In the fifth edition of its annual outlook publication, Solving for 2016, senior investors from Neuberger Berman, a global, employee-owned investment manager, provide insights on the current environment and what may lie ahead for equities, fixed income and alternatives, as well as key investment challenges for the upcoming year.
Overall, the contributors anticipate a modestly positive environment for risk assets, but with uncertainty tied to the impacts of monetary policy divergence, low oil prices, the strong U.S. dollar and China’s growth trajectory.
Solving for 2016 is available for download here.
Excerpt: CIO Roundtable: Sizing Up the Next Regime
Low growth, low rates, low inflation. This has been the pattern of global fundamentals over the past couple years, punctuated by episodes of elevated volatility. Are these dynamics changing? For this annual outlook, Neuberger Berman’s senior investment leaders engaged in a broad-ranging conversation exploring economic prospects, monetary policy and opportunities on a global basis.
Economic growth proved disappointing in 2015. What are you anticipating for 2016?
Erik Knutzen, Chief Investment Officer—Multi-Asset Class: The main tension throughout 2015 has been a tradeoff between improving growth expectations for the developed markets, and growth shocks associated with China and other emerging markets, as well as falling commodity prices. For 2016, the biggest question is where we are in the U.S., European and global economic cycles. And our belief is that there is still a ways to go, and that we will start seeing some pickup in growth in the U.S. and elsewhere in the developed world.
Joe Amato, Chief Investment Officer—Equities: I think we will look back on 2015 and see market weakness as a mid-cycle correction. It was a year that prolonged the transition of central bank policies, where China’s devaluation led folks to rethink the global growth outlook. In 2016, monetary policy will likely create a sloppy environment as investors adjust to the new rate regime, with growth and China still playing an important role.
Brad Tank, Chief Investment Officer—Fixed Income: The remarkable thing within fixed income is that almost nothing happened in terms of rate changes in the developed markets, reflecting the wait for growth. In 2016, a couple of factors will be important. One is the rise of U.S. short-term interest rates, which will likely be underway throughout the year. Another is where we are in the credit cycle. If we are still at mid-cycle, as we believe, that should portend well for some of the riskier parts of credit markets, such as emerging markets debt and high yield.
Anthony Tutrone, Global Head of Alternatives: In private equity, we’ve had several years of inflating asset prices and more aggressive capital structures. So, one positive that came out of the market volatility at midyear was a pullback in that aggressiveness, which is leading to more cautious capital structures and lower valuations. At the same time, the widening of spreads is likely to create opportunities in illiquid and distressed credits, and special situations. In hedge funds, performance has generally been poor, but we believe a lot of that was caused by idiosyncratic events that will not repeat in 2016. For active investors, this should present opportunities.
Neuberger Berman, founded in 1939, is a private, independent, employee-owned investment manager. The firm manages equities, fixed income, private equity and hedge fund portfolios for institutions and advisors worldwide. With offices in 19 countries, Neuberger Berman’s team is more than 2,100 professionals and the company was named by Pensions & Investments as a 2013, 2014 and 2015 Best Place to Work in Money Management. Tenured, stable and long-term in focus, the firm fosters an investment culture of fundamental research and independent thinking. It manages $US237 billion in client assets as of September 30, 2015. For more information, please visit our website at www.nb.com.