Multi-Asset Strategies Outlook

Explore Our investment Outlook

For Now, Risk On, but Diversification Remains the Watchword

Near-term Wall Street economic forecasts are all over the map. Some firms are calling for healthy growth this quarter and next, while others fear a double-dip recession. We think it makes sense to err on the side of caution because so many of our biggest cities reinstituted strict lockdown measures. Despite this uncertain near-term economic outlook, more and more investors are betting on a recovery in the second half of 2021.

The broad distribution of seemingly effective vaccines on the horizon suggests we’re likely to return to some semblance of normalcy in the new year. This prospect is leading to stock market gains in small-cap stocks and economically sensitive sectors such as energy and financials. Bonds, too, reflect this recovery story with corporate yields trading at pre-crisis levels.

But while longer-term economic prospects are improving, significant risks remain. One such risk is the potential long-term scarring impact of the 2020 recession on labor markets. It can be hard to recover from job losses resulting from business closures and structural economic changes (e.g., shift to working from home) that affect entire industries. The effects could be seen in a drop in business investment, a rise in business failures or even a shrinking in the financial system’s capacity. We must remain aware of the risk of deep, persistent joblessness. 

Asset Class

Our long-term strategic allocations are carefully crafted to maximize risk-adjusted returns over time. We move off these long-term positions when we see a compelling near-term opportunity. Data often conflict and rather than churn the portfolios and make frequent changes, we stay true to our carefully constructed neutral allocations. So, we remain neutral at a high level, preferring to make adjustments at the sub-asset class level where we see clearer, more compelling opportunities.

Equity Region

Our model currently prefers U.S. equities over developed market equities. Economic fundamentals, forward earnings growth projections and market sentiment all argue for an overweight to U.S. equities.

Our qualitative view broadly supports EM equities, based largely on hopes for a meaningful economic recovery in 2021. Our quantitative model has also been trending toward EM over U.S. in recent months. Nevertheless, for now at least, we are sticking to our long-term strategic allocation while we monitor the data and look for greater clarity on the virus and economy.  

U.S. Equity Size & Style

We continue to see sharp moves in the short-term data that inform our preference by size. Our quantitative model has fluctuated in recent months from a slight preference for large caps to a modest bias toward small caps. With so much uncertainty over near-term economic and market conditions, this is a relationship we are monitoring carefully going forward. 

After maintaining a consistent large-cap growth overweight for over a year and a half, we rotated to a neutral position on the U.S. growth/value trade in late 2020. This positioning reflected a shift in the broader economy, as fundamentals moved away from favoring growth. Similarly, value stocks looked cheap relative to the historical valuation spread of value and growth, but not so significantly cheap as to make value a screaming bargain. So, while we have removed our growth overweight, we have not moved all the way toward a preference for value.

Fixed Income

We are overweight U.S. corporate credit, with a strong preference for high-yield over investment-grade corporate debt. Positive economic trends, ongoing Fed support for corporate credit, declining volatility and strong investor demand for high-yield/risky assets all support an overweight position. Similarly, emerging market debt is also attractive, benefiting from attractive yields and better relative growth. 


We continue to emphasize an overweight to real estate investment trusts (REITs), particularly relative to bonds. REITs performed poorly for much of 2020 despite low Treasury yields and mortgage rates. Valuation metrics and dividend yields for REITs are compelling, while parts of the sector such as commercial real estate depressed by the coronavirus could rebound in a sustained economic recovery. Security selection remains important because the effects of the pandemic and resulting shutdowns are so uneven. Some property types—such as office and retail space—face challenges, while others—such as data centers and logistics/warehouses—are direct beneficiaries from the changing economic and social conditions.

Q1 2021 Investment Outlook Resources

References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

International investing involves special risk considerations, including economic and political conditions, inflation rates and currency fluctuations.

Alternative mutual funds that hold a variety of non-traditional investments also often employ more complex trading strategies than traditional mutual funds. Each of these different alternative asset classes and investment strategies have unique risks making them more suitable for investors with an above average tolerance for risk.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

As with all investments, there are risks of fluctuating prices, uncertainty of dividends, rates of return and yields. Current and future holdings are subject to market risk and will fluctuate in value.

Historically, small- and/or mid-cap stocks have been more volatile than the stock of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.

Diversification does not assure a profit nor does it protect against loss of principal.

Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.

Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.

Past performance is no guarantee of future results. Mutual fund investing involves market risk. Investment return and fund share value will fluctuate. It is possible to lose money by investing in mutual funds. 

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

This information is for educational purposes only and is not intended as investment or tax advice.

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