Near-term volatility around the U.S. election and the path of coronavirus may present opportunities to position for an improvement in sentiment in 2021.

The Asset Allocation Committee notes that an unusually high level of uncertainty, centered on the U.S. election and the path of coronavirus, may cause elevated market volatility over the coming two to three months. On a 12-month view, however, members broadly favor riskier assets and increasingly seek to reflect a potential cyclical recovery and reflationary forces in their outlook. Doubts nonetheless persist about policymakers’ ability to stimulate longer-term growth and inflation.

VIX Futures Pricing for a Post-Election Spike in Volatility

CBOE S&P 500 Volatility Index (VIX) futures contract pricing on September 28, 2020


Source: CBOE. Data as of September 28, 2020.


  • The AAC maintained its overweight views on U.S. small caps and non-U.S. developed markets on a 12-month view of accommodative monetary policy, some degree of fiscal stimulus and a continued earnings recovery, while downgrading U.S. large caps on stretched valuations.
  • The AAC maintained its neutral view on emerging markets, as it is cautious about short-term headwinds while seeing opportunity in areas experiencing rebounding growth such as China.

Fixed Income

  • The AAC moved from an overweight to a neutral view on investment grade fixed income: government bonds remain very highly valued and while we are still constructive on credit on a 12-month view, investment grade spreads have continued to tighten and we have revised down default expectations in high yield.
  • The AAC maintained its recently upgraded views on high yield and emerging markets debt, biased to quality and emphasizing the opportunity in onshore China bonds.

Real and Alternative Assets

  • The AAC upgraded its view on commodities to an overweight given reflationary forces, while also emphasizing gold and other precious metals given potential for short-term volatility and the risk of fiat currency depreciation in the medium term.
  • The AAC maintained its recently upgraded view on private markets, with an eye to emerging opportunities in co-investments in corporate restructurings, private equity secondaries and private lending.

Market Views: Based on 12-Month Outlook for Each Asset Class

Based on 12-Month Outlook for Each Asset Class

As of 4Q 2020. Views shown reflect near-term tactical asset allocation views and are based on a hypothetical reference portfolio. Nothing herein constitutes a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. See disclosures at the end of this publication, which include additional information regarding the Asset Allocation Committee and the views expressed.