The traditional 60-40 stock-bond split won’t cut it in a world where the threat of inflation and slow growth provides ample headwinds for portfolio gains, which makes a multi-asset strategy necessary.
Ultimately, getting multi-asset exposure allows investors to spread their capital to avoid concentration risk and obtain diversification. This can help reduce volatility by getting exposure to uncorrelated assets, which is rudimentary advice from financial advisors.
One question to ask is what a client wants to achieve when it comes to getting multi-asset exposure. Getting additional insight on a client’s portfolio can allow an advisor to dial in the asset exposure accordingly to match the client’s needs.
“I think the way to divide it is to ask, what does the client want to achieve from their alternatives exposure? Alternatives can either be there as a form of insurance, to protect wealth, or they can be a return enhancer, designed to go up in value,” said Ben Kumar, senior investment strategist at 7IM. "So, the first step is to work that part out. We generally want our alternatives to be flat or going up when equities are falling – the role bonds used to play.”
Multiple Assets in the Convenience of One Fund
Investors looking to diversify their assets outside the traditional portfolio allocation of stocks and bonds can look to multi-asset exchange traded funds (ETFs). One ETF in particular provides broad-based exposure in the convenience of one fund: the FlexShares Real Assets Allocation Index Fund (ASET ).
ASET removes all the guesswork — instead of forcing investors to hold multiple assets like precious metals or commodities like oil, ASET can give investors exposure to it all through one position. Additionally, volatility is minimized due to ASET holding companies that represent real asset exposure instead of the actual tangible assets themselves.
ASET seeks investment results that correspond generally to the price and yield performance of the Northern Trust Real Assets Allocation IndexSM. The underlying index measures the performance of an optimized allocation to the underlying funds that is intended to provide exposures to certain real assets and minimize the overall volatility of an investment in the underlying funds.
As of September 23, the top three sector allocations were materials, real estate, and industrials. Moreover, ASET takes a global approach by investing in countries outside of the United States as well, including Canada, the United Kingdom, and Japan.
For more news, information, and strategy, visit the Multi-Asset Channel.