Nuveen Positive On High-Quality Equity, Bond Markets In 2024 (2024)

Amanda Cheesley Deputy Editor 21 December 2023

The Global Investment Committee of US-based Nuveen, the investment management arm of TIAA, has just released its 2024 outlook for asset classes.

Investors should think about overweighting fixed income in their portfolios to take advantage of current yields, according to thechief investment officer at Nuveen, Saira Malik.

Though bond yields have retreated from their cycle highs in October, Malik believes that investors can still take advantage of today’s yields by overweighting fixed income in their portfolios.

“Inflation is clearly waning and central bank hikes appear to be on hold, for now,” she said in the outlook. As we move closer to potential rate cuts in the back half of 2024, Malik anticipates a continued modest decline in Treasury yields, which should translate into return opportunities across higher credit quality segments of fixed income, particularly in municipal bonds and securitised assets.

“Municipal issuers are showing few signs of cracks given their fundamental health. Within the securitised space, non-agency mortgage-backed securitiesoffer wide spreads compared to history with little risk of prepayments given the rapid increase in mortgage rates,” she continued. “At the same time, investors may want to consider barbelling their traditional fixed income with sectors with floating-rate coupons.”Nuveen’s investment teams find opportunities in the higher-quality segments of floating-rate senior loans. “For those with a tolerance for less liquid assets, private credit continues to benefit from high starting yields and improved deal flow as we head into 2024,” Malik said.

“Given our expectation for modest spread widening, we have an overall neutral view towards investment grade and high yield markets, in which we favour the higher credit quality areas. Valuations look fair in emerging markets debt, but geopolitical risks could create headwinds,” Nuveen’s head of global fixed income, Anders Persson, added. Other wealth managers also favour bonds in 2024. Paris-based Indosuez Wealth Management, Carmignac, UK wealth manager Brown Shipley, HSBC Global Private Banking, UBS Global Wealth Management all see value in quality bonds in 2024. See more here.

Malik also thinks that sitting on cash could result in missed opportunities. Instead, she encourages investors to dollar-cost-average their way back into their strategic allocations, while tilting towards areas offering the best relative value.

Equities
Malik’s primary equity investment theme is reducing broad cyclical exposures and looking at high-quality companies with strong fundamentals and free cash flows that may be better positioned to withstand an economic deceleration. “Market gains have primarily come through improved corporate earnings in the second half of 2023, resulting in more compressed valuations. As such, despite select opportunities across global equity markets, we are retaining an overall neutral rating,” she said.

Due to valuation compression, Malik is slightly less positive towards US large caps than she was last quarter. Within this area, she is focused on dividend growers and high-quality growth areas, chiefly in technology sectors such as software and semiconductors. She also favours public real estate and public infrastructure equities.

“Geographically, we continue to favour the US over other developed markets,” Malik continued. “US corporate earnings appear to be further along the road to recovery, and the US offers better defensive characteristics in the face of a potential global economic slowdown.” Within emerging markets, she is wary of China given shaky growth prospects, but she sees value in Brazil, with favourable rates and inflation backdrop, and in Mexico, which is benefiting from the near-shoring trend. More broadly, Malik expects the dollar strength to be less of a headwind for emerging markets next year, but also believes that geopolitical risks could act as a headwind.

“Regarding private equity, we see more value and opportunities, and anticipate rising deal volume over the coming quarters,” she added.

Alternative investments
Additionally, Malik thinks that investors should move past the “60/40” approach to portfolio construction to take advantage of prospects offered by alternative investments. Private real estate remains under some pressure, but real estate debt should benefit from the rates' backdrop. She particularly favours private credit and sees a range of opportunities across real assets.

The firm’s weightings are skewed towards public and private real assets. Real assets may thrive during times of still-elevated inflation and also offer potential resiliency amid economic slowdowns. Public real estate and infrastructure investments offer value, and private infrastructure is enjoying solid tailwinds, Malik continued.

Nuveen’s global chief investment officer and head ofNuveenreal estate investments, Carly Tripp, favours US medical offices and global senior housing facilities, especially in the US and Japan. “Medical offices enjoy low vacancy rates, and both sectors face a restrained supply pipeline of new properties. Likewise, both should benefit from an ageing global population,” he said.

Nuveen’s head of global infrastructure, Justin Ourso, and head of public real assets and portfolio manager, Jay Rosenberg, findpublic infrastructure compelling, saying it should benefit from still-elevated inflation and interest rates. “We see the best opportunities in areas enjoying strong revenue growth (pipelines, waste, freight rail and European integrated utilities) and those benefiting from post-Covid reopening, such as Japanese passenger rail and airports,” they added.

“Private infrastructure should benefit from similar policy and business sector tailwinds as public infrastructure,” they continued. “Within the private space, our main areas of focus continue to be on energy transition investments, including solar investments in Korea and the US. We also see opportunities in data storage and connectivity investments that could capitalise on the growing trend of digitisation and artificial intelligence (AI),” they said.

“Lastly,farmland is an area of continued focus within real assets. This asset class tends to be much less affected by macroeconomic trends and can provide diversified sources of portfolio returns. In particular, we see compelling opportunities in US row crops, which are experiencing high demand relative to supply available,” they concluded.