With much of the easy money already made, there’s no better time to think outside the box.

Markets surged in November with several stock indices posting their strongest month on record. Three positive vaccine announcements and a presumed market-friendly U.S. election outcome acted as catalysts, overcoming concerns about soaring virus cases in many parts of the world.

The result has been a sharp reversal in market leadership across equities with more cyclical exposures such as small cap and European stocks outperforming on the month. A similar risk-taking tone was felt in credit markets. High yield bonds and other lower quality segments of fixed income outperformed traditional “safe haven” assets. Notably, Treasury bonds struggled as interest rates hit their highest levels since March before falling during the second half of the month.

As we close out 2020 and consider our positioning going into the year ahead, we contemplate the question: To what extent have 2021 returns been pulled forward into 2020? While it’s likely this rally has driven markets higher much faster than investors anticipated, we still maintain a positive outlook for the global economy and the ability to generate future returns. The amount of liquidity in the financial system is staggering, cash on the sidelines is at record levels, and the ability of fiscal and monetary policy to drive growth higher is real.

That said, much of the easy money has already been made and portfolio allocations warrant a review. We think it’s time for investors to look beyond the traditional asset classes that have worked this year and embrace active and dynamic strategies that can navigate a more nuanced environment. Cash flow-oriented securities should continue to benefit as investors search for yield. And while we may pause adding more risk in the BlackRock Multi-Asset Income Fund as markets digest the recent moves, we would likely view any pullback in markets as a buying opportunity given a generally favorable outlook over the intermediate term.

Michael Fredericks
Head of Income Investing for BlackRock Multi-Asset Strategies Team

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