SHIFTING FOCUS
After the post-election tear delivered by U.S. stocks, the Neuberger Berman Asset Allocation Committee
(AAC) turns its attention to markets that appear to offer more attractive valuations, particularly in Europe
and the emerging economies, which have beneftted from a global economic upswing. At the same time,
the AAC is also looking for meaningful progress on U.S. tax reform following the new administration’s
recent failure to repeal and replace the Affordable Care Act. Indeed, markets generally are anxious about
the pace of legislative change in the U.S. and will be eager to see hard evidence of the administration
making headway with its initiatives.
ASSET ALLOCATION
COMMITTEE
OUTLOOK 2Q2017
NEUBERGER BERMAN
ABOUT THE
ASSET ALLOCATION COMMITTEE
Neuberger Berman’s Asset Allocation Committee meets every quarter
to poll its members on their outlook for the next 12 months on each of
the asset classes noted and, through debate and discussion, to refine
our market outlook. The panel covers the gamut of investments and
markets, bringing together diverse industry knowledge, with an
average of 24 years of experience.
COMMITTEE MEMBERS
Joseph V. Amato
President and Chief Investment Offcer
Erik L. Knutzen, CFA, CAIA
Chief Investment Offcer—Multi-Asset Class
Thanos Bardas, PhD
Portfolio Manager, Head of Global Rates
Alan H. Dorsey, CFA
Chief Risk Offcer
Richard Gardiner
Head of Investment Strategy Group
Chief Investment Offcer—Neuberger
Berman Trust Company
Ajay Singh Jain, CFA
Head of Multi-Asset Class
Portfolio Management
David G. Kupperman, PhD
Co-Head, NB Alternative
Investment Management
Ugo Lancioni
Head of Global Currency
Wai Lee, PhD
Head of the Quantitative Investment Group
Director of Research
Brad Tank
Chief Investment Offcer—Fixed Income
Anthony D. Tutrone
Global Head of Alternatives
2Q2017ASSET ALLOCATION COMMITTEE OUTLOOK 1
Based on 12-Month Outlook for Each Asset Class
Market Views
As of March 16, 2017. See additional disclosures at the end of this material for additional information regarding the Asset Allocation Committee and the views expressed.
Below-Normal Return Outlook
12-month Outlook inLine with 5- to 7- Year
Annual Return Outlook
Above-Normal Return Outlook
FIXED INCOME
Global Bonds
Investment Grade Fixed Income
U.S. Government Securities
Investment Grade Corporates
Agency MBS
ABS / CMBS
Municipal Bonds
U.S. TIPS
High Yield Corporates
Emerging Markets Debt
EQUITY
Global Equities
U.S. All Cap
U.S. Large Cap
U.S. Small and Mid Cap
MLPs
Developed Market—Non-U.S. Equities
Emerging Markets Equities
Public Real Estate
REAL AND ALTERNATIVE ASSETS
Commodities
Lower Volatility Hedge Funds
Directional Hedge Funds
Private Equity
2 ASSET ALLOCATION COMMITTEE OUTLOOK2Q2017
Regional Focus
Fixed Income, Equities and Currency
As of March 16, 2017. See additional disclosures at the end of this material for additional information regarding
the Asset Allocation Committee and the views expressed.
Below-NormalNeutralAbove-Normal
REGIONAL FIXED INCOME
U.S. Treasury 10 Year
Bunds 10 Year
Gilts 10 Year
JGBs 10 Year
EMD Local Sovereign
EMD Hard Sovereign
EMD Hard Corporates
REGIONAL EQUITIES
Europe
Japan
China
Russia
India
Brazil
CURRENCY
Dollar
Euro
Yen
Pound
Swiss Franc
EM FX (broad basket)
2Q2017ASSET ALLOCATION COMMITTEE OUTLOOK 3
Since the election of Donald Trump as U.S. president, global markets have been transfxed by the events
unfolding in the U.S. Buoyed by promises of tax cuts, regulatory easing and increased infrastructure spending,
U.S. equities surged to new highs. At the same time, fears of the negative impact of “America frst” policies
outside the U.S. have yet to be realized, and concerns about trade wars, currency imbalances and rising
volatility have faded into the background—at least for the moment.
Erik L. Knutzen, CFA, CAIA
Chief Investment Offcer—Multi-Asset Class
But while U.S. stocks have been on a tear since the election, more
recently they have shown signs of pausing for breath, as illustrated by
a modest pullback in late March. Investors have been riding market
momentum—and it may continue for some time yet—but in our view,
the longer the rally continues, the greater the chances the market will
experience a correction.
Indeed, there does appear to be a growing disconnect between the
headlines and the underlying data, with positive sentiment seemingly
driving much of the recent fund fows as fundamentals lag. This shouldn’t
unnerve investors unduly, however; such disconnects happen often and are
part of the natural workings of the market. Against this backdrop, though,
investors may want to prepare themselves for the possibility of short-term
corrections while remaining alert to attractive buying opportunities.
GREAT EXPECTATIONS
Given the huge weight of expectations surrounding the election of
Donald Trump and the Republican congress, there is also the potential
for some disappointment at the pace of legislative change. Indeed, the
failure to repeal and replace the Affordable Care Act (aka Obamacare)
in March—with House Speaker Paul Ryan pulling the plug before it
even went to a vote—will only compound these concerns.The new
administration now is expected to focus its efforts on tax reform, with
markets keen to see evidence of progress sooner rather than later.
Infrastructure spending, meanwhile, appears likely to be placed on the
back burner and may not be passed until early next year.
We were particularly encouraged, however, by signs of a revitalized
U.S. Federal Reserve, which under Chair Janet Yellen is moving swiftly
and decisively to return interest rates to normalcy. As Brad Tank, our
CIO of Fixed Income, observed in a recent CIO Weekly, the Fed now has
the opportunity to be much more preemptive in its decisions to raise
rates, avoiding the need to chase infation later in the economic cycle.
Indeed, the confdent manner in which the most recent rate hike was
implemented cheered bond and equity markets alike. We believe there
will be two or three more rate hikes before the end of the year.
Meanwhile, global conditions have been steadily improving. In Europe,
the economy is slowly but perceptibly recovering after years of moribund
growth. Business and consumer sentiment are improving, and economic
indicators are ticking up. Euro zone PMIs recently hit a six-year high,
for example. Indeed, the European Central Bank is expecting economic
growth of 1.8% this year and something similar next year.
In Asia, Japanese equities have been benefting from the weaker yen and
the upturn in global growth, even as questions remain about the progress
of prime minster Shinzo Abe’s economic reform program.Elsewhere in
Asia, concerns about a hard landing in China are on the back burner with
net capital infows into China turning positive in February for the frst
time in three years, according to the Institute of International Finance.
Emerging markets, more broadly, are enjoying a renaissance, with
companies seizing the opportunity to grow their businesses more rapidly,
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