For many Americans, conditions have improved markedly over the past 12 months, given the success of vaccinations, reacceleration of economic activity and a gradual return to normalcy in day-to-day life. For much of that time, the investment environment has also been fairly benign, as central banks and government stimulus, combined with business recovery, have helped support markets and reward many who avoided panic and “stayed the course” in their portfolios.
Ironically, as noted in our cover article, better real-world dynamics have in some ways heightened investment complexity, with surging growth contributing to inflationary pressures and fears about Federal Reserve policy shifts, even as key U.S. equity indices have reached all-time highs. Of course, we will take normalcy over lockdowns any day of the week, but as investors we have to be mindful of the pitfalls that may exist even in the sunniest of scenarios.
Consistent with our Solving for 2021 outlook (published in November and updated here), we remain constructive on equities overall as the economy recovers, and see the recent surge in growth shares, following significant outperformance of more cyclical and value-oriented stocks earlier this year, as supportive of maintaining portfolio diversification across style factors. Although their prospects are uncertain, current federal spending and tax proposals reinforce our emphasis on tax efficiency, while low yields and higher inflation underline the appeal of flexible approaches to generating potential income.
This issue of Investment Quarterly reflects our multifaceted approach, with topics ranging from the investment landscape, private equity, and environmental, social and governance investment considerations in municipal investing, to nonprofit board service and estate planning in advance of legislative change. I hope you enjoy the content and find it useful.
On an organizational note, I am delighted to share a recent addition to our team: Greg Khost has joined as the Head of Business Development for Private Wealth Management. Over the past 30 years, Greg has helped guide investment and advisory teams at leading firms in creating bespoke solutions for private clients, and I look forward to his leadership as we seek to expand our teams and enhance our services to meet your individual needs.
Finally, one happy byproduct of the rapid reopening has been the ability to venture back into the office, albeit gradually. All of our locations across the U.S. are now open. However, we are embracing the lessons of the past year and look forward to continuing to offer both in-person and virtual engagement opportunities.
We hope to see you soon. In the meantime, please do not hesitate to reach out to your Neuberger Berman team with questions about the markets, your investments, or planning strategies in the current environment.
Highlights 3Q 2021
From the Asset Allocation Committee
We believe strong economic growth is likely to continue over the next 12 months, with uncertainty around inflation and Federal Reserve policy potentially contributing to heightened market volatility.
Equities: U.S. small caps, as well as non-U.S. developed and emerging markets offer relative opportunity given their exposure to the global economic recovery. We hold a neutral 12-month view of U.S. large caps, leaning toward value and cyclicals, with defensive and growth stocks providing balance to portfolios.
Fixed Income: With low yields and a likely upward bias in interest rates, investment grade bonds generally offer limited return potential. We continue to favor non-investment grade fixed income, and particularly floating-rate loans, while emerging market debt valuations have improved in recent months.
Commodities: Commodities could provide exposure to a surge in pent-up demand as the economy improves, although some segments appear fully valued. Gold and other precious metals could serve as a safe haven during near-term uncertainty.
Private Equity and Real Estate: While private equity valuations appear elevated, a focus on operational improvements to businesses may create value away from potential public market volatility. Private real estate is enjoying tailwinds from economic reopening and inflationary pressures.
All views are over the next 12 months unless otherwise stated. See disclosures below, which include additional information regarding the Asset Allocation Committee and the views expressed.
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