Nuveen’s Investment Strategy: Betting on Small-Cap Stocks
Global investment firm Nuveen is focusing its attention on U.S. small-cap stocks, anticipating that tariffs and potential tax cuts under President Donald Trump will provide an uplift. The firm’s Chief Investment Officer, Saira Malik, expressed these insights during the Reuters Global Markets Forum.
Small-Caps: An Attractive Investment Opportunity
Malik highlighted the allure of small-cap stocks, noting their valuation as significantly lower compared to large-cap stocks. She stated, “We like small caps because they’re very cheap versus large caps.” Additionally, she emphasized the benefits of including small-cap stocks in investment portfolios, as they tend to concentrate on domestic markets and consumers.
Nuveen’s Strong Market Position
Based in Chicago, Nuveen manages approximately $1.3 trillion in assets and is a unit of TIAA, which counts many university professors among its clients. Malik pointed out that the pledges made by Trump regarding tariffs could serve as a catalyst for the small-cap segment, which she described as "chronically undervalued." This presents a potential opportunity for these stocks to catch up during the next phase of the ongoing market rally.
Factors Favoring Small-Cap Stocks
According to Malik, a strong dollar provides an additional advantage for small-cap stocks, negatively affecting multinational corporations while fostering an environment conducive to deal-making. In a recent performance update, the Russell 2000 reported a 10% increase for 2024, significantly trailing the S&P 500, which surged by 23%, driven by mega-cap growth stocks. The small-cap index did experience a boost following the presidential election in November.
Economic Outlook and Challenges
As the outlook for equities develops, Malik acknowledged potential challenges, including the prospect of the 10-year Treasury yield surpassing 5%. She suggested that this could create obstacles for the next upward movement in the stock market, with higher volatility likely as investors seek clarity regarding Trump’s policy initiatives.
Furthermore, she anticipates that the U.S. Federal Reserve will implement two rate cuts this year, driven by moderating inflation, despite the inflationary pressures posed by tariffs.
Global Perspectives: Opportunities in Japan and India
Malik expressed optimism regarding Japan’s market, while also finding India intriguing due to its promising growth outlook, despite elevated valuations. However, she indicated that Nuveen would prefer to see additional measures to stimulate the Chinese economy and boost consumer spending in response to potential U.S. tariffs before making significant investments in that region.
By strategically investing in small-cap stocks and remaining vigilant about global market shifts, Nuveen is positioning itself for potential gains, championing a diversified approach under Malik’s leadership.
