Five Pillars of Portfolio Construction for the New Year

Capping its 2022 outlook report on the macroeconomic climate as it will affect commercial property investment—an outlook summed up in the report’s title as Slower. But still pretty fast.—Nuveen sounds five portfolio construction themes for the coming year, spanning real estate, real assets and other alternatives. They include the following: 

Look for rebalancing opportunities. “The key word here is ‘rebalancing.’ The beginning of the year is a natural time to reassess long-term portfolio goals, adjust asset allocation if needed and rebalance portfolios based on market movements. But we’re aware that many investors don’t regularly rebalance, which could mean being exposed to unintended risks. Our view is that all institutional and individual investors should explicitly choose and manage their portfolio exposure risks in line with their long-term goals and the prevailing market environment.  

Balance economic growth and inflation risks. “We expect global economic growth to be a notch slower than it was in 2021, but still above the long-term trend. And we also think inflation pressures will continue through the coming year. We expect this combination to likely result in a multiyear trend of decent growth and some upward pressure on interest rates (perhaps somewhat similar to between 2016 and 2019). When it comes to ‘balance,‘ investors should focus on ‘growth + inflation’ investments rather than explicit inflation hedges.”  

Stick with that wider net for income. “We’ve been hitting this point for a long time and the basic message holds true: With ultra-low yields across traditional fixed income asset classes, investors need to expand their universe. As such, we suggest exploring different areas of the fixed income landscape, dividend-paying equities and alternatives such as real estate, real assets and private credit. In doing so, it is critical to understand the associated risks and to be deliberate in choosing those risks.”  

Benefit from ESG factor investing. “The acceleration of responsible investing themes and environmental, social and governance factors shows no sign of slowing down. And for good reason: At Nuveen, we believe ESG investing is not about excluding certain types of investments, but rather a tool to help examine opportunities as part of a broader approach designed to enhance our return generation and risk management processes.”   

Harness active management as the cycle ages. “In the coming years, we expect rising volatility and harder-to-find investment returns. This is an implicit argument for the importance of active management. Without exception, all members of our Global Investment Committee and portfolio management teams are finding investment ideas that are highly idiosyncratic and fast-moving. Selectivity, research, nimbleness and confidence can make all the difference.”