What is a multi asset ETF?
Multi-asset ETFs – also known as portfolio ETFs - invest in different types of assets such as bonds and equities to create a broadly diversified investment portfolio, all within a single ETF. This is done by investing in a few different ETFs to create an investment portfolio, effectively a fund of ETFs.
| ETF | 2024 in % | 2021 in % |
|---|---|---|
| Vanguard LifeStrategy 60% Equity UCITS ETF Distributing | + 3.52% | +14.33% |
| VanEck Multi-Asset Growth Allocation UCITS ETF | + 2.72% | +19.65% |
| Amundi Multi-Asset Portfolio UCITS ETF Dist | + 2.63% | +16.55% |
| Xtrackers Portfolio UCITS ETF 1C | + 2.29% | +14.52% |
For example, a multi-asset class investor might hold bonds, stocks, cash, and real property, whereas a single-class investor might only hold stocks. One asset class might outperform during a particular period of time, but historically, no asset class will outperform during every period.
Multi-asset allocation funds provide investors with a single investment that combines debt, equities, and one additional asset class such as real estate, gold, and so on. Furthermore, these schemes employ various asset allocation algorithms that are designed to respond to changing market situations.
Multi Asset Funds are relatively less risky and volatile. However, don't be under the impression that they are totally risk- free. They also invest in stocks and stocks are risky and volatile in the short term. That is why we always ask investors to enter in these schemes with a minimum horizon of five years.
Mutual funds are priced once a day at the net asset value and they're traded after market hours. ETFs are traded throughout the day on stock exchanges just as individual stocks are. ETFs often have lower expense ratios and are generally more tax-efficient due to their more passive nature.
Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.
Multi-asset funds offer a diversified portfolio across asset classes, professionally managed to reduce volatility and improve risk-adjusted returns. They also provide tax-efficient asset allocation and lower taxation compared to fixed-income and gold ETFs.
Benefits of using multi-asset solutions including cost efficiency, time savings for financial professionals and peace of mind for investors. By leveraging multi-asset solutions, financial advisers can provide clients with diversified, low-cost portfolios and focus on delivering value through other advisory services.
Multi-asset funds can offer investors exposure to a broader range of assets, sectors, strategies and direct investment exposures (e.g. individual securities, bonds) with greater flexibility. They are diversified across both traditional and non-traditional asset classes, such as real estate and infrastructure.
How do I choose a multi asset fund?
First is the choice of asset class. Earlier, multi-asset funds were plain vanilla offerings, combining the troika of equity, debt and gold. Most of the newer funds now include foreign equities and commodities too. Tata Multi Asset Opportunities was the first to add commodity derivatives.
Multi Asset Allocation Funds are hybrid funds that must invest a minimum of 10% in at least 3 asset classes. These funds typically have a combination of equity, debt, and one more asset class like gold, real estate, etc.
If it is done before April 1, 2023, gains are taxed at 20 per cent after providing the benefit of indexation if held for more than three years, otherwise they are added to the income and taxed as per the applicable slab.
- Options. An option allows a trader to hold a leveraged position in an asset at a lower cost than buying shares of the asset. ...
- Futures. ...
- Oil and Gas Exploratory Drilling. ...
- Limited Partnerships. ...
- Penny Stocks. ...
- Alternative Investments. ...
- High-Yield Bonds. ...
- Leveraged ETFs.
Multi-asset allocation funds stand out as a versatile investment option, suitable for those embarking on their investment journey and seasoned investors seeking diversification.
Equities are generally considered the riskiest class of assets. Dividends aside, they offer no guarantees, and investors' money is subject to the successes and failures of private businesses in a fiercely competitive marketplace.
ETFs offer numerous advantages including diversification, liquidity, and lower expenses compared to many mutual funds. They can also help minimize capital gains taxes. But these benefits can be offset by some downsides that include potentially lower returns with higher intraday volatility.
Consider an ETF if:
Intraday trades, stop orders, limit orders, options, and short selling—all are possible with ETFs, but not with mutual funds. You're tax sensitive. ETFs and index mutual funds tend to be generally more tax efficient than actively managed funds.
Owning both types of funds may be a smart strategy as each can offer protection and opportunity. For example, if you own a passively managed ETF, also buying an actively managed mutual fund may offer you some upside potential beyond that of the index being tracked.
The one time it's okay to choose a single investment
You wouldn't ever want to load up your portfolio with a single stock. But if you're buying S&P 500 ETFs, this is the one scenario where you might get away with only owning a single investment. That's because your investment gives you access to the broad stock market.
How much of my portfolio should be in ETFs?
"A newer investor with a modest portfolio may like the ease at which to acquire ETFs (trades like an equity) and the low-cost aspect of the investment. ETFs can provide an easy way to be diversified and as such, the investor may want to have 75% or more of the portfolio in ETFs."
Investing in an ETF that tracks a financial services index gives you ownership in a basket of financial stocks versus a single financial company. As the old cliché goes, you do not want to put all your eggs into one basket. An ETF can guard against volatility (up to a point) if some stocks within the ETF fall.
Investors seeking long-term capital appreciation, while avoiding concentration of their investment holdings in a single category and minimizing exposure to unwarranted risks and ongoing volatility, may find multi-asset allocation funds worth considering.
If you are a new investor or are risk-averse, go for balanced advantage funds. Multi asset allocation funds can be a convenient option but do assess whether you need to invest in gold or not and if yes, do explore other gold-related investment options.
Besides an extra layer of fees, the downside of investing through a multi-manager is that performance may be diluted, as underperforming constituents of the fund-of-funds portfolio reduce the positive impact of the top performers.
