.S. in the second half of 2024. This leads us to identify several investment themes we believe are particularly well suited for a past-the-peak, but pre-rate cut, prerecession world.

Asset class “heat map”

Our cross-asset class views indicate where we see the best relative opportunities within global financial markets. These are not intended to represent a specific portfolio, but rather to answer the question: “What are our highest conviction views when it comes to putting new money to work?” These views assume a U.S. dollar-based investor seeking long-term growth and represent a one-year time horizon.

Asset class “heat map”

Key portfolio themes

Figure 1: Higher yields create compelling options across fixed income markets

In focus: public real estate

U.S. REITs offer a combination of appealing traits for investors to consider. First, REITs have significantly lagged the broader equity market since the start of 2022. Importantly, however, REIT earnings have held up relatively well during the period, creating value for the market as a whole.

REITs also appear well positioned for the current and prevailing market environment. REITs are generally a long-duration asset class given the structure of rents and cash flows, and as such have performed relatively well when interest rates peaked and were on the verge of moving lower (e.g., REITs were the best-performing U.S. equity sector in 2014 amid the taper tantrum). It’s also worth noting that although financial headlines focus on structural issues within the office sector, traditional offices represent only about 3% of the overall REIT market.

Within real estate, we are focusing on investments that offer high levels of free cash flow, such as the industrial sector (which also offers good growth prospects). We also like senior housing investments due in part to favorable demographics.

We think sitting in cash may result in missed opportunities.

Our highest-conviction views:

Municipals (+) are enjoying solid fundamentals (strong credit quality and reliable tax streams) and attractive supply/demand technicals. Given the shifting interest rate environment, we also think it makes sense to extend duration in municipal bond holdings.

Private credit (+) remains a favored area for us, and investor demand has remained high. We continue to focus on more resilient areas of the market such as health care, software and insurance brokers — all of which are relatively well positioned to withstand economic downturns.

Infrastructure (+) should benefit from still-high inflation and looks well positioned for resiliency in the face of slowing economic growth. Both public and private infrastructure appear compelling, especially the attractive valuations within public infrastructure.

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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. Performance data shown represents past performance and does not predict or guarantee 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.

Important information 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. 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. Impact investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market.

Nuveen, LLC provides investment services through its investment specialists.

This information does not constitute investment research as defined under MiFID.

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