If the pandemic introduced drastic changes to everyday life, the economy and markets, the path out is presenting a whole new set of challenging dynamics.

Well into the second year of the health crisis, it’s remarkable that, amid the ongoing struggle with the coronavirus, we continue to see a meaningful economic resurgence. That said, fresh complications are emerging, as the heated pace of growth combined with a new set of U.S. policy priorities could have a major impact on the investment climate. Infrastructure, environment, health care—there are many ideas on the table, along with a slew of proposed taxes to help pay for them.

From a market perspective, the picture appears reasonably bright: Vaccination progress and stimulus are likely to help drive reopening and economic growth, with positive implications for corporate earnings and equities. At the same time, investors continue to worry about potential inflation and, by extension, the possibility of higher interest rates.

For individuals, planning may be particularly challenging, given the array of tax proposals on the table. Besides corporate tax hikes, they include a higher top individual income tax rate, treating capital gains like ordinary income, and reducing the estate tax exemption, among other things. Given narrow legislative majorities, we would expect some compromise, but the months ahead could be suspenseful.

Firm Developments

In this environment, informed perspective is particularly valuable, so we were delighted that Suzanne Peck joined us in January as the Head of Investments for Private Wealth Management. Suzanne has more than 25 years’ experience in asset management for individuals, foundations, endowments and family offices. She will focus on working with investment teams across our firm to provide thought leadership and investment solutions specifically for private clients.

Another matter that’s top-of-mind is our return to the office, and what the “new normal” could look like for our business and industry, as well as society at large. The well-being of our employees and clients remains paramount, and we intend to be flexible in our approach. As of this writing, we hope to have most personnel return to the office with some regularity beginning in September. Our doors are currently open and employees are gradually making their way back as they feel comfortable. Fortunately, we have been able to do our jobs on your behalf from our remote locations throughout the pandemic.

In This Issue

The latest Investment Quarterly includes articles on various topics of relevance in light of recent trends, including our investment views, approaching corporate engagement, the Bitcoin phenomenon and insights we have generated from data science during the health crisis. On the estate planning front, we explore the delicate issue of dividing assets among family members.

I hope you enjoy this issue of IQ. As always, we are ready to assist you in addressing an array of investment and planning needs. Please do not hesitate to contact your Neuberger Berman team if you have any questions about the current environment and how it may affect your personal circumstances. We thank you for the trust you have placed in us.

Highlights 2Q 2021

From the Asset Allocation Committee

We believe strong economic growth is likely over the next 12 months, supported by loose central bank policy, fiscal stimulus and high savings rates, while inflation may trend higher but remain at manageable levels.

Equities: U.S. large-cap stocks now appear fully priced, but small and mid-caps remain attractive. Despite strong recent results, value stocks seem likely to continue leading growth. We believe non-U.S. developed-market equities also provide opportunity, particularly in Japan, given its exposure to the global recovery and an improved focus on shareholder value.

Fixed Income: Although the upward move in longer-term interest rates has made investment-grade bonds less risky, yields remain low and volatility is likely as economic recovery proceeds. With improving fundamentals, high yield bonds offer more potential, while demand for municipals could increase with likely tax increases.

Emerging markets: Economic growth and commodity strength should generally benefit emerging markets. China and Asia equities stand out as sources of high-quality exposure to the global recovery. Although we favor hard currency debt, we are more cautious on local currency debt given higher inflation and a shift to tighter monetary policy.

Commodities: Commodities could provide exposure to a surge in pent-up demand as the economy improves. Gold and other precious metals could serve as a safe haven during near-term uncertainty.

Private Equity: Current deals are generally focused on robust businesses, with risk tied to valuation rather than the pandemic. Private equity managers’ ability to improve operations may be a key advantage in the current climate.

All views are over the next 12 months unless otherwise stated. See disclosures at the end of this publication, which include additional information regarding the Asset Allocation Committee and the views expressed.