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climbing wall

2Q 2019 outlook

Global economic growth is slowing and volatility may rise. Expect a tougher climb in 2019.

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.

So, how are we investing in this sort of environment? Overall, Nuveen’s GIC believes that we remain in a risk-on world. The economic, market and credit cycle is long in the tooth, but it isn’t over quite yet. But there is an important caveat to our view: We find it highly improbable that the pace of gains we saw in the first quarter across many asset classes will persist in the coming months.

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.

Hill climbers
Take a look back at our 2019 Global Investment Committee Outlook

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Endnotes

Source:

1 Market and economic data from Bloomberg

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.


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.

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