2022 outlook: Slower. But still pretty fast.
As we head into the new year, we think 2022 should look quite a bit like 2021 — with some key differences. The positives: Economic reopening should continue and global economic and corporate earnings growth should be above trend. The negatives: Inflationary pressures have grown, interest rates are rising and fiscal and monetary support are waning. Thus our 2022 theme: “Slower. But still pretty fast.” The economic cycle isn’t ending, but conditions are getting more difficult and gains are going to be tougher to come by. Nevertheless, Nuveen’s Global Investment Committee still sees opportunities across asset classes and remains committed to offering our clients ideas for how to navigate financial markets.
More from the Global Investment Committee
- Views from the TIAA General Account
- Slower. But still pretty fast.
- Asset allocation views
- Our best investment ideas
- Five portfolio construction views
Views from the TIAA General Account
Nick Liolis, CIO, TIAA General Account
Recovery, risks and relationships
Looking back over the last couple of years, it seems that while so much in our world has changed, much has remained the same. Yet we’ve learned a few lessons along the way. We seem to be emerging from the worst of the crisis and, though we expect elevated volatility and an economic recovery that is likely to be uneven globally, the overall outlook is good. From an investment perspective, the main takeaway is that the core strategies and approaches we use to manage the General Account (GA) remain as relevant as ever.
Rate (and income) risks aren’t fading any time soon
In the short term, interest rates are likely to creep up due to growth expectations and pandemic-related supply and demand issues. But the long-term structural impacts of demographics, technology and productivity that have kept rates low for so long are still in place. This will make income generation an ongoing challenge. There is also the potential for a medium-term inflationary impetus spurred by the massive expenditures that will be required to combat climate change, currently the world’s biggest challenge. For the GA, proper diversification, appropriate risk taking and disciplined asset allocation remain key to managing these risks.
Our strategic asset allocation framework provides the guardrails for managing our portfolio, given our long-term expectations of risks and return. To maneuver appropriately inside those guardrails, we apply a dynamic asset allocation process on an annual basis, which allows us to act on shorter-term views based on available relative value opportunities. Our more frequent tactical allocation view allows us to adjust quickly to take advantage of changes in relative value due to market movements. This approach affords us the ability to guide ourselves toward a view of long-term optimality, while also giving us the flexibility to assess short-term risks and opportunities and act on them.
Diverse and dedicated relationships are more important than ever
Along with reinforcing the need for diversification and a flexible asset allocation framework, the pandemic has also taught us the importance of building relationships with trusted investment partners, especially in private markets.
When travel stopped and economies locked up, all investors (us included) had to continue our jobs, but the degree of difficulty soared. Due diligence activities and management of physical assets were massively disrupted, as was the ability to source private assets. Fortunately, the GA benefited from its well-established relationship with our asset manager, Nuveen, whose scale, geographic scope and expertise allowed us to continue closely managing our assets and resume our private investing activities quickly.
For me, the bottom line is that while our world may never look exactly the same as it did two years ago, the foundational strategies we’ve been relying on to manage the GA for a lot longer have kept us strong and resilient. And the pandemic, while humbling, has served to make us stronger and smarter.
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.
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.