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2025 Outlook: Themes for a New Economic Landing
By: Saira Malik, Anders Persson, and Biff Ourso, Nuveen
The world is settling into a new normal where economic growth, inflation, and interest rates are likely to be structurally higher. This higher elevation will require a new approach to portfolio construction; Nuveen's Global Investment Committee offers themes for 2025 to help guide investors' thinking.
This is an excerpt from NCPERS Winter 2025 issue of PERSist.The world is settling into a new normal where economic growth, inflation, and interest rates are likely to be structurally higher. This higher elevation will require a new approach to portfolio construction; Nuveen's Global Investment Committee offers themes for 2025 to help guide investors' thinking.
Economic landing scenarios are subjective. And from our perspective, it feels like the post-pandemic global economy has fundamentally changed. Swings in consumer behavior, technological advancements, political shifts, global trade, and capital flows have created a world where inflation and monetary policy rates have settled into a new, higher-than-2020 equilibrium. This new, higher landing zone has significant implications in 2025 and beyond for how investors approach portfolio construction and find opportunities across asset classes.
Fixed income: best ideas
- Securitized assets and senior loans both offer solid value while avoiding duration risks.
- For municipal bonds, we particularly favor high yield municipals, which offer compelling yields and appear attractively valued.
Investment positioning
The global macroeconomic backdrop continues to favor fixed income investments. Most global central banks are in a slow easing mode. While inflation risks remain, they are less acute than earlier in the cycle. According to our upcoming EQuilibrium global institutional investor survey, only 28% of U.S. public pensions are planning to increase inflation mitigation strategies in 2025, as compared with 41% who were planning increases in 2024. We expect long-end interest rates to remain relatively elevated and largely range-bound over the course of 2025. But, critically, even if rates remain elevated, current yields still offer compelling income.
Given this backdrop, we think it makes sense to stick with an overall neutral duration stance (and investors still holding high levels of cash should consider lengthening duration). While the U.S. Federal Reserve and other central banks are cutting rates, we don't anticipate quick or dramatic declines. Note, however, that we think it makes sense to adopt a longer-duration stance in municipals given that the muni bond yield curve remains steeper than the U.S. Treasury curve.
Consistent with our views on duration, we have a generally unfavorable view toward U.S. Treasuries (we see better value elsewhere) and investment-grade bonds (spreads are tight and the duration profile is longer than we prefer). In contrast, we favor high yield (especially higher quality segments that can weather slowing growth), securitized assets (where asset-backed and commercial mortgage-backed segments offer value), and senior loans (which look increasingly attractive given the higher-for-longer rates environment). We are moving toward a more neutral view on preferred securities given recent strong performance, although we see value in $1,000 par securities where spreads offer value.
Municipal bonds enjoy strong and stable credit quality. State and local governments have solid balance sheets and ample liquidity; and the municipal market features attractive supply/demand dynamics. We see broad opportunities in tax-backed areas of the traditional tax-exempt market, as well as in taxable municipals for non-U.S. investors. We are focused on the high yield and specialty- and property-tax-backed areas.
We remain constructive toward private credit markets, especially if we only experience a mild economic slowdown. According to our upcoming EQuilibrium survey, U.S. public pensions picked private fixed income as their top debt sector for planned allocation increases over the next two years.
Real assets: best ideas
- In public markets, our best ideas include North American senior housing (demographic trends, plus opportunities for industry consolidation) and AI-related infrastructure, especially areas like electric utilities that have yet to fully realize potential benefits.
- Across private markets, we continue to focus on investments that align with climate and digital transformations, such as clean energy generation and data centers, as well as strong global demand for protein and healthy foods.
Investment positioning
We see value in public infrastructure, but the combination of recent strong performance and the potential for changes in U.S. regulatory and tax policies cause us to approach this area with increased caution. Within infrastructure, we see significant opportunities in data centers and investments associated with electrification, given increased demand for power.
For public real estate, we think fundamentals and earnings prospects look solid, and this area should benefit from still-solid economic growth. We see particular value in senior housing, where supply is limited and demand is growing.
We also see compelling opportunities across private real assets. Our infrastructure investment themes remain focused on ongoing digitization (such as AI-driven data centers) and clean energy transition (with a focus on electrification in the form of solar, battery storage and offshore wind). We also see opportunities in agribusiness investments, including investments that focus on food ingredient processing that can reduce in-store labor at quick-serve restaurants (a growing area of the market).
We are growing increasingly cautious towards commodity investments. The likelihood of a stronger U.S. dollar and prospects for higher tariffs are likely to be negatives for this area.
To read our full outlook, visit https://www.nuveen.com/global/insights/investment-outlook/annual-2025-outlook.
Disclosures: Past performance is not a guide to future performance. Investment involves risk, including loss of principal. The value of investments and the income from them can fall as well as rise and is not guaranteed.
Private equity and private debt investments, like alternative investments are not suitable for all investors given they are speculative, subject to substantial risks including the risks associated with limited liquidity, the potential use of leverage, potential short sales, concentrated investments and may involve complex tax structures and investment strategies.
This information does not constitute investment research as defined under MiFID.
Nuveen, LLC provides investment solutions through its investment specialists. GAR-GWP-4108763-0625
Bios: Saira Malik, CFA, is Head of Nuveen Equities and Fixed Income, Chief Investment Officer (CIO) and a member of the Executive Management Team. She leads a business with more than $1 trillion in assets under management across equities, global fixed income, EIC, municipal bonds, multi-asset strategies, private placements, public real assets and C-PACE lending, along with driving weekly market and investment insights and delivering client asset allocation views from across the firm's investment teams. Saira holds the CFA designation and graduated with a B.S. in Economics from California Polytechnic State University and an M.S. in Finance from the University of Wisconsin.
Anders Persson, CFA, is the fixed income chief investment officer and a member of the Nuveen Senior Leadership Team. He oversees all public and private global fixed income activities, including portfolio management, research, trading and investment risk management activities. Anders is also member of the Global Investment Committee and chairs the Global Fixed Income Investment Council. Anders graduated with a B.S. from Lander College and an M.B.A. from Winthrop University. He is a member of the CFA Institute and the North Carolina Society of Security Analysts.
Biff Ourso, CFA, is Global Head of Infrastructure for Nuveen, and a member of the Senior Leadership Team. He is responsible for leading Nuveen's global private infrastructure group. In this role he leads the strategic direction and execution of investment activities and funds in the agribusiness, clean energy, and diversified infrastructure sectors. Additionally, he is a member of Nuveen's Global Investment Committee. Biff graduated with a B.A. in Economics from Davidson College and holds the Chartered Financial Analyst® designation.
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