Portfolio managers and strategists at Neuberger Berman and other asset-management shops expect more market volatility in the next few quarters thanks to the usual suspects: concerns with the Federal Reserve's easing strategies, economic growth prospects worldwide and mixed signals for corporate fundamentals. And noted economist Nouriel Roubini added to the debate over the strength of the emerging markets with a fairly critical outlook posted Monday.
The challenge for global investors "is managing the risk/return balance against a dynamic investment environment," Neuberger Berman explains in a recent report.
"The unprecedented involvement in the capital markets by central bankers has created a unique set of challenges to both managing risk and seeking opportunity," said Joseph Amato, president and chief investment officer of Neuberger Berman, which launched an emerging-markets debt platform over the past year and recently hired 22 professionals to focus on it.
Asset manager Glenmede, which has $22 billion in AUM, notes that U.S. markets continue to hit all-time highs, while also cycling back to economic health and Federal Reserve tapering.
"Obsessive parsing of speeches by Federal Reserve members is daily contrasted with economic releases to balance improved growth conditions against expected withdrawal of stimulus," said Jason Pride, director of investment strategy, in his weekly outlook published Monday.
In June, he notes, the federal government posted its biggest monthly surplus in five years, which shows the extent to which pressure has come off policymakers to address long-term budget concerns. Still, though the monthly surplus suggests budgetary healing, another debt ceiling limit approaches in two to three months, "just in time for investors to settle in after returning from the beaches."
Looking ahead in 2013 and into 2014, managers and strategists with Neuberger Bermann, which has total assets under management of $214 billlion, have outlined the following views:
- Large-Cap U.S. Equities: Attractive valuations on an absolute and relative basis, with expected acceleration this year; U.S. valuations today still look attractive vs. those of other markets.
- Small-Cap U.S. Equities: A continued positive outlook in anticipation of a pick-up in mergers and acquisitions; the asset class remains well positioned within the context of an improving domestic backdrop, while offering good exposure to the ongoing manufacturing renaissance.
- European Equities: Economic data could be hitting the bottom as equity-risk premiums reach more attractive levels, compared with places like the United States; the focus is shifting more to growth than sovereign risk.
- High Yield Spreads: Spreads should narrow with expected continued low defaults, and bank loans, attractive given their floating-rate structure, could provide an additional buffer in the context of more prolonged and pronounced increases in interest rates.
- Global Fixed Income Opportunities: There are opportunities in local-currency emerging market debt, high yield bonds and agency mortgages.
- Emerging-Market Equities: Caution remains appropriate, with a focus on company fundamentals; and the longer-term potential for emerging market equities remains intact.
Glenmede's Pride asks if emerging markets are "hitting a (Chinese) wall?"
The country is moving towards interest-rate liberalization. However, the analyst adds, investors should expect growth there to be "slower than the past decade, but still faster than most developed markets."
On the upside, the longer-term story – the rise of the emerging-market consumer – is still intact, he adds: "While emerging economies continue to face a number of difficulties, the evolution of their middle class remains on track as urbanization continues and governments reorient their policies to support this new consumer class."
