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New institutional investor insights

Diversification is our highest-conviction idea. Institutional investors need to broaden market exposure to more opportunities and risks to reach long-term objectives in today's low-yield environment.

Best ideas
  • On the private side, we are finding good opportunities in agricultural investments focused on sustainability and healthier diets.
  • We are positive on toll roads in politically stable environments that have solid traffic patterns, such as in Australia and France.
  • We also like regulated utilities, especially those with electricity transmission exposure that will continue to benefit from increasing investment demand.  

Private and public real assets

Opportunities and positioning

We think it makes sense to focus on more defensive areas of the real assets market. The broad macro backdrop continues to look somewhat challenging for both public and private real assets. Easier global monetary policy has been promoting additional liquidity, which has been a plus. But slow global growth means that downside risks remain relatively high. Geopolitical uncertainty (including in the Middle East, Hong Kong and Chile) has added to volatility.

In public markets, defensive growth areas look more attractive than more cyclical sectors. REITs and listed infrastructure performed well in 2019 and have income and stability characteristics that should continue to appeal to investors. We have an especially favorable view toward the logistics and data center industries.

Within public infrastructure, we like utilities and toll roads and prefer more highly regulated utility companies with no or low exposure to commodity prices.

On the private real assets side, farmland and timberland asset values remain supported by low global interest rates. Issues such as trade volatility, the multi-year drought in Australia and the expansion of African Swine Flu in Asia require investors to approach these asset classes with careful selectivity, however.

Although we continue to be constructive on agribusiness private equity generally, broad valuations appear rich with debt levels creeping higher. Discipline and sourcing remain critical.

Risks to our outlook

Rising interest rates would work against defensive positioning in the public real asset space. Likewise, stronger-than-expected growth would boost the more cyclical areas of the market.

Additionally, trade issues continue to represent risks across all real assets. We think ongoing uncertainty on this front will likely mean that market volatility will remain elevated.


Portfolio context for real assets and real estate

Global real assets and real estate, particularly those not correlated to downstream commodities, are a good source of idiosyncratic risk, which helps embed more diversification into portfolios.

Given our expectations on the business cycle, we think long-term rates have limited room to rise significantly from here. We like public real estate and real assets as a defensive growth alternative to market-cap-weighted indexed equity exposure that also provide a hedge against an upswing in inflation expectations from current low levels.

Real assets can provide income for institutional portfolios. We prefer sourcing income in real assets as opposed to lower quality corporate debt.

Liquidity remains a concern. Given that private market access is a key requirement for many sectors of the real estate and real asset markets, we recommend investors maintain their long-term strategic asset allocation split between public and private assets.

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This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.

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. 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. Foreign 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 excludes 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 suitable 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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This information does not constitute investment research as defined under MiFID. In Europe this document is issued by the offices and branches of Nuveen Real Estate Management Limited (reg. no. 2137726) or Nuveen UK Limited (reg. no. 08921833); (incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3BN), both of which entities are authorized and regulated by the Financial Conduct Authority to provide investment products and services. Please note that branches of Nuveen Real Estate Management Limited or Nuveen UK Limited are subject to limited regulatory supervision by the responsible financial regulator in the country of the branch.