IANNUAL STRATEGY OUTLOOK FOR 2022 by Principal Financial Group

Executive Summary

Global outlook: Slowing growth but a world in better health. We expect the global economy to grow at a slower pace in 2022 as fiscal and monetary tailwinds fade. Inflation, supply chains, and central banking policies will be key for investors in an environment where pandemic-induced changes and disruptions continue to reverberate.

Inflation: Persistent or transient? We believe inflation is likely to remain elevated in 2022 and recommend investors be open-minded on the impact to their portfolio construction and rebalancing needs. Once supply chain bottlenecks and labor pressures ease, we expect inflation to moderate.

Monetary policy will be in the crosshairs. Central banks have indicated that the clock is ticking down on extraordinary monetary policies in response to COVID-19. Given the uncertainty around inflation, policy shifts will be challenging to execute and there will be significant pressure on central banks to get policy “just right”. Change induced by the pandemic is creating investment opportunities.

Our investment strategy identifies key themes and strategic drivers that have been strengthened by the pandemic. Niche, or non-traditional sectors, that remained particularly resilient are one of the most significant investment opportunities emerging from the pandemic.

Office demand has weakened and may rebalance the sector. Lower-quality or poorly located offices in urban markets are clearly disrupted and need to be treated with caution. Investors need to enhance their opportunity set to markets that offer a compelling mix of lifestyle, talent, and demographics while focusing on high-quality assets that are positioned to meet the evolving environmental, social, and governance (ESG) needs of tenants.