Mohamed El-Erian says investors shouldn't put stimulus checks into the 'most volatile assets'

• Mohamed El-Erian says investors shouldn't be putting their stimulus checks into the "most volatile assets."
• The Allianz chief economic adviser said he believes now is the time for "very active management."
• El-Erian argued the American economy will grow "in excess of 7%" in 2021.

Mohamed El-Erian, the President of Queens' College, Cambridge and chief economic adviser at Allianz, says investors shouldn't be putting their stimulus checks into the "most volatile assets."

In an interview with Yahoo Finance on Thursday, El-Erian said "you've got be sure you're picking names properly, this is not a time to simply throw or to invest your stimulus funds in the most volatile assets."

El-Erian discussed the changing environment for asset managers and investors in the interview and said that he expects the American economy to grow "in excess of 7%" in 2021.

According to El-Erian, in the past few years investing in the most volatile assets wasn't a bad move because there was so much "liquidity sloshing around" and people were "stretching for yield."

"If there's a massive liquidity wave that's not gonna break, ride it," El-Erian said.

Now though, El-Erian said things will be "much harder" for volatile assets even as the economy recovers. The former Pimco CEO and CIO said that he believes now is the time for "very active management," and argued that the passive, ETF-focused management of the past few years may not be as effective moving forward.

"I think for a long time it was a macro call, get the fed and liquidity right and you don't really have to care about much else as long as you avoid bankruptcies. And that's why passive index investing did so well," El-Erian said.

"Now I think it's going to be an environment for very active management. Building portfolios from a bottom-up perspective and making sure that you have the robustness to changing liquidity and economic paradigms," the Allianz adviser concluded.

El-Erian said investors need to come up with a portfolio mix that can take advantage of the economic recovery, while also protecting from changing liquidity as the Federal Reserve may be forced to slow quantitative easing and aggressive asset repurchases as the economy heats up.

Yesterday, the US Federal Reserve increased its growth projection for the US economy in 2021 to 6.5% from a previous forecast of 4.2%. They also raised inflation expectations to 2.2% and said unemployment will fall to 4.5% by the end of the year.