https://www.blackrock.com/corporate/insights/blackrock-investment-institute/publications/outlook
We are turning more pro-risk tactically in 2021 by adding equities to our overweight in credit as we see the economic restart re-accelerate.
The equity risk premium looks reasonable to us – and lower real rates may allow it to compress further, supporting valuations. We advocate a balanced approach.
We like tech companies with structural tailwinds, as expressed in the quality factor.
We see such exposures providing resilience early in the new year, particularly if fiscal support disappoints or vaccine rollouts are delayed. We also favor selected cyclical exposures that we see thriving as the timeline for widespread vaccine deployment advances.
On a strategic horizon, the policy revolution and our view of higher inflation over the medium term warrant a rethink of government bond allocations. We see nominal bond yields as staying relatively rangebound, further diminishing the role of government bonds as portfolio ballast. We prefer inflation-linked bonds. Importantly, we maintain a higher allocation to equities than we would in typical periods of rising inflation.
The policy revolution has diminished the risk of a rapid rise in discount rates hitting valuations across asset classes.
We like sustainable assets as the tectonic shift toward sustainability is just getting started. We also see a greater role for China-exposed and private market assets for yield, potential appreciation and exposure to unique growth trends
We have downgraded European equities to underweight. The market has relatively high exposure to financials pressured by low rates. It also faces structural growth challenges, even given potential for catch-up growth in a vaccine-led revival. We have upgraded U.S. equities to overweight. We see the tech and healthcare sectors offering exposure to structural growth trends, and U.S. small caps geared to an expected cyclical upswing in 2021