Blackrock, which oversees USD 7.8 trn in assets globally, remains constructive on risk assets as the vaccine rollout, fiscal and monetary support and healthy consumer demand will drive a "significant earnings recovery." That’s likely to lead to new investment and a multiyear expansion, according to portfolio managers for the Blackrock High Yield Bond Fund, David Delbos and Mitchell Garfin.

"This is a very positive story for credit assets," Delbos and Garfin wrote in an email Friday.

The firm continues to favor technology ­ especially software ­ as the pandemic accelerated digital transformation and cloud adoption, leading to robust demand and growth. Blackrock also expects transportation, leisure, lodging and gaming to benefit from an economic recovery as Covid-19 subsides and sees opportunities in the financial sector given a steeper yield curve and improving economic environment.

Junk bonds and leveraged loans will benefit from additional flows throughout the year as investors search for returns given record-low global yields, they added. The firm has a balanced view between high yield and leveraged loans.

"Our base case expectation for leveraged credit is mid-single digit returns, with the majority of this being generated from carry/income and further spread tightening, but partially offset by slightly higher rates," the portfolio managers said.

The firm favors mid-to-lower quality single B and CCC bonds and is complementing this positioning with investments in longer duration BBB credit spread risk on a hedged basis in pipelines, semiconductors and industrials.

In the short term, Blackrock expects volatility as the market confronts the risks of a spike in virus infections, vaccine distribution and the transition of power in Washington. Travel and leisure industry companies are lining up a new round of pandemic-driven financing deals as a fresh wave of lockdowns to rein in coronavirus infections restricts global tourism.

"We believe markets will price through these near-term sources of volatility and would look to add risk on weakness," Delbos and Garfin wrote.