Risk-on, but turning more defensive
Nuveen’s 2019 Outlook, published in early December, told investors to expect a tougher climb. Since then, we’ve experienced a selloff in stocks and other risk assets followed by a strong recovery in the first quarter. That might have been even a tougher climb than we envisioned, but the sort of volatility and uncertainty that investors experienced over the past few months is, unfortunately, pretty typical in the late stages of economic and market cycles. And it’s a reminder of why we encourage our clients to remain invested through times of volatility. Even so, we think we’re in for a challenging environment for the rest of 2019.
Nuveen’s Global Investment Committee (GIC) met in March to discuss key questions that drive the investment decisions we are making for our clients: What’s changed since the end of last year? Does the shift in global monetary policy create more opportunities or more risks? And, most important, how are we preparing our clients’ portfolios for the environment to come?
Here’s where we came out: We think that while some things have changed around the margins, our macro fundamental views remain largely consistent with what we said a few months ago: Global economic growth has downshifted in the U.S., Europe and China, but we are not forecasting an imminent recession. Indeed, we think it is more likely than not that the global economy will start to recover later this year. Likewise, monetary policy has grown more accommodative. At some point, easy policy may start to cause inflation problems, but for now we think the Federal Reserve and other central banks seem to be promoting a “good enough” economic backdrop to support financial markets.
Global economic growth is slowing. Monetary policy and the political backdrop are growing less certain. And volatility may rise. The rest of 2019 presents challenges, yet we believe the markets offer many opportunities. And we continue to find a variety of investment ideas for our clients.
This leads us to our main investment theme we are considering across portfolios: the need to remain risk-on to meet our clients’ long-term objectives, while also seeking to find more defensive opportunities. This equates to favoring reasonably priced growth in equities, different credit sectors in fixed income, tactical positioning in our alternatives strategies and other ideas you’ll read about in the following sections.
Above all, we think 2019 will continue to be an environment where selectivity remains critical. For example, we generally favor equity and fixed income opportunities in emerging markets, but also believe the idiosyncratic nature of those markets means investors need to look carefully, conduct the right research and diligently scrutinize risk and reward tradeoffs — themes that hold true across all investment areas the GIC covers. And if that sounds like an argument for active management, it is. In all of our investment approaches, we think research, risk management and nimbleness will be the difference-maker this year.