Even after the remarkable market performance of 2020, we still see potential for continued growth in 2021.

Risk assets just closed the door on one of their most volatile years on record. The severe and sudden selloff at the onset of the pandemic in March quickly reversed with the aid of extraordinary fiscal and monetary responses in both the U.S. and Europe. After a relatively calm summer, high volatility struck again in the fall with the approach of a highly contested U.S. election and a second wave of COVID outbreaks. Nevertheless, risk assets rallied sharply into year end as several major pharmaceutical companies announced breakthrough vaccines and economic data, particularly in the U.S., remained strong and generally exceeded consensus forecasts.

The BlackRock Global Allocation Fund’s Institutional share class generated a 21.12% return for the year, outperforming its reference benchmark (+13.34%) by the widest margin for any calendar year since 2003. The fund’s outperformance in 2020 was driven by a number of factors, including tactical asset allocation decisions, sector positioning, security selection across many sectors, yield curve management, and credit exposures. Conversely, security selection within industrials, exposure to cash and currency positioning detracted from relative performance during the year. Looking at monthly returns, the fund beat its reference benchmark 11 times in 2020.

Even after stocks produced double-digit returns last year, we believe there is potential for continued growth in 2021. In our view, investors are underestimating the constructive combination of massive monetary and fiscal support, strong household balance sheets, a solid housing market, the resilience of the corporate sector, and the impact of a successful vaccine distribution.