What’s In My Multi-Asset ETF?

by on February 27, 2013 | Updated April 29, 2013 | ETFs Mentioned:

Over the last several years, issuers have successfully transformed the ETF landscape, pumping out some of the most intriguing and innovative products on the market. Recently, however, a trend of “hyper-targeted” and niche funds have swept across Wall Street, attracting plenty of attention from investors looking to establish tactical tilts in their portfolios. But for many investors, a strategy that aims to cast a wider net over the entire investment landscape is likely to be more ideal [Download How To Pick The Right ETF Every Time].

Enter multi-asset ETFs. As the name suggests, these funds aim to be “total portfolio” products, offering investors exposure to multiple asset classes through a single ticker. But while these products might seem like a “one stop shop,”  a look under the hood of these funds reveals some factors investors should keep a close eye on.

MDIV: A Well-Balanced Mix, With PerksMulti-Asset ETFs

First Trust’s Multi-Asset Diversified Income Index Fund (MDIV, A+) is one of the most popular “total portfolio” options, with total assets under management coming in at $132 million. MDIV’s portfolio composition reflects its focus on high income-producing securities, allocating relatively equal portions to dividend-paying equities, REITs, MLPs, preferred securities, and the iShares iBoxx $ High Yield Corporate Bond Fund (HYG). For those looking for more diversification and a tilt towards high income-producing securities, MDIV is certainly an intriguing and relatively inexpensive pick [see 8% Yield ETFdb Portfolio].

INKM: A Fund of Few Funds

The SPDR Income Allocation ETF (INKM, A) is yet another appealing dividend-focused multi-asset ETF. Unlike MDIV, however, the fund achieves its objective by investing in other State Street ETFs, making it a “fund of funds” so to speak. The majority of  the ETF’s portfolio consists of equities and investment-grade bonds, including both domestic and international exposure. Investors should note, however, that INKM’s top two allocation – the SPDR Barclays Long Term Corporate Bond ETF (LWC) and the SPDR S&P Dividend ETF (SDY) – account for over a third of total assets, meaning that the performance of this fund greatly depends on only two ETFs. In addition, INKM’s portfolio holds only 20 individual ETFs, though some of these funds do offer ample diversification benefits on their own.

IYLD: A Tilt Towards Fixed Income

Similar to INKM, this iShares’ Morningstar Multi-Asset Income Index Fund (IYLD, B+) is also a “fund of funds,” investing in other iShares ETFs. The goal of IYLD’s underlying index is to represent an allocation strategy of 60% fixed income, 20% equity and 20% alternative income sources. The largest individual allocation is the High Yield Corporate Bond Fund (HYG) at about 20% of total holdings. Other big allocations include the Barclays 20+ Year Treasury Bond Fund (TLT) and the JP Morgan Emerging Markets Bond Fund (EMB), which, combined, represent about 25% of the total portfolio. And while IYLD does have a significant tilt towards domestic equity and fixed income, it does offer meaningful exposure to the international securities [see 10 Questions About ETFs You've Been Too Afraid To Ask].

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Disclosure: No positions at time of writing.