Nuveen Real Assets: challenging macro backdrop supports defensive sector focus in 2020

Mike Sales, CEO of Nuveen Real Assets and Real Estate says the broad macro backdrop continues to look somewhat challenging for both public and private real assets, which is supporting its focus on the defensive areas of the real asset markets. He explains:

“Easier global monetary policy has been promoting additional liquidity, which has been a plus. However, slow global growth means that downside risks remain relatively high. Geopolitical uncertainty (including in the Middle East, Hong Kong and Chile) has added to volatility.”

There are four key areas in the public and private real asset markets where Nuveen’s Mike Sales sees opportunities:

  • “In public markets, defensive growth areas look more attractive than more cyclical sectors. REITs and listed infrastructure performed well in 2019 and have income and stability characteristics that should continue to appeal to investors. We have an especially favourable view toward the logistics and data centre industries;
  • “Within public infrastructure, we like utilities and toll roads and prefer more highly regulated utility companies with no or low exposure to commodity prices;
  • “On the private real assets side, farmland and timberland asset values remain supported by low global interest rates. However, issues such as trade volatility, the multi-year drought in Australia and the expansion of African Swine Flu in Asia require investors to approach these asset classes with careful selectivity;
  • “Although we continue to be constructive on agribusiness private equity generally, broad valuations appear rich with debt levels creeping higher. Discipline and sourcing remain critical.”

Rising interest rates would work against defensive positioning in the public real asset space, Sales added. “Likewise, stronger-than-expected growth would boost the more cyclical areas of the market. Additionally, trade issues continue to represent risks across all real assets and so, we think ongoing uncertainty on this front will likely mean that market volatility will remain elevated.”

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