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Risk assets entered 2021 on a strong footing as investors were optimistic on the prospect of fiscal stimulus, continued easy monetary policy, vaccine rollout and a quicker-than expected re-opening of the US economy. 

The US economy and corporate earnings are projected to grow significantly in 2021. These conditions should benefit risk assets. US economic expansion is supported by additional US fiscal stimulus, pent-up consumer demand, excess household savings, and an expected increase in business spending and investment. Upside growth is possible if an infrastructure bill is passed later this year.

The US Federal Reserve showed no signs of changing its policy stance, reiterating the need for supportive monetary policy until the labor market recovers from the pandemic. 

A robust economic recovery should drive strong revenue growth and corporate profitability. US companies are well positioned to benefit from operating leverage as strengthening top-line growth is met with productivity gains, driving margin expansion and bottom-line growth.

At the same time, this positive outlook of economic recovery and higher fiscal deficits drove bond yields higher. Concerns about higher inflation have led to broad-based moves and some volatility across various asset classes. Even within the same asset class, the rotation from COVID-beneficiaries to the COVID-laggards has also accelerated, leading to return divergences.

Higher rates also led to a steepening of the yield curve, which typically indicates stronger economic activity and generally positivity for the overall profitability of US corporations. It is also a reflection of the US Federal Reserve’s commitment to accommodative policy and to prevent a repeat of the 2013 taper tantrum.

Multi-asset strategy aims to provide potential income and growth

In the current market environment where rates are trending higher but absolute yields remain low, investors need look no further than a strategy that could offer income opportunities plus capture potential capital growth, which is essential in an environment where real yields are low. It is important for investors to build a resilient portfolio by balancing risk and reward. A multi-asset strategy that invests primarily in different asset classes, including high-quality large-cap stocks, high yield bonds and convertibles bonds, could improve the resilience of a portfolio, provide potential income and growth, and manage downside risk.

Equities, convertibles, and high yield bonds have performed well regardless of the interest rate environment - Jan 1988 to Dec 2020

_{Source: FactSet; ICE Data Services. Data as of January 1988 to December 2020. 
Past performance is not a reliable indicator of future results. This chart is not indicative of the past or future performance of any Allianz Global Investors product.}