Nuveen: real estate strategy through coronavirus volatility

Nuveen continues to focus on quality and defensive positioning, favouring properties located in growing cities, are technologically advanced and sustainable and that is driven by demographic trends. Nuveen is avoiding most retail, except mixed-use properties, and remain cautious on offices. Most forms of housing are still presenting opportunities, including senior living, as are health care and logistics facilities.

In an investment note, entitled Coronavirus, rate cuts and long-term portfolio positioning, Nuveen wrote that prior to the coronavirus outbreak, its investment committee had been cautioning investors that market returns would be lower over the medium to long term (i.e., the 2020s) than they were in the 2010s, which may call for rethinking an overall approach to building portfolios.

Nuveen explains:

“In our view, most investors we speak with are under-diversified, especially when it comes to fixed income areas such as emerging markets debt and allocations to alternatives, including real estate and real assets. Diversification goes beyond asset classes: We think many investors would benefit from also diversifying their time horizons. The attractiveness of less-liquid private assets can be enhanced during market turmoil by virtue of the fact that they are not marked-to-market on a daily basis.”

The Federal Reserve surprised markets last Tuesday morning with a rate cut, moving the fed funds target rate range to between 1.00% and 1.25%. While the central bank maintained that “the fundamentals of the U.S. economy remain strong,” it also acknowledged that the coronavirus presents “evolving” risks to its outlook.

The Bank of England followed with its own 50bps rate cut, from 0.75% back to the record low of 0.25%. The Bank’s Financial Policy Committee (FPC) also reduced the countercyclical capital buffer from 1% to 0%, which will free up an extra £190 billion of capital reserves for banks to lend to businesses stimulating liquidity.

Nuveen added:

“The primary source of uncertainty in our outlook is whether the virus spreads widely enough to trigger a genuine demand shock in the U.S. and Europe, meaning a pause in consumer spending and business operations. Our base case remains a steep dip in global growth in the first half of the year followed by a recovery starting in the third quarter, but we cannot be confident about a) the size of the dip and b) the timing of the recovery. So we caution our clients against trying to time tactical investments. In other words, we think the recovery, when it comes, will be relatively quick and sharp. We don’t advise trying to time an economic or market bottom.”

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