What is a Multi-asset strategy?
Multi-asset strategy broadly refers to the use of many asset classes to diversify risk in a portfolio. Most multi-asset products contain a mix of Equity, Debt and Gold, though there are slightly more complicated products in the market that add assets like real estate to the mix.
How can a multi-asset strategy work for you?
Equity is considered the growth asset which offers inflation-beating returns in the long run. Though true in a larger sense, growth in equity is not linear. The markets have been giving investors a taste of the downside since April 2022. This is where a diversified strategy comes to the rescue – a strategy that includes gold and debt to provide stability to the portfolio.
Gold is considered a safe haven when equity falters and tends to be inversely correlated to the equity markets. A multi-asset strategy preserves one’s capital at the downside and provides inflation-beating returns.
Apart from the plain vanilla asset like Gold, a deeper dive into equity and debt markets provides investors with many options. Equities have large-, mid-, & small-cap, thematic, value and many more classifications, while debt investments consist of government bonds, corporate bonds, and floaters among others.
How does one choose the right multi-asset strategy?
The simplest multi-asset strategy offers fixed weights to each asset class and invests in only passive ETFs in each of them. The drawback is that it doesn’t take advantage of when an asset offers a better opportunity.
If we look at the historical data, each asset class goes through a cycle of ups and downs. Though a passive strategy might reduce volatility. It is the dynamic multi-asset strategy that changes allocation based on the underlying opportunity that provides the best use case; it uses metrics to identify the attractive asset class. It reduces weightage to equity when the market rallies and within different categories of equity and likewise for debt. Eventually, it strives to provide stable returns that can even match the performance of low-risk equity funds.