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Playbook for Recovery

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A Playbook for Recovery from the COVID-19 Crisis


The COVID-19 pandemic has created the greatest global growth shock in more than 50 years. As we enter a new investment regime characterized by heightened uncertainty and risk, investors can benefit from outlining potential scenarios and thinking about how portfolios might be adapted for different environments.

View our Summary Playbook which includes a list of strategies to leverage in each scenario.
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View our Base-Case Playbook which includes our best ideas to navigate this market environment.
View Base-Case Playbook
Our Asset Allocation Committee’s Three Economic Scenarios
 
Number 1 
Base case: “U-shaped” recovery
Base case: “U-shaped” recovery
In this scenario, the virus peaks in the U.S. in May/June and subsequent outbreaks are contained as lockdowns are lifted. Unemployment rises through 15% before reverting gradually. The U.S. economy shrinks in Q2 and recovers to end 2020 6% smaller.
 
Number 2 
Bull case: “V-shaped” recovery
Bull case: “V-shaped” recovery
In this scenario, the virus peaks in the U.S. in April and subsequent outbreaks are contained as lockdowns are lifted. Unemployment rises to 10% but reverts quickly. The U.S. economy shrinks in Q2 and recovers to end 2020 3% smaller.
 
Number 3 
Bear case: “L-shaped” recovery
Bear case: “L-shaped” recovery
In this scenario, the virus takes longer to get under control and reinfections arise before we develop therapeutics or a vaccine. Unemployment reaches 24% and remains elevated. The U.S. economy shrinks in Q2 and again in Q3 and ends 2020 10% smaller, and growth remains slow through H1 2021.
In all cases, governments incur large fiscal deficits and central banks maintain high levels of stimulus and very low rates for longer.

Even in our Bull Case, U.S. GDP Shrinks By 3% in 2020
Estimated Path of U.S. GDP Growth

Estimated Path of U.S. GDP Growth Chart

Source: Neuberger Berman. GDP quarterly growth is presented annualized. For illustrative and discussion purposes only. Nothing herein constitutes a prediction or projection of future events or future market or economic behavior. The duration and characteristics of past market/economic cycles and market behavior, including length and recovery time of past recessions and market downturns, is no indication of the duration and characteristics of any current or future market/economic cycles or behavior. Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed or any historical results

 
Our Base-Case Playbook

Equities  |  Fixed Income  |  Alternatives
 
Equities

Quality Equities & Volatility Monetization

Quality companies appear to have more time, more cash and more resources to survive the downturn, adapt to the new environment and sustain dividends; select REITs with limited lockdown exposure may help sustain income and growth.

While volatility may decline from its peak in March, ongoing uncertainty is likely to keep it high: certain hedge fund and put-option writing strategies can trade volatility or monetize the volatility premium.



 
Fixed Income

Investment Grade Credit & Credit Opportunities

Low rates for longer will intensify the search for yield, and companies are likely to focus on deleveraging—favoring bondholders over shareholders in general. Investment grade looks particularly attractive across all scenarios: valuations appear attractive even in the bull case, and the Federal Reserve appears committed to supporting the sector in the bear case. Significant market dislocation and distress could lead to select opportunities in high yield and structured credit.

 
Alternatives

Private Markets & Uncorrelated Strategies

Private equity entered the crisis with substantial “dry powder” that can be used to help companies through the crisis. Significant market dislocation and distress could create opportunities in the secondary market for private equity funds and private debt. Certain uncorrelated hedge fund strategies may be less exposed to volatility in traditional markets, or able to trade or monetize that volatility.



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