Multi-Asset Positioning: A Balanced Exposure to Risk Assets in the Evolving Recovery
As noted in our macroeconomic outlook for 2021, the global economy has shown resilience in the wake of the pandemic shock. Unprecedented fiscal and monetary policies have provided substantial support to global economies, which continue to recover, but progress has been uneven. Further progress will be vulnerable to setbacks. Against this backdrop, our current tactical views on multi-asset allocation modestly favor growth assets in equities and fixed income, hedged by exposure to gold.
Just prior to the US election, State Street Global Advisors’ Investment Solutions Group incorporated a “governor” on the active risk exposure of its tactical portfolio. Given improving clarity on US election outcomes, we have resumed the setting of standard active risk targets based on our models. Improving risk appetite has been informed by corporate earnings, which have been resilient, especially in the US where roughly 89% of companies have reported, and 86% of those have reported a positive earnings per share (EPS) surprise. In addition, consumers have been resolute, and strong manufacturing Purchasing Managers’ Indexes (PMIs) globally suggest broader recovery.
We therefore recommend a balanced exposure to risk assets, and our evolving Tactical Asset Allocation (TAA) weights reflect our baseline assumption of economic recovery (see Figure 1). Overall, we continue to favor global equities, credit, and gold, while becoming more sanguine on broad commodities. Real estate investment trusts (REITs) and core bonds look less attractive.