Midyear perspective 2023: A short and shallow recession

August 16, 2023 | 18 min read

Kamal Bhatia, CFA

Chief Executive Officer

Seema Shah

Chief Global Strategist

Todd Jablonski, CFA

Chief Investment Officer & Global Head of Multi-Asset and Quantitative Investments

Todd Everett

Global Head of Private Markets

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Forward

The global economic landscape faces challenges heading into the second half of 2023. With Europe weakening, China disappointing, and the U.S. approaching recession, markets are becoming more volatile, and seizing the right investment opportunities requires an increasingly active focus.

As we outline in this year’s Midyear perspective, the top of the 2023 investment theme list: The painful spike in inflation last year has meant that many global developed market central banks have been forced to aggressively tighten monetary policy. It is doubtful that any rate cuts will come this year, and the U.S. economy is still to face the lagged effects of policy rate increases to date.

For global investors, the year's second half will likely see equities face pressure from earnings declines. At the same time, riskier fixed income assets have yet to entirely discount the impending economic slowdown. And with the slowing growth outlook likely further depressing select alternatives, such as commodities and natural resources, preparing portfolios for the future will, more than ever, require innovative solutions aligned with client investment goals.

Despite the gloom, the second half of 2023 arrives with plenty of opportunity. For starters, any equity market pullback will likely be brief due to the short and shallow nature of the expected U.S. recession, and the subsequent swift recovery will demand an agile and proactive response from investors. Non-U.S. and and small cap equities may provide opportunities, benefitting from more attractive valuations, a structurally weaker USD and, in the case of Japan, an inflation renaissance.

In this evolving environment, look to high quality fixed income investments for stability and income. And although high quality duration is likely to outperform as the economy slows, as the short and shallow nature of the recession suggests that defaults in the broad credit space should not significantly spike—spreads offer reasonable compensation for the additional risk as investors move down the quality spectrum.

Alternative investments will also play a vital role in diversifying future portfolios beyond traditional equities and fixed income, and listed infrastructure investments can be sought to mitigate ongoing inflation risks.

Every day, the teams at Principal Asset Management leverage deep knowledge and experience to help you, our clients, stay ahead. I am exceedingly proud of the forward-thinking perspectives, insights, and solutions they are developing, and we look forward to working with you to achieve your own investment goals.

As we pass the mid-year mark, we hope the following perspectives empower you with knowledge and insights to make informed investment decisions. We greatly appreciate the trust and confidence you have placed in us, and we are committed to continuing our work together. Thank you for your continued support.

Kamal Bhatia, CFA

Global Head of Investments

A short and shallow recession

Seema Shah

Chief Global Strategist

Investors typically associate the concept of recession with drastic and prolonged asset price falls. Yet, the U.S. recession, presumably to start early next year, will look and feel very different from recent recessionary episodes. Not only is it likely to be shorter in duration, but it will also be of a much shallower magnitude, and any risk asset declines will be similarly short and shallow. As a result, investors need to think beyond just preparing portfolios for recession; they need to consider how to position for recovery.

The recession outlook

Despite the 525 basis points of U.S. Federal Reserve (Fed) policy tightening since last February, incoming economic activity data remains resilient, consumer demand remains strong, and jobs growth only just started to slow. (The latest BLS jobs print, from July, remains above the 175,000 jobs added level that would typically be considered consistent with solid growth.) The current data paints a picture of economic strength and, as such, many investors remain skeptical of recession forecasts.

However, current strength doesn’t invalidate impending recession. Monetary policy often works with long and variable lags, and given how quickly interest rates have been increased, policy has only been restrictive for a reasonably short period. In fact, real policy rates have only recently moved into positive territory, suggesting that the pressure on economic activity is just getting underway. With the Fed indicating that policy rates will remain elevated for a prolonged period, a sustained monetary policy drag is expected to exacerbate already tightening credit conditions, undermining the health of the U.S. economy.

U.S. recession probability in next 12 months
Federal Reserve Bank of NY, 1960–present

Line graph showing U.S. recession probability in the next 12 months

Source: Federal Reserve Bank of New York, Bloomberg, Principal Asset Management.
Data as of June 30, 2023.

Indeed, even as the U.S. economy looks robust today, most leading indicators are picking up on the looming impact of Fed hikes and emphatically signal recession:

The New York Fed’s own recession model suggests that the probability of recession within the next 12 months is the highest since the early 1980s.
The U.S. Treasury yield curve remains deeply inverted — a historically reliable recession indicator.
In addition to the 2s10s curve inversion being both material and sustained, other yield curve segments are also inverted, including the 3-month 1-year curve, which is typically consistent with recession risk within 12 months.
The Global Insights team’s forecasts are for the U.S. economy to fall into recession in 2Q 2024.

U.S. recessions through time

Since the Great Depression of the early 1930s, there have been 14 U.S. recessions. On average, recessions have lasted 14 months and resulted in a 2.5% drop in economic output. Some recent recessions have been very severe: the 2008 Great Recession lasted 18 months and resulted in a 4.3% GDP decline, while the unemployment rate more than doubled to 10 percent. That recession damaged the U.S. economy so significantly that it did not regain its pre-recession GDP level until 3Q 2012, and output still remains below its pre-2008 trend. In other words, to this day, the U.S. economy has not fully recovered from the Great Recession.

U.S. real GDP versus pre-GFC trend
Trillions of chained 2012 dollars, seasonally adjusted, 2003–present

Source: Bureau of Economic Analysis, Bloomberg, Principal Asset Management. Data as of June 30, 2023.

Not surprisingly, financial markets reacted very adversely to the Global Financial Crisis (GFC). The S&P 500 index fell 56.8% from October 2007 to March 2009, and it took four years to recover its losses fully. Similarly, during the dot-com crash in the early 2000s, the S&P 500 also dropped almost half its value and then took seven years to recover.

Will the looming recession and the financial market impact be as severe? The Federal Reserve has raised policy rates by 525 basis points in under 18 months, a comparable move to that seen in the run-up to the GFC. However, not every recession has to be a protracted economic disaster like the Global Financial Crisis, even if monetary tightening has been equally significant. The effectiveness of monetary policy and its impact on growth depends on the economy's interest rate sensitivity.

The 2008 recession (and, similarly, the 2001 dot-com bust) was particularly deep because of the significant debt-related excesses that had built up in specific segments of the economy, elevating the U.S. economy’s interest rate sensitivity. It took the economy several years to unwind and recover from those imbalances, resulting in multiple years of weak private sector activity, despite low interest rates.

Today, the U.S. economy’s interest rate sensitivity is much lower. Indeed, the unique starting conditions created by the post-pandemic environment mean that today's economy looks very different from the start of the dot-com bust and the Great Recession.

Lower interest rate sensitivity

Unlike the start of the 2008 recession, households and businesses today are not so extended. Lockdowns during 2020 and 2021 generated forced savings while government and central bank supports provided companies with access to credit and boosted household income. As a result, U.S. businesses and households have entered this slowdown with reduced leverage and elevated excess savings, promoting resiliency in the face of significant shocks.

Corporates

U.S. corporate debt to GDP
Total non-financial corporate debt as percent of GDP, 2003–present

Line graph of U.S. real GDP vs. pre-GFC trend from 2003-2023

Source: Bureau of Economic Analysis, Bloomberg, Principal Asset Management. Data as of June 30, 2023.

At around 100% of GDP, corporate debt is historically elevated and slightly higher than at the onset of the 2008 recession. However, looking at debt levels in isolation does not necessarily paint an accurate picture of financial risk. A record corporate debt binge during 2020 and 2021, in response to the Fed’s emergency corporate debt buying facilities, allowed companies to raise significant liquidity, shoring up their balance sheets and locking in record low interest rates. As a result, around 40% of today’s outstanding investment grade and high-yield corporate debt was raised during that time frame, enabling corporates to reduce leverage and for their interest burden to be at the lowest levels seen in over 50 years.

A substantial amount of corporate bonds outstanding could potentially pose a financial stability risk. If a large number of firms have to refinance their debt during a period of rising and elevated interest rates, the increased cost of servicing that debt can significantly increase the risk of corporate default spikes and, therefore, deep recession. However, over the next couple of years, rollover risk is limited. Just 7% of investment grade and 4% of high yield bonds mature in 2024, and an additional 10% and 11%, respectively, in 2025, by which time policy rates should be on their way to normalization.

Typically, in a recession, credit issues accelerate and exacerbate the slowdown. In the current situation, the health of corporate sector borrowing dynamics should prevent a sharp surge in defaults, muting the potential credit drag impact.

Households

Unlike in 2008, today’s household balance sheets are in fairly good shape. Household debt as a percentage of income, the debt service ratio, and delinquencies are meaningfully lower than at the start of the Great Recession, although they have risen since mid-2021. How have balance sheets remained healthy against sharply rising interest rates?

The majority of U.S. mortgages are at fixed rates, with many homeowners having taken advantage of the collapse in long-term interest rates in the aftermath of the pandemic to lock in low mortgage rates. As a result, the household sector has been less vulnerable to rising mortgage rates.
During the pandemic and subsequent lockdowns, an eviction moratorium, and federal and private forbearance policies on many types of debt left households better off, in part by allowing many households to forego interest payments.
Generous pandemic-related fiscal support injections, and reduced spending opportunities during the lockdowns contributed to a significant build-up of excess savings. By the start of 2021, the stock of excess savings had increased to around $2 trillion. As the economy re- opened, households dipped into this war-chest of savings to fund their purchases (reducing the need for credit card spending) as well as to pay down their debts.

Aggregate excess savings following recession
Trillions, months since start of recession

Source: Bloomberg, Principal Asset Management. Data as of June 30, 2023.

The difference between the post-pandemic period and post-2008 period (as well as other recessions) is stark. After the Great Recession, households were considerably more cautious with their spending, gradually building up their savings as they tried to repair their balance sheets. By contrast, in the current cycle, the significant increase in excess savings has both fuelled consumer spending and helped prevent a build-up in household indebtedness.

Looking forward

The uniqueness of the post-pandemic fiscal support has likely lengthened the “long and variable” lags of monetary policy, shielding the economy from higher policy rates through the past 18 months. For the corporate sector, with the corporate debt maturity wall still low for the next two years and thereby continuing to insulate many companies from higher interest rates, the lags of monetary policy are particularly extended. By contrast, however, the various support structures for households are now starting to expire. Pandemic-related fiscal support is ending, while much of the excess savings cushion has also now been exhausted, with only an estimated $0.23 trillion left. By early 2024, many households will be exposed to the full burden of higher interest rates.

Consumer spending will likely start to weaken over the coming quarters. Yet the impact on economic activity will be partially offset by still-strong corporate spending, limiting the forecasted downturn to a short and shallow recession, extending two quarters, resulting in just a 0.4% drop in economic output, and only pushing the unemployment rate up to around 4%. For investors, this will likely be the environment of a soft recession.

Investor perspectives

Preparing portfolios for changing economic conditions, even periods of economic expansion, can be challenging. When the upcoming environment follows a “soft recession” that is brought about by fairly unique circumstances, it is researched, insightful, differentiated perspectives that can help set stage for some important rebalancing opportunities across the fixed income, equities and real estate investment spectrum, while also implying important benefits from diversification.

In Midyear perspectives, we asked senior investment leaders from across Principal Asset Management where they expected to find opportunities in the second half of 2023, and to highlight the investment themes that would be driving markets heading into 2024.

Multi-Asset:

Todd Jablonski, CFA

Global Head of Multi-Asset Investing

Real Estate:

Todd Everett

Global Head of Private Markets

Equities

Much of the equity market recovery from the October 2022 lows has been attributable to optimism about a “pivot” to a more dovish monetary policy. Despite financial markets anticipating the Fed’s latest policy hike was its last in the cycle, the central bank’s rhetoric remains cautionary and signals that rate cuts are unlikely this year. This has been further reinforced by even more aggressive hikes in the United Kingdom, a resumption of tightening in Canada, and the European Central Bank’s 425bps of rate hikes over the past 12 months.

Notably, the headline double-digit returns for the S&P 500 year-to-date mask much more anemic market conditions under the surface. This environment warrants a degree of caution among equity investors in the near term but also has created numerous and intriguing relative value and rebalancing opportunities across the capitalization spectrum, sectors, and regions.

Market breadth in the U.S. is strikingly narrow

Indeed, fewer than 10 of the most prominent mega-cap stocks have accounted for nearly all the index’s advance year to date—all driven by the common theme of their involvement (or aspirations) in artificial intelligence. Conversely, nearly all other sectors have delivered low single-digit returns at best. Interest rate sensitive sectors—financials, real estate, utilities—remain in negative territory, as one might expect amid tight credit conditions.

Most stocks remain in bear market territory, especially among small- and mid-caps

Many of these companies have already priced in a high degree of recession risk and have adjusted to tighter credit conditions, and therefore, seemingly offer compelling relative valuation and recovery opportunities. They are likely less susceptible to future cyclical volatility or further rate hikes, especially compared to the handful of long-duration growth mega-caps that have dominated.

Reshoring is altering the international landscape

The much-anticipated China reopening has disappointed to the downside, and local institutions have been “encouraged” to favor buying stocks of State-Owned Enterprises (SOEs) over private enterprises, another discouraging sign for foreign investors. Meanwhile, some “green shoots” and a broadening of opportunities in Europe, Latin America, and South-East Asia are appearing. Japan warrants special mention for its significant recent progress in improving governance and capital allocation across a growing number of companies.

Fixed Income

With moderating inflation and slowing economic data, central bank policy on balance should start to shift away from aggressive action toward a period of measured observation. This shift in posture will likely afford time for a slowdown in underlying growth to be better reflected in the economic data, while continuing to challenge policymakers as they attempt to reign in inflationary pressures while avoiding a recession. With several historically reliable economic indicators suggesting that a recession is increasingly probable over the next few quarters, our base case continues to reflect a view that any economic contraction will be short and shallow.

This outlook sets the stage for fixed income to deliver attractive results for investors across a range of asset classes, particularly high-quality sectors, which tend to deliver the most consistent returns on a risk-adjusted basis in the early stages of a recessionary period.

Mortgage-Backed Securities (“MBS”)

Recent technical pressure in the sector represents an opportunity for investors over the longer run. Agency MBS enjoy a government guarantee of credit risk, which should bode well if the economy slows into a recession in the coming quarters. Fundamentals remain strong with no refinancing risk based upon current rate levels and high implied interest rate volatility, which will be a tailwind for the sector thanks to reduced option costs if it normalizes.

Multi-asset

Multi-asset investors understandably entered 2023 with a fair dose of pessimism. Over the past five decades, 60/40 portfolios had delivered 9.4% annual returns, marginally below the S&P 500’s 10.9% return—but with much lower volatilities, part of the reason multi-asset strategies had become so attractive for investors with a limited risk budget. 2022, unfortunately, saw both stocks and bonds deliver negative total returns as well as the largest annual loss for the 60/40 portfolio since 1973.

2022’s abysmal performance raised a chorus of calls for “the death of the 60/40 portfolio,” with investors concerned that multi-asset portfolios’ risk efficiency benefits may be fundamentally reduced. However, before concluding that the 60/40 is dead, it is important to understand the drivers of stock-bond correlation and whether the 2022 rise was, perhaps, just a temporal event.

Receding inflation and the likely end to the Fed’s hiking cycle suggest the macro environment will likely put downward pressure on stock-bond correlations as growth takes the driver’s seat. Indeed, the uncertainty around the growth outlook presents a challenging environment for investors, with market expectations jumping between hard-landing and soft-landing scenarios in 2023. Our forecast for a short, shallow recession further implies benefits from diversification.

Accordingly, stock-bond correlations have started to fall. 2023’s correlation decline adds to the argument that 2021-2022 was an anomaly rather than a permanent shift in regime. Lower correlations and higher bond yields make multi-asset portfolios attractive again for investors seeking risk-adjusted returns.

Our multi-asset strategies today argue for a cross-asset neutral stance. A short and shallow recession implies that the window for increasing exposure to equities at attractive valuations will be small and investors should avoid the pitfalls of attempting to time market troughs. Bonds will provide important stability during the coming economic slowdown, and we keep our overweight exposure to U.S. Treasurys, mortgages, and investment grade credit, recognizing that the environment is ripe for outperformance by longer-duration, high-quality assets.

Real Estate

Commercial real estate is currently in the eye of a central-bank induced storm, with higher interest rates exerting downward pressure on values. We expect relief and stabilization once the U.S. Federal Reserve rate tightening cycle ends, but real estate values will stay pressured until signs of a pivot emerge. Until then, investors should remember that past cycles have shown that short-term declines in real estate valuations offer compelling long-term opportunities. Whether it was the savings & loan recession, the dot-com bust, or the global financial crisis, private equity real estate performance post-trough was highly compelling, achieving double-digit returns in the five years that followed.

Investors should be preparing to take advantage of the 2024 and 2025 vintages in real estate, however, with interest rates not expected to retreat to the lows in the last cycle, strategy and property selection will be crucial to performance. For property type selection, we believe landlord pricing power should be most pronounced in the structurally resilient property types and market locations where secular trends in demographics, infrastructure, and advances in technology and innovation drive tenant demand.

Our longer-term outlook strongly favors investment strategies in the structurally driven property types of industrial, self-storage, residential, data centers, life science/medical office, and necessity retail. Investors seeking immediate exposure to real estate or to ongoing dislocation could consider debt capital opportunities—private and public—where spreads, coupons, and credit offer core to core-plus potential returns with the benefit of subordinated equity risk.

Real Estate Investment Trusts (“REITs”)

Public REITs provide an interesting opportunity relative to private real estate markets and public equities over the next one to three years. As is typically the case, public REIT markets lead private real estate, and since the start of the Fed rate hiking cycle, REITs have led on the way down. Investors should expect that they will also lead on the way up, and over the past three quarters, this trend has started.

Although investor concern about commercial office properties is warranted, office REITs make up a small portion of the overall public real estate universe. The asset class's low-levered, defensive balance sheets and a mixture of property types should be supportive in a macro environment of tighter credit conditions and slowing growth.¹

With historically cheap relative valuations to both equities and private real estate providing an attractive entry point, public REIT markets are poised for future outperformance. Historically, REITs have started a new return cycle of strong absolute and relative returns versus stocks late in a rate hiking cycle and after long-term real yields have peaked. While tighter lending conditions and negative sentiment towards real estate remain a headwind, investors should watch for signs of peaking rates and green shoots of improving real estate capital markets as catalysts for public REIT outperformance relative to equities.

Listed Infrastructure

While the asset class has significantly underperformed broader global equities to start the year, investors now face an attractive entry point into listed infrastructure given cheaper relative valuations. Though both asset types may still see negative absolute returns as the economy weakens, infrastructure stocks should benefit from more resilient fundamentals, as infrastructure businesses deliver essential services, where demand is relatively insensitive to economic cycles. Contractual and regulatory protections enable infrastructure companies to operate from positions of financial strength in various macroeconomic environments. While higher interest rates are having a modest impact on earnings, listed infrastructure companies generally employ longer-dated debt than other businesses.

The recent underperformance of listed infrastructure relative to unlisted strategies has little to do with a divergence in fundamentals and instead reflects a temporary dislocation caused by key differences in how the respective markets operate. There is now a case for listed infrastructure to outperform over the medium-term as unlisted values fall and/or as listed performance begins to recover.

Longer-term, we continue to expect the structural growth drivers for listed infrastructure companies, such as decarbonization and technological innovation, to remain tailwinds that outlast today's macro concerns.

¹ REITs are primarily comprised of structurally driven property types: industrial, senior housing, single-family rental, etc.) and only 3% U.S. traditional office.

Macro views

Asset allocation

Equities

Fixed income

Listed Infrastructure

Real estate

Disclosure

Risk considerations
Investing involves risk, including possible loss of principal. Past Performance does not guarantee future return. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Asset allocation and diversification do not ensure a profit or protect against a loss. Inflation and other economic cycles and conditions are difficult to predict and there Is no guarantee that any inflation mitigation/protection strategy will be successful. Equity investment options involve greater risk, including heightened volatility, than fixed-income investment options. Fixed-income investment options are subject to interest rate risk, and their value will decline as interest rates rise. Real estate investment options are subject to risks associated with credit, liquidity, interest rate fluctuation, adverse general and local economic conditions, and decreases in real estate values and occupancy rates.

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Law and Jurisdiction
These Terms of Use will be governed by and construed in accordance with Iowa law, and any disputes relating to these Terms of Use will be subject to the exclusive jurisdiction of the courts of Iowa.

If you have questions, please email us.

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Principal Global Investors, LLC, the issuer of this website, does not hold a Singapore Capital Markets Services licence or any Securities and Futures Commission licences in Hong Kong. This website contains general information only on investment matters and nothing in this website is intended to constitute an offer or inducement to provide capital markets products and services to Singapore investors or any investment services to Hong Kong investors.

The information in the following website should not be construed as investment advice or a recommendation for the purchase or sale of any security. The value of investments and the income from them may fall as well as rise. Principal Global Investors, LLC and the other member firms of Principal Global Investors (collectively, the “Firms”)* do not guarantee any investment results and there can be no assurance that the strategies employed will improve investment performance, and make no guarantee that a client’s investment objectives will be achieved and no warranties or representations, expressed or implied, are made by the Firms concerning the benefits of these strategies discussed herein. The information in this website has been developed internally and/or obtained from sources that the Firms believe to be reliable; however, the Firms do not guarantee the accuracy, adequacy or completeness of such information and are not responsible for any errors or omissions. This website also contains videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information.

It contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such nor should it be construed as specific investment advice, an opinion or recommendation. Products and services mentioned in this website may or may not be registered in your jurisdiction for retail distribution or suitable for all types of investors. The general information it contains does not take account of any investor›s investment objectives, particular needs or financial situation, nor should it be relied upon in any way as a forecast or guarantee of future events regarding investment or the markets in general. All expressions of opinion and prediction in this website are subject to change without notice. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security.

Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an investment decision. You should consider whether an investment fits your investment objectives, particular needs and financial situation before making any investment decision.

Access to this website and its content is only permitted for “institutional investors” in Singapore within the meaning given to that term in section 4A of the Securities and Futures Act 2001 (“Act”) or “Professional Investors” in Hong Kong within the meaning given to that term under the Securities and Futures Ordinance. It is not intended for any retail investors.

The website may contain information on funds that are registered as restricted schemes under the Sixth Schedule to the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations in Singapore. The offer, holding and subsequent transfer of shares are subject to restrictions and conditions stipulated under the Act and the units in those funds are not allowed to be offered to the retail public. The shares of these funds are being offered only on the basis of the information contained in the relevant Information Memorandum. The Information Memorandum is not a prospectus as defined in the Act and accordingly, statutory liability under the Act in relation to the content of prospectuses does not apply. The Monetary Authority of Singapore has not, in any way, considered the investment merits of the funds and assumes no responsibility for the contents of the website and/or that of the Information Memorandum.

It is your responsibility to be aware of and to observe all applicable laws and regulations of any relevant jurisdiction. If you are not an “institutional investor” in Singapore or a “Professional Investor” in Hong Kong you may not access this website and you should select the “I Do Not Accept” button below.

By selecting the “Accept” button below, and entering this website, you are representing and warranting that the applicable laws and regulations of your jurisdiction allow you to access the website and that you have agreed to these terms and confirm and represent that you are an “institutional investor” in Singapore or a “Professional Investor” in Hong Kong."

Principal Global Investors (Australia) Ltd. (ABN 45 102 488 068, AFS Licence No. 225385) ("we", "us", "our") is regulated by the Australian Securities and Investments Commission.

The information in this website, and on pages linked by this website, is general information only and is not intended to constitute financial product advice or a recommendation to buy, sell or hold any particular security or investment. It does not take into account any investor's investment objectives, particular needs or financial situation. Any investor should consider whether an investment fits their investment objectives, particular needs and financial situation before making any investment decision.

While the information on this website is updated from time to time, it is subject to change in the intervening period. None of Principal Global Investors (Australia) Limited or its related entities (together "Principal") guarantee the accuracy, completeness or timeliness of the information on this website. Information may become outdated and opinions may change, including as a result of new information becoming available or changes in the markets. To the extent permitted by law, Principal does not accept any responsibility arising in any way (including by reason of negligence) for errors in, or omissions from, this information.

We offer financial products only to wholesale investors (as defined in sections 761G and 761GA of the Corporations Act) and to persons investing through an investor directed portfolio service under the product disclosure statements that can be accessed from this website.

The information contained in this website is intended only for Australian residents and investors and is not intended for use in any country or jurisdiction where such use would constitute a violation of law. There is no intention to offer or sell products in countries or jurisdictions where such offer or sale would be unlawful under the relevant domestic law.

Protecting Your Privacy

At Principal Global Investors (Australia) Ltd, we give priority to protecting the privacy of your personal information. We do this by handling personal information in a responsible manner and in accordance with the Privacy Act 1988 (Cth).

If it is reasonable and practicable to do so, we collect personal information directly from you. How we collect your information will depend upon how you interact with us. We may collect it through application forms, telephone, email and internet contact, from correspondence with you or your consultant and in person.

The information collected may include what time you visited our website, how long you were on our site, if you've been to the site before, what web pages you visited, and what type of browser you used to access our website. This information is collected through the use of cookies.

Use of cookies on this site is outlined in the Principal Online Privacy Policies, Information Collected by Use of Cookies and Spotlight Tags. In accepting these terms and conditions, you accept the terms of the use of cookies from this site. You can configure your browser to accept all cookies, reject all cookies, or notify you when a cookie is sent. Refer to your browser instructions or help screens to learn about these functions. If you reject all cookies, you may not be able to use our web sites.

We may collect, hold and use personal information in order to process applications, administer the investments and provide related services. If you do not provide your personal information to us, we may not be able to process and administer your investment. We may also use your personal information to tell you about other products and services offered by us or other members of the Principal Financial Group. Please contact us if you do not wish to receive this ongoing information.

We may disclose your personal information to other related companies within the Principal Financial Group®, agents and other external service providers (who supply administrative, financial or other services), some of which are located overseas. Where this occurs, we take steps to protect personal information against misuse or loss however you should be aware that in the event the overseas recipient fails to handle the personal information consistently with the Australian Privacy Principles, we will not be accountable under the Privacy Act and you will not be able to seek redress under the Act. The countries this information may be disclosed to will vary from time to time, but may include Brazil, Chile, China, Hong Kong, India, Japan, Malaysia, Singapore, the United Kingdom and the United States and other countries where the Principal Financial Group® has a presence. A list of locations in which the Principal Financial Group® operates can be found at https://www.principal.com/about-us/our-company/company-overview/worldwide-locations. Our Privacy Policy contains information about how you can gain access to the personal information that we hold about you and seek correction of that information, subject to certain exemptions under law. Our Privacy Policy also contains information about how you may raise concerns regarding privacy with us and how we will deal with your concerns.

You can obtain a copy of our Privacy Policy by clicking on the link below:

Privacy at Principal Global Investors (Australia) Limited

By clicking "Accept", you consent to us dealing with your personal information in the manner set out in our Privacy Policy. You also acknowledge and understand that by providing such consent that we will not be required to take such steps as are reasonable in the circumstances to ensure overseas recipients of your personal information comply with the Australian Privacy Principles.

"Principal Financial Group is a global organization that operates in many different jurisdictions worldwide. Principal Financial Group’s diversified group of companies and affiliates provide comprehensive asset management solutions for institutional investors, investment funds and individuals in key markets around the world. Principal Financial Group has investment offices in the United States, [Mexico, South America, Europe, the Middle East, and throughout Asia]. Where appropriate, Principal Financial Group entities are registered with appropriate regulatory authorities in the jurisdictions in which they are required to be registered to carry on their respective business activities.

All products or services provided to you by any Principal Financial Group company shall only be available in the jurisdiction(s) within which the company providing the product or service is authorized to operate. The relevant Principal Financial Group company reserves the right to make the final determination on whether or not you are eligible for any particular product or service. If you choose to enter a website outside your country of residence, you are advised that it may not be legal in that jurisdiction for you to access or use the facilities available on that Site and the legal requirements of that jurisdiction may prohibit you from dealing or otherwise transacting in that jurisdiction.

Principal Financial Group makes no representation that the content of the site is appropriate for use in all locations, or that the transactions, securities, products, instruments or services discussed at this site are available or appropriate for sale or use in all jurisdictions or countries, or by all persons and entities. Nothing on this website shall be considered a solicitation for the offering of any investment product or service to any person in any jurisdiction where such solicitation or offering may not lawfully be made.

You may view, download for caching purposes only, and print content from the website for your own personal use, subject to the restrictions set out below and elsewhere in these Terms of Use.

No Guarantee of Timeliness
This website may contain videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions. The information and materials contained on this website, and the terms, conditions, and descriptions that appear, are subject to change. All content on this website is presented only as of the date published or indicated, and may be superseded by subsequent market events or for other reasons. In addition, you are responsible for setting the cache settings on your browser to ensure you are receiving the most recent data.

No Warranties
The information on this website has been developed internally and/or obtained from sources believed to be reliable; however Principal Global Investors and its affiliates do not independently verify or guarantee its accuracy or validity. The information and services provided on this website are provided ""AS IS"" and without warranties of any kind, either expressed or implied. To the fullest extent permissible pursuant to applicable law, Principal Global Investors disclaims all warranties, including, but not limited to, any warranty of non-infringement of third-party rights and any implied warranties of merchantability and fitness for a particular purpose. Principal Global Investors does not warrant, either expressly or impliedly, the accuracy or completeness of the information, text, graphics, links or other items contained on this website and does not warrant that the functions contained in this website will be uninterrupted or error-free, that defects will be corrected, or that the website will be free of viruses or other harmful components. Principal Global Investors expressly disclaims all liability for errors and omissions in the materials on this website and for the use or interpretation by others of information contained on the website. Subject to any contrary provisions of applicable law, no company in the Principal Financial Group nor any of their employees or directors gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way (including by reason of negligence) for errors or omissions on this website.

If you have questions, please email us.

Click ""Accept"" to indicate your acknowledgement and acceptance of Principal Global Investors Terms of Use and to continue."

"These Terms & Conditions explain certain legal and regulatory conditions and restrictions in relation to the Principal Global Investors (Europe) Limited website, and in relation to the Principal Global Investors Funds (‘the Funds’). This information may be changed by Principal Global Investors at any time without notice.

In these terms and conditions, references to 'Principal Global Investors' means Principal Global Investors (Europe) Limited or any affiliate of the Principal Financial Group, Inc. or Principal Global Investors, LLC.

Before you proceed, you must acknowledge that you have read, and agree to, our terms and conditions.

Information in relation to the Principal Global Investors Funds is available through this web site to institutional investors resident in the following countries of: Belgium, France, Finland, Germany, Guernsey, Ireland, Italy, Jersey, Netherlands, Spain, Sweden, Switzerland and the United Kingdom. By proceeding this far you are representing and warranting that you are an institutional investor resident in one of these countries. Not all of the Funds are available in all these jurisdictions, and investors are directed to the Country Registration document for detailed information. What follows is not an offer or invitation to acquire an investment to, and should therefore not be relied upon by, any person anywhere other than the countries noted. Persons in respect of whom such prohibitions apply must not access this web site. This web site is reserved exclusively for non-U.S. persons and should not be accessed by any person in the United States.

Yes, I certify to be an institutional investor and resident of a country listed above.

Cookies
Use of cookies on this site is outlined in the Privacy and Security Policy. In accepting these terms and conditions, you accept the terms of the Cookie Policy and the use of cookies from this site.

Legal Entity Disclosure and Regulation
In Europe by Principal Global Investors (Ireland) Limited, 70 Sir John Rogerson’s Quay, Dublin 2, D02 R296, Ireland. Principal Global Investors (Ireland) Limited is regulated by the Central Bank of Ireland.

In the United Kingdom by Principal Global Investors (Europe) Limited, Level 1, 1 Wood Street, London, EC2V 7 JB, registered in England, No. 03819986, which is authorised and regulated by the Financial Conduct Authority (“FCA”).

In Switzerland by Principal Global Investors (Switzerland) GmbH. This website is considered as advertising and information contained herewith be treated as such. Investors can obtain free of charge the prospectus, trust deed, the prospectus, the key investor information document (KIID), and the annual and semi-annual reports from the representative in Switzerland.

In Europe and United Kingdom, this website is directed exclusively at Professional Clients and Eligible Counterparties and should not be relied upon by Retail Clients (all as defined by the MiFID and FCA respectively). If you are viewing the material as a retail investor, you should seek independent investment advice before deciding whether the products and services in question are suitable to meet your investment needs and objectives, as the language has not been complied to a retail client standard.

Principal Global Investors Funds
Principal Global Investors (Ireland) Limited is the issuer of the Funds. Investments may only be made on an application form attached to a current prospectus and following receipt by the investor of the KIID in respect of the Fund in which they intend to invest. The latest version of the prospectus of the Funds is dated 14 December 2012.

For Real estate investors in the European Economic Area (“EEA”), this website and the information on it is only directed at persons who are professional investors for the purposes of the Alternative Investment Fund Managers Directive (2011/61/EU) (“AIFMD”), professional clients or eligible counterparties for the purposes of the Markets in Financial Instruments Directive (Directive 2014/65/EU) (“MiFID II”) or as otherwise defined under applicable local law and regulation and at whom this website and the information on it may lawfully be directed in any relevant jurisdiction (“Eligible Persons”). In relation to each member state of the EEA (“Member State”) which has implemented AIFMD (and for which transitional arrangements are not/ no longer available), this website may only be accessed and interests in Funds may only be offered or placed in a Member State to the extent that: (i) the relevant Fund is permitted to be marketed to professional investors in the relevant Member State in accordance with AIFMD (as implemented into the local law/regulation of the relevant Member State); or (ii) this website and its information may otherwise be lawfully distributed and the interests in Funds may otherwise be lawfully offered or placed in that Member State (including at the initiative of the investor). In relation to each Member State of the EEA which, at the date of accessing this website, has not implemented AIFMD, this information may only be distributed and interests in Funds may only be offered or placed to the extent that this information may be lawfully distributed and the interests in Funds may lawfully be offered or placed in that Member State (including at the initiative of the investor).

Persons who are not Eligible Persons, including but not limited to those individuals or other persons who fall within the FCA’s definition of ‘retail clients’, should not use or rely upon this website or the information contained therein and may not engage the services of Principal Real Estate or any of its affiliates, or invest in any Fund. Potential investors are advised that all or most of the protections provided by the UK regulatory system will not apply and that the UK Financial Services Compensation Scheme may not be available in relation to an investment in a Fund or separate account.

The contents of this website have not been verified or approved by any competent regulatory or supervisory authority. No liability, whether in negligence or otherwise, arising directly or indirectly from the use of the information or any part of it on this website is accepted and no representation, warranty or undertaking, whether express or implied, is or will be made at any time by Principal Real Estate or its affiliates or any of their respective advisers, directors, officers, employees, representatives or other agents (“Principal Agents”) for any information or any of the opinions contained herein or for any errors, omissions or misstatements.

None of Principal Real Estate or its affiliates or any Principal Agents makes or has been authorised to make any representation or warranties, whether express or implied, in relation to Principal Real Estate or regarding the truth, accuracy or completeness of any of the information contained on this website at any time. No representation or warranty is given by Principal Real Estate, its affiliates or the Principal Agents as to the achievement or reasonableness of, and no reliance should be placed on any projections, targets, estimates or forecasts contained in the information on this website. Furthermore, nothing contained on this website is or should be relied on as a promise or representation as to the future. No reliance may be placed by any person for any purpose whatsoever on the information or opinions contained on this website or on its completeness, accuracy or fairness at any time.

Principal Global Investors (Europe) Limited is not authorised by the FCA to directly deal with retail investors; any distribution of the Fund to retail investors in Europe is facilitated by fund distributors with which Principal Global Investors (Europe) Limited has entered distribution arrangements, pursuant to advice provided to investors by those distributors, based on the documents Principal Global Investors (Europe) Limited provides. Retail investors should not be provided with access to this website.

The name of the Swiss representative is ACOLIN Fund Services AG, Stadelhoferstrasse 18, CH-8001 Zürich. The name of the Swiss paying agent is Banque Cantonale de Genève, 17, quai de l’Ile, 1204 Geneva. Investors can obtain the prospectus, trust deed, the simplified prospectuses and the annual and semi-annual reports free of charge from the representative in Switzerland.
The value of units and the income from them may fall as well as rise.

Investments in the Funds are neither insured nor guaranteed by the US Government or the Federal Deposit Insurance Corporation and are not deposits or obligations of, or guaranteed by, Principal Global Investors.

No Solicitation
Nothing contained in this website shall constitute an offer or solicitation, in relation to units in the Funds or generally, in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised.

In particular, shares issued by the Company, and units in the Funds, have not been and will not be registered under the United States Securities Act of 1933 as amended or the securities laws of any state or political subdivision of the United States and may not, except in a transaction which does not violate US securities laws, be directly offered or sold in the United States or to any US Person. The Company will not be registered under the United States Investment Company Act of 1940 as amended.

This website is reserved exclusively for non-US persons and should not be accessed by any person in the United States.

No Investment Advice
The information in this website contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such nor should it be construed as specific investment advice, an opinion or recommendation. The general information it contains does not take account of any investor’s investment objectives, particular needs or financial situation, nor should it be relied upon in any way as a forecast or guarantee of future events regarding a particular investment or the markets in general. Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an investment decision.

You should also inform yourself as to (a) the possible tax consequences, (b) the legal requirements and (c) any foreign exchange restrictions or exchange control requirements which you might encounter under the laws of the countries of your citizenship, residence or domicile and which might be relevant to any investment, including the subscription, holding, transfer or disposal of units in the Funds

Delegation of Investment Management to Affiliates

Products upon which composite results contained in this material, if any, are based may not themselves be available in the United Kingdom and certain other jurisdictions; however, the underlying investment management capability can be made available to institutional investors subject to all applicable local regulations and restrictions. In connection with its management of client portfolios, PGIE may delegate management authority to affiliates that are not authorised and regulated by the Financial Conduct Authority. In any such case, the client may not benefit from all protections afforded by rules and regulations enacted under the Financial Services and Markets Act 2000.

Disclaimer
The information on this website is given by Principal Global Investors in good faith and has been derived from sources believed to be reliable and accurate as at their date. However, Principal Global Investors makes no representation or warranty of any kind for the accuracy or completeness of the information and it is under no obligation to update or correct any errors in the information after the date of publication. This website also contains videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions.

Subject to applicable law, Principal Global Investors and its affiliates and their respective directors, employees and associates do not accept any responsibility arising in any way (including by reason of negligence) for errors in, or omissions from, the information and do not accept any liability for any loss or damage, however caused, as a result of any person relying on any information on the website or being unable to access the website.

The Internet is not a totally reliable and secure medium of communication. Principal Global Investors accepts no liability for the security or confidentiality of information transmitted in this way and any such transmission of information shall be at your own risk.

The entire content of this website is subject to copyright with all rights reserved. You may not copy, reproduce, distribute or modify the content of this website without the prior written permission of Principal Global Investors.

No instructions for investment purposes will be accepted directly from this website or by e-mail.

If you accept these terms and conditions, click “Accept.”

You are about to leave PrincipalAM.com and be directed to our Japanese site, PrincipalGlobal.jp. If you wish to proceed, please click "Accept." If you would like to stay on PrincipalAM.com, please click "I do not accept."

You may view, download for caching purposes only, and print content from the website for your own personal use, subject to the restrictions set out below and elsewhere in these Terms of Use.

No Guarantee of Timeliness
This website may contain videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions. The information and materials contained on this website, and the terms, conditions, and descriptions that appear, are subject to change. All content on this website is presented only as of the date published or indicated, and may be superseded by subsequent market events or for other reasons. In addition, you are responsible for setting the cache settings on your browser to ensure you are receiving the most recent data.

No Warranties
The information on this website has been developed internally and/or obtained from sources believed to be reliable; however Principal Global Investors and its affiliates do not independently verify or guarantee its accuracy or validity. The information and services provided on this website are provided ""AS IS"" and without warranties of any kind, either expressed or implied. To the fullest extent permissible pursuant to applicable law, Principal Global Investors disclaims all warranties, including, but not limited to, any warranty of non-infringement of third-party rights and any implied warranties of merchantability and fitness for a particular purpose. Principal Global Investors does not warrant, either expressly or impliedly, the accuracy or completeness of the information, text, graphics, links or other items contained on this website and does not warrant that the functions contained in this website will be uninterrupted or error-free, that defects will be corrected, or that the website will be free of viruses or other harmful components. Principal Global Investors expressly disclaims all liability for errors and omissions in the materials on this website and for the use or interpretation by others of information contained on the website. Subject to any contrary provisions of applicable law, no company in the Principal Financial Group nor any of their employees or directors gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way (including by reason of negligence) for errors or omissions on this website.

If you have questions, please email us.

Click ""Accept"" to indicate your acknowledgement and acceptance of Principal Global Investors Terms of Use and to continue."

This website contains general information only on investment matters and nothing in this website is intended to constitute or form part of any offer or inducement to issue or sell, or any solicitation of any offer to subscribe for or purchase, any securities or investment products in the UAE (including the Dubai International Financial Centre) and accordingly should not be construed as such. Information in this website is not directed at you if we are prohibited by any law of any jurisdiction from making the information on this site available to you and is not intended for any use that would be contrary to local law or regulation. Products or services mentioned on this site are subject to legal and regulatory requirements in applicable jurisdictions and may not be available in all jurisdictions. Accordingly, persons are required to inform themselves of and observe any such restrictions.

The information in this website is being made available on the basis that the recipient acknowledges and understands that the entities and securities to which it may relate have not been approved, licensed by or registered with the UAE Central Bank, the Dubai Financial Services Authority or any other relevant licensing authority or governmental agency in the UAE or elsewhere in the Middle East.

The information in the following website should not be construed as investment advice or a recommendation for the purchase or sale of any security. The value of investments and the income from them may fall as well as rise. Principal Investor Management (DIFC) Limited and the other member firms of Principal (collectively, the “Firms”) do not guarantee any investment results and there can be no assurance that the strategies employed will improve investment performance, and make no guarantee that a client’s investment objectives will be achieved and no warranties or representations, expressed or implied, are made by the Firms concerning the benefits of these strategies discussed herein. The information in this website has been developed internally and/or obtained from sources that the Firms believe to be reliable; however, the Firms do not guarantee the accuracy, adequacy or completeness of such information and are not responsible for any errors or omissions. This website also contains videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions.

This website contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The information it contains does not take account of any investor’s investment objectives, particular needs or financial situation. Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an investment decision. You should consider whether an investment fits your investment objectives, particular needs and financial situation before making any investment decision.

Nothing in this website should be construed as investment, tax, legal or other advice.

The content of this website has not been approved by or filed with the UAE Central Bank or Dubai Financial Services Authority.

Access to this website is only permitted for “Professional Clients” as defined in the Conduct of Business of the Dubai Financial Services Authority’s Rulebook. If you are not a “Professional Client”, you may not access this website and you should select the “Decline” link below.

By selecting the “Accept” button below, and entering this website, you agree to these terms and confirm and represent that you are a “Professional Client”.