Check Out

Article was added to your cart. Do you want to check out now?

Asset Allocation Committee Outlook

Third Quarter 2014

  • Preference for equities over fixed income continues
  • Expectations reduced for U.S. government securities and municipals

Download Now

 Below-Normal Return Outlook Long-Term (10 Yr. +) Annual Return Outlook Above-Normal Return OutlookChange From Previous Outlook
  o + 
Global Fixed Income          
Bunds 10 Year          
Gilts 10 Year          
JGBs 10 Year          
U.S. Treasury 10 Year          
U.S. Investment Grade Fixed Income          
Investment Grade Corporates          
Agency MBS          
CMBS / ABS          
Municipals          
U.S. TIPS          
High Yield Corporates          
Emerging Markets Fixed Income          
EMD Local Sovereign          
EMD Hard Sovereign          
EMD Hard Corporates          
Return outlook higher than previous quarter
Return outlook lower than previous quarter
Return outlook essentially unchanged
 Below-Normal Return Outlook Long-Term (10 Yr. +) Annual Return Outlook Above-Normal Return OutlookChange From Previous Outlook
  o + 
Global Equities          
U.S. Large Cap          
U.S. Small Cap          
Master Limited Partnerships          
Developed Market—Non-U.S. Equities          
Europe          
Japan          
Emerging Markets Equities          
China          
Russia          
India          
Brazil          
Public Real Estate          
Return outlook higher than previous quarter
Return outlook lower than previous quarter
Return outlook essentially unchanged
 Below-Normal Return Outlook Long-Term (10 Yr. +) Annual Return Outlook Above-Normal Return OutlookChange From Previous Outlook
  o + 
Commodities          
Lower Volatility Hedge Funds          
Directional Hedge Funds          
Private Equity          
Return outlook higher than previous quarter
Return outlook lower than previous quarter
Return outlook essentially unchanged
 Below-Normal Return OutlookLong-Term (10 Yr. +) Annual Return OutlookAbove-Normal Return OutlookChange From Previous Outlook
 o+ 
Dollar      
Euro      
Yen      
Pound      
Swiss Franc      
EM FX (broad basket)      
Return outlook higher than previous quarter
Return outlook lower than previous quarter
Return outlook essentially unchanged

*The currency forecasts are not against the U.S. dollar but stated against the other major currencies. As such, the forecasts should be seen as relative value forecasts and not directional U.S. dollar pair forecasts. Currency forecasts are shorter-term in nature, with a duration of 1–3 months. Regional equity and fixed income views reflect a 1-year outlook.

The Committee members are polled on the asset classes listed above and these discretionary views are representative of an Asset Allocation Committee consensus.

Looking Forward

The Committee remains constructive on equities as a whole and anticipates a better global growth backdrop, after some near-term volatility. The risk environment for financial markets remains a highly debated topic, particularly in relation to growth, interest rates, valuations, geopolitical concerns and central bank policy. As a result, we believe it will continue to be a grinding environment for markets, with the potential for near-term volatility along the way. Global monetary policy remains accommodative across the U.S. Federal Reserve (Fed), European Central Bank (ECB), Bank of Japan (BoJ) and Bank of England (BoE), although the Fed and BoE appear to be moving closer to tighter postures. Geopolitical tensions between Ukraine and Russia appear to have declined following successful elections on May 25. While the Committee expects noise from the region periodically, the worst may be behind us.

In the United States, economic activity has picked up, as represented by Institute for Supply Management and regional Fed surveys, and improved labor market data. The Committee anticipates accelerating domestic economic growth throughout the year, with strong second quarter numbers following the downward revision of first quarter GDP to -2.9%.

Portfolio Positioning

Overall, the Committee’s longstanding preference for equities over fixed income remains intact, with slight changes on the margin including downgraded views to very underweight for U.S. government securities and underweight for municipal fixed income.

Second Quarter 2014 Review

The second quarter of 2014 followed a similar path as the first quarter, with wide sections of both equities and fixed income in positive territory quarter to date. Every asset class under review by the Asset Allocation Committee has delivered positive returns year to date, with real estate investment trusts and master limited partnerships leading the way.

Fixed income yields continued to decline during the quarter and are down considerably year to date, but have bounced back somewhat from their lows. U.S. investment grade and high yield bond indices are both posting solid returns quarter to date. Meanwhile, emerging markets debt, both local and hedged currency, was the strongest-performing fixed income sector both quarter and year to date.

Within U.S. equities, we witnessed a role reversal between large and small caps. On both a quarter- and year-to-date basis, large caps bested their small cap counterparts. Developed market non-U.S. equities, as represented by the MSCI EAFE Index, lagged slightly, but are still up approximately 5% year to date. Meanwhile, emerging markets equities rebounded and are now solidly in positive territory, delivering nearly 6% returns year to date.

Within the real and alternative asset classes, commodity prices have leveled out thus far in the second quarter after a strong first quarter.1

Performance: All Asset Classes in Positive Territory Year to Date

QTD and YTD a/o 6/24/2014QTDYTD
Barclays US Aggregate 1.68 3.55
Barclays Municipal Bond 2.26 5.65
Barclays US Aggregate Government 0.97 2.29
Barclays US Corporate Investment Grade 2.30 5.30
Barclays US Aggregate Securitized - MBS 2.07 3.69
Barclays ABS + CMBS 0.92 2.06
Barclays Global Inflation-Linked - US TIPS 3.38 5.40
Barclays US Corporate High Yield 2.49 5.55
Barclays Global Aggregate x USD 1.70 4.54
JP Morgan GBI-EM Composite 4.87 6.88
Russell 3000 4.09 6.14
Russell 1000 4.42 6.56
Russell 2000 0.30 1.42
Alerian MLP 12.26 14.36
MSCI EAFE 4.49 5.29
MSCI Emerging Markets 6.37 5.98
DJ UBS Commodity Index 1.36 8.44
FTSE NAREIT All Equity REITs 6.71 15.79
S&P 500 4.65 6.54

1 Note: All performance as of June 24, 2014.

This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types.

Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.

The views expressed herein are generally those of Neuberger Berman’s Asset Allocation Committee which comprises professionals across multiple disciplines, including equity and fixed income strategists and portfolio managers. The Asset Allocation Committee reviews and sets long-term asset allocation models, establishes preferred near-term tactical asset class allocations and, upon request, reviews asset allocations for large diversified mandates and makes client-specific asset allocation recommendations. The views and recommendations of the Asset Allocation Committee may not reflect the views of the firm as a whole and Neuberger Berman advisors and portfolio managers may recommend or take contrary positions to the views and recommendation of the Asset Allocation Committee. The Asset Allocation Committee views do not constitute a prediction or projection of future events or future market behavior. Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed. This material may include estimates, outlooks, projections and other “forward-looking statements.” Due to a variety of factors, actual events may differ significantly from those presented.

A bond’s value may fluctuate based on interest rates, market conditions, credit quality and other factors. You may have a gain or a loss if you sell your bonds prior to maturity. Of course, bonds are subject to the credit risk of the issuer. If sold prior to maturity, municipal securities are subject to gain/losses based on the level of interest rates, market conditions and the credit quality of the issuer. Income may be subject to the alternative minimum tax (AMT) and/or state and local taxes, based on the investor’s state of residence. High-yield bonds, also known as “junk bonds,” are considered speculative and carry a greater risk of default than investment- grade bonds. Their market value tends to be more volatile than investment-grade bonds and may fluctuate based on interest rates, market conditions, credit quality, political events, currency devaluation and other factors. High Yield Bonds are not suitable for all investors and the risks of these bonds should be weighed against the potential rewards.

Neither Neuberger Berman nor its employees provide tax or legal advice. You should contact a tax advisor regarding the suitability of tax-exempt investments in your portfolio. Government Bonds and Treasury Bills are backed by the full faith and credit of the United States Government as to the timely payment of principal and interest. Investing in the stocks of even the largest companies involves all the risks of stock market investing, including the risk that they may lose value due to overall market or economic conditions. Small- and mid-capitalization stocks are more vulnerable to financial risks and other risks than stocks of larger companies. They also trade less frequently and in lower volume than larger company stocks, so their market prices tend to be more volatile. Investing in foreign securities involves greater risks than investing in securities of U.S. issuers, including currency fluctuations, interest rates, potential political instability, restrictions on foreign investors, less regulation and less market liquidity. The sale or purchase of commodities is usually carried out through futures contracts or options on futures, which involve significant risks, such as volatility in price, high leverage and illiquidity.

Firm data, including employee and assets under management figures, reflect collective data for the various affiliated investment advisers that are subsidiaries of Neuberger Berman Group LLC. Firm history dates back to the 1939 founding of Neuberger & Berman (the predecessor to Neuberger Berman LLC).

This material has been issued for use by the following entities; in the U.S. and Canada by Neuberger Berman LLC, a U.S. registered investment advisor and broker-dealer and member FINRA/SIPC; in Europe, Latin America and the Middle East by Neuberger Berman Europe Limited, which is authorised and regulated by the UK Financial Conduct Authority and is registered in England and Wales, Lansdowne House, 57 Berkeley Square, London, W1J 6ER, and is also regulated by the Dubai Financial Services Authority as a Representative Office; in Australia by Neuberger Berman Australia Pty Ltd (ACN 146 033 801, AFS Licence No. 391401), which is licensed and regulated by the Australian Securities and Investments Commission to deal in, and to provide financial product advice for, certain financial products to wholesale clients; in Hong Kong by Neuberger Berman Asia Limited, which is licensed and regulated by the Hong Kong Securities and Futures Commission; in Singapore by Neuberger Berman Singapore Pte. Limited (Company No. 200821844K), which currently carries out the regulated activity of fund management under the Securities and Futures Act (Chapter 289) (“SFA”) and operates as an Exempt Financial Adviser under section 23(1)(d) of the Financial Advisers Act (Chapter 110) (“FAA”) of Singapore. Under the FAA, NB Singapore is exempted from Sections 25, 27 and 36 of the FAA, where its financial advisory service is provided to an accredited or expert investor (as defined in Section 4A of the SFA); in Taiwan to specific professional investors or financial institutions for internal use only by Neuberger Berman Taiwan Limited, which is licensed and regulated by the Financial Services Commission (“FSC”) and a separate entity and independently operated business, with FSC operating license no.:(102) FSC SICE no.011, and address at: 10F, No. 1, Songzhi Road, Taipei, Telephone number: (02) 87268280; and in Japan and Korea by Neuberger Berman East Asia Limited, which is authorized and regulated by the Financial Services Agency of Japan and the Financial Services Commission of Republic of Korea, respectively (please visit http:// www.nb.com/japan/risk_eng.html for additional disclosure items required under the Financial Instruments and Exchange Act of Japan). Except for the foregoing, this material is not intended for use or distribution within or aimed at the residents of any other country or jurisdiction. This document is not an advertisement and is not intended for public use or additional distribution in the following jurisdictions: Brunei, Thailand, Malaysia and China.

The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.