In this report we are enhancing our existing asset allocation framework to help guide asset allocation decisions. In addition, we use this framework to guide our assets, sectors, factors and QIS risk-premia strategies allocation across different phases of the economic cycle, while considering the prevailing financial conditions. We have built BBVA's dynamic allocation framework using two core tools:

• The BBVA US Macro Cycle Indicator, which captures both growth and inflation phases. In the post-COVID world, inflation has again become a key part of economic cycle study and cannot be ignored. Hence our six-stage BBVA US Macro Cycle Indicator captures what we believe are the most relevant macro stages in the current environment.


• Our BBVA US Financial Conditions Index (FCI), which aims to capture the prevailing financial conditions. For example, during the COVID-19 market shock the global economy was in recession for most of 2020, but asset performance during the first half of the year was markedly different from the second half. Defensive leadership during 1H changed to cyclical leadership in 2H.

By overlaying both the US Macro Cycle Indicator and the FCI, we create a more granular eleven-phase approach, designed to capture asset rotation during shifts in growth, inflation and monetary policy.