2019 Outlook: Expect a tougher climb
Staying invested as risks rise
Throughout 2018, Nuveen’s Global Investment Committee (GIC) suggested clients remain in a risk-on mode, even as we pointed to rising risks to our pro-growth outlook. We haven’t substantially changed our views that select opportunities still exist across markets, but we do acknowledge that conditions are likely to get more challenging from here.
We have been adjusting some of our portfolios to prepare for a more defensive environment but remain hyperaware of a critical point: Market conditions may shift, but our clients’ long-term investment objectives typically do not. So our 2019 GIC Outlook, Expect a tougher climb, attempts to answer a key question: How can we and our clients stay invested as the world gets tougher? (The short answer: Stay actively invested.)
We’ll start with the good news: We think global growth will slow in 2019, but we don’t believe the world’s major economies will enter recession. At the same time, we think financial conditions will be tighter around the world as interest rates rise and as we see growing trade restrictions. Important clarification, however: Slower growth and tighter financial conditions do not mean a “risk-off” world. At least not yet.
Likewise, as you’ll see in the following sections, our most senior investors think valuations for many risk assets (specifically equities and some fixed income credit sectors) are more attractive now than they were when we started 2018: Interest rates have risen, yields have climbed, credit spreads have widened and equity valuations have fallen. That creates opportunities.
As a result, in most cases our investment leaders are expecting modestly better returns across asset classes compared to what we saw in 2018. We are continuing to find good investment ideas across public and private markets. In sum: 2019 is likely to be a balancing act. Our investment teams are focused on finding opportunities to buy and own high quality assets—without becoming too defensive in their approach.
At our recent GIC meeting, however, we also spent quite a bit of time asking the question: What if we’re wrong? What happens if growth slows more than we expect or if geopolitical issues (such as rising trade restrictions or a messy Brexit) worsen? As stewards of our clients’ assets, we believe it is our obligation to ask these sorts of questions and find ways to prepare our clients’ portfolios for possible downside risk. We are looking more closely at defensive growth names in our growth equity portfolios—without undertaking a major rotation into “value” or other sectors. And we are focusing on higher credit qualities in some of our fixed income portfolios.
So what to expect in the New Year? Overall, we suggest our clients strike a balance between optimism and being defensive, to approach markets cautiously but remain invested and, above all, to work with an investment manager who has the tools,insights and flexibility to manage through what could be a challenging 2019.
We’d love to hear your views as well. We welcome the opportunity to talk about your portfolio goals and challenges and how we can better help you meet your goals. We encourage you to contact your Nuveen relationship manager with any feedback.