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2021 asset allocation recommendations

January 2021 Portfolio Positioning; ... further fueling the speculative enthusiasm. Strong economic growth looks Our expectation is that inflation globally will remain subdued in the near term as the effects of the pandemic – weaker consumer demand, lower energy prices, and higher unemployment – keep the price of goods in check. The U.S. and China remain dominant players in the global technology sector, and therefore remain a focus, but we are also looking to take advantage of themes playing out in other regions, such as green energy in Europe and automation in Japan. We favor a moderate risk-on posture in multi-asset portfolios as we expect the global economic recovery to continue in 2021. These timely accommodation and liquidity injection measures, as we discussed in our mid-year outlook, helped calm the markets and catalyzed a sharp rebound in asset prices. We are also modestly overweight select, high-quality emerging market government bonds that may perform well during risk-off events. (We discuss gold valuations in this recent blog post.) Earlier this fall the U.S. Federal Reserve completed a review of its policy framework, and concluded that the unemployment rate alone will no longer be a sufficient driver to raise interest rates. Source: UBS Asset Management Investment Solutions Macro Asset Allocation Strategy team as at 4 January 2021. Source: MSCI, FactSet estimates, Bloomberg, and PIMCO calculations as of 31 October 2020. While the future monetary and fiscal policy mix will be a critical factor in determining the longer-term path of inflation, we believe the risks are skewed to the upside. The first half of 2021 could offer more opportunities to lean into the recovery as it develops. (For details, please read our blog post on the Fed’s monetary policy framework.) International Bond Fund (U.S. Dollar-Hedged), LDUR - Enhanced Low Duration Active Exchange-Traded Fund, MINT - Enhanced Short Maturity Active Exchange-Traded Fund, MFEM - RAFI Dynamic Multi-Factor Emerging Markets Equity ETF, MFDX - RAFI Dynamic Multi-Factor International Equity ETF, MFUS - RAFI Dynamic Multi-Factor U.S. Equity ETF, Targeted Municipal Ladder Managed Account, Gurtin Municipal Extended Value Managed Account, Gurtin Municipal Intermediate Value Managed Account, Gurtin Municipal Stability Managed Account, EMNT - Enhanced Short Maturity Active ESG Exchange-Traded Fund. Source: Bloomberg as of 30 November 2020. These recommendations, based on … The current earnings yield spread, for both U.S. and global equities, is close to the average level over the past five years. U.S. inflation expectations based on 5-year breakeven inflation; European inflation based on 5-year/5-year inflation swap; Japan inflation based on 5-year/5-year inflation swap. Asset allocation has two key ingredients. U.S. mortgage bonds continue to price in some uncertainty about future delinquency and forbearance effects, and non-agency mortgage-backed securities did not receive any explicit Fed support, so we are finding attractively priced opportunities in these areas. Back in late 2019, we were concerned about slowing growth, rich valuations, and high levels of corporate leverage. One way to measure this is via the relative spread between the earnings yield on equities and the spread on corporate bonds. These sectors include technology companies, which are supported by strong fundamentals and stand to benefit further from secular trends accelerated by COVID. Asset Allocation Update: Diversified Strategist Portfolios (DSP) December 2020 1 2021 OUTLOOK A V-SHAPED RECOVERY We are moderately overweight risk — with a preference for high yield bonds and global listed infrastructure — entering 2021, as we expect fundamentals will catch up to the recent market surge. 2021 Asset Class Outlook Our asset class assumptions form the basis for our asset allocation framework, which combines long-term, strategic discipline with short-term, tactical flexibility. 12/14/2020. Overall within our multi-asset portfolios, we favor a modest overweight to risk assets – both equities and credit. Focused fiscal stimulus efforts and healing in the labor market should aid personal savings and consumption, benefiting the housing and consumer durables sectors. In the upcoming webcast, Turn the Page – Asset Allocation in 2021, Dan Phillips, Director Asset Allocation Strategy, Northern Trust Asset Management; and Michael Natale, Head of … With the U.S. election behind us and positive developments on the vaccine front, we are beginning to position multi-asset portfolios to benefit from a cyclical recovery. We have increased exposure to cyclically oriented sectors and regions that have potential to benefit as economic activity picks up, while continuing to focus on industries where technological advancements are likely to lead to disruption over the secular horizon. The two key swing factors – virus containment and fiscal policy support – will greatly influence the recovery process. Recovery Fund payments should also provide some boost next year, especially across the euro area periphery and Eastern Europe. Our base case is that the pace of the recovery will be gradual, but the trajectory of the pandemic and the magnitude of additional policy support for fragile economies have the potential to stall or accelerate the recovery. The basic premise is that we become risk averse as we age given we have less of an ability to generate income. Access PIMCO's industry leading market insights and resources. Efforts toward resolution of the health crisis and additional policy support measures have the potential to deliver both upside and downside surprises. Yet, if the market meltdown was unprecedented, so has been the recovery that followed. However, with earnings growth poised to accelerate as the global recovery continues, equities look more attractive than credit in this environment. 23 December 2020 5 min read Written by John Higgins. Investment Products: NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED. In the U.S., the election results point to a divided government in 2021 with Republicans likely retaining the Senate majority, pending a runoff election in Georgia in early January. 199804652K LEI: 549300JX6BNKEHZFQE44, TEL: (858) 436-2200 FAX: (858) 436-2201, TEL: 612-9279-1771 FAX: 612-9279-2580, ABN 54 084 280 508 AFS Licence 246862 LEI: 549300RE60KX7TX1DZ43, TEL: 813-5777-8150 FAX: 813-5777-8151, TEL: +1 416 368 3350 FAX: +1 416 368 3576, Registered in Switzerland, Company No. Note this is very different from the procyclical austerity-oriented policy adopted in the euro area following the 2008–2009 and 2011–2012 recessions. PIMCO Investments is the distributor of PIMCO investment products, and any PIMCO Content relating to those investment products is the sole responsibility of PIMCO Investments. Farmland investing is one way to reduce volatility in your portfolio and generate long-term passive income. We believe high quality duration (government bonds) will continue to be a reliable source of diversification against a growth shock despite yields at historically low levels. Invesco Investment Solutions shares our tactical asset allocation outlook for 2021. Furthermore, while progress on the development of a vaccine has been heralded, the timeline for mass production and distribution remains unknown. Credit spreads have tightened meaningfully since March and April, and while we believe credit is less attractive than equities on a relative basis, we see pockets of opportunity in certain segments. This is the asset allocation I used most of my working life. CH-020.4.038.582-2 LEI: 549300GHCCJWKY72R127. Risk positive asset weighting for the start of 2021; Themes to focus on include Asia, technology and the green revolution ... • Tips and recommendations - to beat the market • Portfolio clinic & Mr Bearbull - build a well-planned portfolio Asset Allocation Views: Early Cycle Investing. Invesco Investment Solutions shares our tactical asset allocation outlook for 2021. In a downside scenario, additional fiscal stimulus could be enacted to support growth. We are focused on assets that can serve as both an inflation hedge and a diversifier in a scenario of weakening economic conditions. Moreover, we advocated a modest risk-on posture in multi-asset portfolios with emphasis on higher-quality, resilient sectors given a wide range of potential outcomes. Going into 2021, investors don’t seem fazed that these signs of excess could be foreshadowing a replay of 2000, and companies seeking to go public don’t appear to be slowing down anytime soon. In Japan, fiscal policy will likely remain accommodative, and we expect additional stimulus of approximately 3% of GDP equivalent discretionary spending to focus on service sector/public investment over a 15-month budget (January 2021 to March 2022). The recovery appears well underway as global economic activity rebounded sharply during the third quarter. This dynamic has led to attractive valuations for many inflation-linked assets, and we believe it is a good time to add inflation hedges to multi-asset portfolios. Given the macro backdrop, we believe that equity valuations are cheap versus corporate credit. However, we continue to focus on portfolio diversification and resiliency given the path of potential outcomes remains unusually wide amid the unresolved health crisis. ... As we turn to our asset allocation views, it is a factor we need to consider, if only at the margin. We also believe gold provides a good store of value over the long term with a low correlation to traditional risk assets. ... **SAA = Tactical Asset Allocation. The handoff from monetary to fiscal policy is well underway, and the size and the scope of fiscal response is bound to have critical implications for both the economic recovery and asset prices. Please log in or register to access this content. Moreover, we advocated a modest risk-on posture in multi-asset portfolios with emphasis on higher-quality, resilient … This continues to be a key theme in our multi-asset portfolios given near-term uncertainties and ongoing secular disruptions (see our Secular Outlook, “Escalating Disruption”). None of the information on this page is directed at any investor or category of investors. We also favor select emerging market government bonds, including Peru and China, which offer yield advantage and have tended to perform well during risk-off events, as another portfolio diversifier (see Figure 5). 2020 has been a turbulent year for investors to say the least. Asset Allocation Quarterly (First Quarter 2021) by the Asset Allocation Committee | PDF. Our Global Macro Asset Allocation Services provides timely asset allocation advice to investors across global asset classes Tools at Your Disposal – Investment Recommendations Investment recommendations across global equities, fixed income, currencies, commodities, real estate, sectors, industries, regions, and countries. 2604517 LEI: 549300GHCCJWKY72R127, TEL: +39 02 9475 5400 FAX: +39 02 9475 5402, Iscritta al Registro delle Imprese in Italia al n. 10005170963 LEI: 549300GHCCJWKY72R127, TEL: +49 89 26209 6000 FAX: +49 89 26209 6005, Registriert in Deutschland, Firmennr. The global manufacturing recovery should bolster sectors such as industrials, materials, and semiconductors. That said, they remain bearish on a large portion of developed market government bonds and favour an allocation to equity on a selective basis. According to Harvest's Chief Operating Officer Garrett Paolella, with the Federal Reserve continuing to keep rates low and adding stimulus to the market, investors can expect returns from fixed income in 2021 to once again be challenging at best, making a strategic asset allocation framework focused on total return while finding alternative ways to generate yield key. We are overweight equities given expectations that corporate earnings will rebound in 2021 and interest rates will remain low. The pandemic was a black swan event that caused the biggest quarterly drop in global GDP and increase in unemployment since the Great Depression, and the drawdown in equity and credit markets was one of the fastest on record. Our global base case expectation is that economic recovery is poised to continue in 2021 and will gain strength once vaccines are broadly deployed and the world starts to return to normal social distancing. U.S. Treasuries have more room to rally than most developed market government bonds and are likely to remain the flight-to-quality asset of choice, so we remain overweight in our multi-asset portfolios. 192083 Eingetragener Firmensitz LEI: 549300KW6332H0XL8X85, TEL: +1 212-776-1500 FAX: +1 212-776-1520, TEL: +55 (11) 3957-3300 FAX: +55 (11) 3957-3320, Registration No. Investors seek higher returns. Its asset allocation model today is approximately 90% stocks and 10% bonds and short-term reserves. In addition to increasing our exposure to cyclical risk, we continue to seek opportunities in sectors that may benefit from longer-term disruption, as we expect significant investment and higher demand in these areas over the next several years. We believe 2021, in contrast, will feature a slow and steady return to normalcy. 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The recovery in activity and ongoing improvement in corporate profits should be supportive for a rebound in cyclically sensitive assets (see Figure 3), which have meaningfully lagged market leaders like big tech since the market bottom in March. We favor U.S. equity markets given higher profitability and growth characteristics, and are constructive on Japan and select emerging markets, which should benefit from a cyclical recovery. In 2021, we expect the global economic recovery to provide a tailwind for risk assets. In our mid-year asset allocation outlook, we observed that despite the massive shock to the real economy, valuations of risk assets appeared close to fair after taking into account the impact of lower discount rates and extraordinary policy support. Chart shows 2020 fiscal measures as a percentage of each country or region’s gross domestic product. This is why, historically, equity markets have generated higher risk-adjusted returns during the early stages of a business cycle. The earnings yield should generally trade at a premium versus credit spreads: Equity investments are more sensitive to earnings volatility and therefore investors should be compensated for the risk that earnings could decline. We anticipate that UK mid- and large-cap equities will fare much better in 2021 than they have in 2020, provided vaccines prove effective in winning the battle against COVID-19. We believe investors should consider building portfolios that can benefit from smoother waters in 2021, but also should embed sufficient diversification to be able to withstand the choppy patches that may arise. The Indian economy is struggling to recoup its growth mojo. The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education. 2020 was an extraordinary year for financial markets. The global pandemic was a black swan event that caused the biggest quarterly drop in global GDP and increase in unemployment since the Great Depression. The classic recommendation for asset allocation is to subtract your age from 100 to find out how much you should allocate towards stocks. Please send me your recommendations with supported documentation. Market outlook 2021: Evan Brown, head of macro asset allocation at UBS Asset Management told investors there’s the more positive news around vaccine announcements and this would boost global GDP next year. The world’s recovery from the Covid-19 pandemic should provide a strong boost to global stocks in 2021. In our mid-year asset allocation outlook, we observed that despite the massive shock to the real economy, valuations of risk assets appeared close to fair after taking into account the impact of lower discount rates and extraordinary policy support. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of PIMCO nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. The following is a guest post from FS sponsor, FarmTogether, a leading farm investing platform. Source: MSCI, FactSet estimates, and PIMCO calculations as of 31 October 2020 Cyclicals: autos, banks, capital goods, consumer durables, diversified financials, energy, materials, media, semiconductors, transportation. From a regional perspective, we expect cyclically oriented equities – such as in Japan and select emerging markets – to benefit as the recovery continues in 2021 (see Figure 4). Source: MSCI ACWI world index as of 30 November 2020. Let's explore both. Discretionary measures include direct payments to individuals and businesses, loan forgiveness, increased healthcare spending, and tax cuts. With monetary policy constrained by near-zero interest rates in most of the developed world, fiscal policy will need to do the heavy lifting. Information presented herein is hypothetical in nature and is shown for illustrative, informational purposes only. Despite low yields, we are modestly overweight duration as a diversifier to our risk-on positioning in equities and credit. The issuing countries are rated investment grade by at least one of S&P, Moody’s, or Fitch. Therefore, we are seeking to balance the portfolio against two primary risks: lower-than-expected growth and higher-than-expected inflation. However, we remain cautious on transportation and hospitality, which could face earnings challenges for several years. The improvement in fundamentals should bode well for risk markets and cyclical assets in particular. There were many other firsts: Oil prices temporarily became negative, volatility (VIX) surpassed levels observed during the depth of the global financial crisis, and already robust central bank balance sheets ballooned $7 trillion more. However, PIMCO expects it to be a “long climb” with hiccups along the way (as we discussed in a June 2020 blog post), and it could take up to two years to reach pre-COVID levels of global output. To be sure, the global economy is not out of the woods just yet and the trajectory of the pandemic will undoubtedly influence the speed of the economic recovery. We actively seek opportunities to capitalize on this theme, but we remain highly selective on where we obtain the desired cyclical exposure. While almost no one, including us, predicted how the pandemic would unfold in different parts of the world, its aftermath has left the global economy in a completely different place in less than a year. The election outcome reduces the possibility of a large deal, and our expectation is that fiscal policy will likely focus on relatively modest COVID relief and infrastructure legislation. Within corporate credit, sectors are recovering at different paces depending on how the pandemic affected them. ... Tactical asset allocation. At the urging of an investment advisor (I’m not a fan of most), I put it in an aggressive growth fund instead. When I opened a Roth IRA in 1999, I called my bank and asked to put it in the S&P 500. Let's look more into investing in 2021. You have not saved any content. 2021 MARKET OUTLOOK ASSET ALOCATION 1 Eastspring’s Singapore-based Eastspring Portfolio Advisors team believes global growth will come in above trend from the second half of 2021 but that any acceleration in core prices is unlikely to be sufficient to prompt a rate hike. All Rights Reserved. Source: Bloomberg and PIMCO as of 30 November 2020. Liquidity provisions include loan guarantees, forbearance, tax delays, and new loans. Pacific Investment Management Company LLC (“PIMCO”) is an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Explore PIMCO’s wide range of tax-advantaged strategies, Timely insights on global markets and macroeconomics. Looking back over the year, we have gone – rather abruptly – from a late cycle environment in December 2019 to an early cycle environment in December 2020. Make sure you're not taking on undue risk with these five asset allocation rules. We see two primary risks to our positioning – lower growth and higher inflation – and we are focused on hedging against these. Additionally, the low yield environment could act as a tailwind for risk assets through increased demand from investors who face a tough choice between increasing risk and reducing their return objectives. Recent surges in new COVID cases underscore the precarious nature of the crisis, but promising news on the development and deployment of multiple vaccines could accelerate the timeline for containment. Global Asset Allocation Views 1Q 2021. Global equities are represented by the MSCI ACWI Index. We see opportunities to invest for economic recovery, while maintaining an emphasis on resilient portfolios. That said, they remain bearish on a large portion of developed market We believe additional policy stimulus will be needed to support what is still a fragile recovery. ©2021 PIMCO. If you are an individual retirement investor, contact your financial advisor or other fiduciary unrelated to PIMCO about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. In Europe, we expect fiscal policy to remain stimulative versus pre-pandemic, though governments are expected to let many of the discretionary COVID-related measures roll off in 2021. Asset allocation themes for 2021. With further advancements in COVID testing, contact tracing, and vaccine deployment diminishing the need for social distancing, economic growth should recover further. Valuations appear rich on an absolute basis, but low interest rates, policy support, and profit growth improvement should be supportive over the cyclical horizon. 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