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Trillion-dollar fund manager taps alternatives in yield hunt

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Investors should consider alternatives such as private credit as they search for positive yield in a world of low or negative interest rates, according to asset manager Nuveen LLC.

Investments such as commercial mortgage-backed securities, private credit for middle-market companies and preferred shares are among those that offer opportunities, said Tony Rodriguez, head of fixed income strategy at Nuveen, which has about $1 trillion under management.

“This environment requires a fairly well and broadly diversified portfolio,” Rodriguez said in an interview Monday. “There’s too high a cost to sitting in cash at zero. While 3% to 4% doesn’t sound awesome, it’s significantly larger than zero.”

More than $15 trillion of bonds globally come with negative yields after central banks slashed borrowing costs and rolled out unconventional policies to counter the impact of the pandemic. Some investors have flocked to stocks as a result, taking the view that there are few other viable paths to reasonable returns. That stance is sometimes encapsulated by the acronym “TINA” -- or “there is no alternative.”

In a report, Nuveen said alternatives have “tremendous untapped potential” to help institutional investors in particular with cash flow challenges.

The firm recommends building a portfolio around risk factors, noting that private credit, real assets, real estate and non-traditional segments of fixed income can provide both diversification and attractive income streams.

Rodriguez sees some opportunities in high-yield bonds rated BB or B from companies that have durable free cash flow prospects. He also likes sovereigns with solid balance sheets and “reasonable” currency policy, for instance in Eastern Europe.

Concentration risk is one of the biggest challenges for portfolios now, he said.

“It’s not easy on the surface necessarily to see the risks you’re taking,” Rodriguez said. “Don’t have a portfolio that surprises you down that road because you have a concentration of risks you weren’t aware of.”

Bloomberg News
Private equity CMBS CLOs Nuveen Leveraged finance Fixed income
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