2018 investment outlook - rethinking...

NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION AND NOT FOR USE BY RETAIL INVESTORS. PLEASE REFER TO DISCLOSURES FOR IMPORTANT INFORMATION.

2018 Investment Outlook

SEPTEMBER 2018 ROBERT C. DOLL, CFA | Senior Portfolio Manager, Chief Equity Strategist

22018 Investment Outlook – Ten Predictions

FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION AND NOT FOR USE BY RETAIL INVESTORS.

2018 outlook

Biggest risks• Inflation

• Protectionism

• China policy misstep

2017 2018

1. Economy Good, accelerating from 2016 Good, decelerating into 2019

2. Inflation Very low, flat Low, rising

3. Interest rates Very low, flat Low, rising

4. Earnings Exploding expectations Meeting expectations

5. Valuations Higher Flattish

6. Policy Anticipating tax cuts Realizing tax cuts

7. Sentiment Skepticism Optimism

8. Confidence Rising Flat, at high level

9. Political backdrop Messy Messier

10. Stocks Straight up “Bumpy” up

11. Stock returns Double digits Single digits

12. Consistency Every month up A few down months

13. Bad day Flat day Down day

14. Bad performance Make less money Lose money

15. Asset allocation Stocks up more than bonds Stocks up some, bonds down some

A slightly more difficult climb ThemesNearly perfect less than perfect

Skepticism optimism

Smooth gallup bumpy grind



Historical EPS growth with consensus estimates

Stocks enjoy a strong earnings tailwind

Data source: Credit Suisse, 25 Jun 2018. Used with permission.

-10%

-5%

0%

5%

10%

15%

20%

25%

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18E 2Q18E 3Q18E 4Q18E



-10%

0%

10%

20%

30%

40%

50%

60%

0 5 10 15 20 25 30 35 40 45Number of quarters

Source: Strategas Research Partners, 2017 data as of 31 Dec 2017. Used with permission.

Cumulative real GDP growth from prior peak for U.S. economic expansions

Average Rebound = 23%

Average Length

LongestEver

CurrentExpansion

Economic cycle is set to be the longest ever in the U.S.



Prediction 3

Unemployment falls to the lowest level in nearly 50 years as wage growth is the highest since the Great Recession

3%

4%

5%

6%

7%

8%

9%

10%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Data source: Cornerstone Macro, 31 Jan 1984 – 31 May 2018. Used with permission.

Lower unemployment should lead to increased wage inflation

– U.S. unemployment rate

– U.S. average hourly earnings

– Recessions

U.S

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Prediction 4

The yield curve flattens (but does not invert) as the 10-year Treasury yield reaches 3% for the first time since 2014

Data source: FactSet. Past performance is no guarantee of future results.

Interest rates likely to rise

1. Great monetary experiment ended; unwind becoming synchronized: The Fed is done; European Central Bank and Bank of Japan to end soon

2. World becoming less deflationary

3. Central banks: easing normalizing tightening

4. Robust economic data

5. Capacity utilization rising (especially labor)

6. Valuation

10-year U.S. Treasury yield• Low of 1.37% reached on July 8, 2016

• Recent high was 2.63% on March 13, 2017

• If the yield breaks through 2.63%, 3.00% is the next stop



Prediction 6

U.S. equity returns lag earnings growth for the first time in six years, the longest streak in decades

Data source: BofA Merrill Lynch, 1 Jan 1990 – 31 Dec 2017. Used with permission. Past performance is no guarantee of future results. It is not possible to invest directly in an index.

S&P 500 total return has exceeded earnings growthS&P 500 earnings growth

(% year over year)S&P 500

total return (%)1990 -7.6 -3.31991 -17.8 30.41992 18.3 7.61993 24.5 10.11994 16.2 1.31995 19.1 37.61996 8.9 23.01997 9.7 33.41998 -1.6 28.61999 15.1 21.02000 11.9 -9.12001 -20.8 -11.92002 6.1 -22.12003 15.5 28.72004 21.0 10.92005 13.7 4.92006 15.6 15.8

S&P 500 earnings growth (% year over year)

S&P 500 total return (%)

2007 -3.5 5.52008 -27.3 -37.02009 -1.7 26.52010 40.3 15.12011 14.7 2.12012 6.1 16.02013 5.7 32.42014 8.3 13.72015 -1.1 1.42016 0.5 12.02017 11.8 21.8



Prediction 8

Corporate capital expenditures increase at the expense of share buybacks

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Data source: Cornerstone Macro, 31 Dec 1959 – 31 Mar 2018. Used with permission. Entitlement programs consist of mandatory federal spending on programs such as Social Security and Medicare that are not included in congressional appropriation acts.

With tax reform, productivity could approach 2%

U.S. nonfarm productivity

Four

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5-y

ear

aver

age

– Recessions

2%?



$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

Total cost of entitlement programs per U.S. citizen

Federal deficit will haunt us, but not yet

Data source: Deutsche Bank, 1 Jan 1962 – 31 Dec 2016. Used with permission. Entitlement programs consist of mandatory federal spending on programs such as Social Security and Medicare that are not included in congressional appropriation acts.

Entit

lem

ent c

osts

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son



What to do?

1. Overweight equities (but could be bumpy); be willing to reduce into strength and/or inflationary signs.

2. Focus more on alpha, less on beta (active management outperforms, lower correlations, higher volatility).

3. Underweight interest rate sensitive securities (fed funds and longer-term rates should rise).

4. Keep a very careful eye on inflation.

5. Diversify geographically.

6. Overall returns are likely to be mediocre.

7. Consider absolute return products as 2018 progresses.



Where are we in the market cycle?

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” – Sir John Templeton

NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION AND NOT FOR USE BY RETAIL INVESTORS. PLEASE REFER TO DISCLOSURES FOR IMPORTANT INFORMATION.

Large Cap Equity Funds

SEPTEMBER 2018 ROBERT C. DOLL, CFA | Senior Portfolio Manager, Chief Equity Strategist



Fundamental researchSubjective analysis

• Business strengths and competitive advantage• Company management skill and strategy execution• Financial statement analysis and projections• Presence of a catalyst for change• Differentiation from consensus

We believe combining fundamental and quantitative research provides a more comprehensive view of companies, enhancing conviction when constructing portfolios.

Quantitative research Objective analysis

• Independent view on fundamentals and assumptions• Stock-specific opportunities and risks• Objective cross check on individual names• Portfolio risks and exposures• Timely factor analysis

Equity investment philosophy

+



BenchmarkHoldings

range

Tracking error range

(%)

Excess return/ market cycle

(target)(basis points)

Active share range2

(target)(%)

Beta range (target)

VehiclesInst SMA MF

Large Cap Value R1000 Value 90 – 1201 3 – 6 200 – 300 70 – 80 • • •

Large Cap Core R1000 90 – 1201 3 – 6 200 – 300 70 – 80 • • •

Large Cap Growth R1000 Growth 90 – 1201 3 – 6 200 – 300 70 – 80 • • •

Equity Long/Short R1000 ~100 long/~100 short n/a 300 – 5003 n/a 0.4 to 1.0

(0.7) • •

Equity Market Neutral T-bills ~100 long/~100 short n/a 400 – 600 n/a -0.2 to +0.4

(0.1) • •

Overview of portfolios managed

Not all strategies or funds are available at all firms. Please check with your firm for availability. 1 Positions for Retail Separately Managed Accounts range from 45 to 60.2 Active Share refers to the degree to which the manager’s stock selection differs from a benchmark index; the holdings of high active share portfolios differ from an index to a greater degree than a portfolio with lower active share. There is no

guarantee that a portfolio with high active share will outperform portfolios with lower active share or the benchmark.3 With a beta target of 0.7, the excess return of 300-500 bps for Equity Long/Short is comparable to the Russell 1000 Index at 70%.



Themes

Positive • Expansion-oriented• Reinvesting in growth with cash flow

• Domestically sourced earnings

• Beneficiaries of rising rates• Mid-cycle cyclical sectors

Negative • Recession beneficiaries• Negative free cash flow

• High foreign exposure

• Benefit from falling rates• Expensive defensives

Information technology • HP Inc.• Intuit

• MasterCard

Health care • Cigna• Humana

• United Health

Consumer • Best Buy• Target

Miscellaneous • AT&T• Discover Financial

Current themes and sector highlights

Source: FactSet, as of 30 Jun 2018. See nuveen.com for more information.

Sector preferences | Stock examples

Our views on themes in the economy and financial markets help inform the research process.



Average annualized total returns Morningstar rankings

Class A

Fund inception

date

Manager inception

date1

Without sales

charge

Withsales

charge Benchmark

Excess return

(difference)Morningstar

classification

Morningstarabsolute

rank

Morningstarpercentile

rank (%)

Nuveen Large Cap Value Fund NNGAX 8/7/96 6/24/13 13.51 12.29 10.87 2.64 Large Value 86/1,131 11

Nuveen Large Cap Core Fund NLACX 6/17/13 6/17/13 14.27 12.94 12.84 1.43 Large Blend 7/1,202 1

Nuveen Large Cap Growth Fund NLAGX 6/17/13 6/17/13 14.55 13.21 15.73 -1.18 Large Growth 636/1,385 45

Nuveen Equity Long/Short Fund NELAX 12/30/08 2/12/13 12.73 10.57 13.68 -0.95 Long/Short Equity 9/115 6

Nuveen Equity Market Neutral Fund NMAEX 6/17/13 6/17/13 5.05 3.82 0.42 4.63 Market Neutral 5/96 4

Mutual fund performance

Not all strategies or funds are available at all firms. Please check with your firm for availability. 1 Manager inception date is the date Bob Doll became portfolio manager for each Fund.Returns quoted represent past performance which is no guarantee of future results. Investment returns and principal value will fluctuate so that when shares are redeemed, they may be worth more or less than their original cost. Current performance may be higher or lower than the performance shown. Returns without sales charges would be lower if the sales charge were included. Fund returns assume reinvestment of dividends and capital gains. For performance current to the most recent month-end visit www.nuveen.com or call 800.257.8787. Additional performance for each of the Funds follows in this presentation and is available at nuveen.com.Morningstar Ranking/Number of Funds in Category displays the Fund’s actual rank within its Morningstar Category based on average annual total return and number of funds in that Category. The returns assume reinvestment of dividends and do not reflect any applicable sales charge. Absent expense limitation, total return would be less. Morningstar Percentile Rankings are the Fund’s total return rank relative to all the funds in the same Morningstar category, where 1 is the highest percentile rank and 100 is the lowest percentile rank.The Funds’ benchmarks include: Nuveen Large Cap Value Fund: Russell 1000® Value Index; Nuveen Large Cap Core Fund and Nuveen Equity Long/Short Fund: Russell 1000® Index; Nuveen Large Cap Growth Fund: Russell 1000® Growth Index; Nuveen Equity Market Neutral Fund: ICE BofA Merrill Lynch 3-Month Treasury Bill Index.

Manager inception date to 30 Jun 2018

Generosity Personal Anecdotes1. Developing a habit


2. “Write a check” vs. “Give a Life”

Generosity Personal Anecdotes

1. Developing a habit


3. Conspicuous Consumption, Inconspicuous Savings




4. Make it fun





4. Make it fun

5. Be open to the Spirit’s moments of challenge and invitation





4. Make it fun


6. Plan in place for last check to bounce?





4. Make it fun


6. Plan in place for last check to bounce?

7. Set a consumption ceiling/De‐clutter your life

Wisdom Principles for Wealth and Generosity

1. “Do not store up for yourselves treasures on earth, but do store up for yourselves treasures in heaven.”



2. God owns everything….SO, the question isn’t how much should I give, but how much should I keep?



2. God owns everything….SO, the question isn’t how much should I give, but how much should I keep?

3. Earth is not our home. We are “strangers” and “aliens” Have a “passing through” mentality

2018 investment outlook - rethinking...

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