4 Multi-Asset ETFs to Lower Portfolio Risk
The current market havoc has damaged every corner of the investing world whether it is stock, fixed income or commodities. The major culprit is the persistent weakness in China and its global consequences across the world.
In fact, the stock world has piled up heavy losses over the past several weeks and this trend might continue in the days ahead with huge volatility. The slump in the stocks worldwide accelerated on Friday following the Fed’s “no rates hike” decision that has further intensified concerns over the health of the global economy (read: ETF Winners & Losers Post Dovish Fed Meet).
Additionally, investors are wary of third-quarter earnings, which are expected to drop 5.7% on 3.8% lower revenues for the S&P 500 index, as per the Zacks Earnings Trends. Moreover, the ongoing battle over the funding for Planned Parenthood between Republicans and Congress could lead to the possible shutdown of the federal government at the end of the month.
In such a scenario, uncertainty will continue to dominate the stock market in the weeks ahead. As a result, investors should avoid direct investing in stocks and instead employ strategies that can lower risk in their portfolio. Thankfully, there are some ETF products, which can help investors to take a flight of safety and overcome these challenges in a diversified way.
These products are spread across different asset classes (equity, fixed income, and alternative securities), which have low correlation to each other, and are known as multi-asset ETFs. These aim to provide a high level of current income with stability and potential for long-term appreciation while simultaneously avoid downside risk in a specific asset class. Below we highlight four such funds:
Arrow Dow Jones Global Yield ETF (GYLD)
This fund provides almost equal-weight exposure across five global areas - equities, real estate, alternatives, sovereign debt, and corporate debt. This is easily done by tracking the Dow Jones Global Composite Yield Index. The ETF puts 20% each in the five categories with each security holding less than 1% of total assets. This ensures that the product is well diversified among 150 securities with an annual dividend yield of 9.03% (read: 5 Red Hot Dividend ETFs Yielding 5% or More).
Further, American firms account for 39% of the portfolio, while Europe, Asia-Pacific and Latin America round off the top four regions with double-digit exposure each. The product has amassed $161.2 million in its asset base and trades in good volume of around 96,000 shares a day. It charges 75 bps in annual fees from investors and gained over 1% over the past one month.
iShares Core Moderate Allocation ETF (AOM)
This ETF offers diversified exposure to two asset classes – equity and fixed income – with a moderate risk level. It does not invest in securities directly but puts money in a portfolio of 10 ETFs that belong to the same fund family. Through ETFs, the fund consists of 352 securities, each making up for no more than 0.03% share in the basket. While fixed income takes 60% of the portfolio, the remainder is allotted to equities.
In terms of country exposure, the U.S. takes the top spot at 70.3% while Japan, United Kingdom and many others receive a minor allocation each. The fund has AUM of $363 million and sees a moderate level of volume. It charges a bit lower 24 bps in fees when compared to many other alternative ETFs. The fund was modestly up 0.12% in the past one-month period and has a dividend yield of 2.68% per annum.
iShares Morningstar Multi-Asset Income Index Fund (IYLD)
IYLD follows the Morningstar Multi-Asset High Income Index, which consists of a comprehensive set of iShares ETFs that collectively target equity, fixed income and alternative income sources. The fund has accumulated $237.7 million in assets and charges 60 bps in annual fees from investors. Volume is moderate as it exchanges nearly 62,000 shares a day on average.
The product has 10 ETFs with 6,501 securities underlying in its portfolio. The current asset class allocation is tilted toward fixed income with 64% share while the remainder is skewed toward equities and alternative investments. IYLD was down a modest 0.3% over the past four weeks and has an outstanding yield of 6.21%.
WBI Tactical Income ETF (WBII)
This is an actively managed fund having debuted in August last year. It has gathered solid investor interest as depicted by AUM of $325.2 million and average daily volume of 73,000 shares. The fund seeks to provide investors with a wealth-building investment strategy that provides low volatility, low correlation and an optimal blend of bear market capital preservation and bull market return. For this purpose, WBII invests in both debt and equity securities of foreign and domestic companies (see: all the Total Portfolio ETFs here).
Looking at sector diversification, ETFs account for 41% of assets, followed by U.S. Treasury Notes (35.1%), short-term treasury instruments (12.6%), health care (3.7%), financials (3.5%), energy (2.9%) and industrials (1.1%). Expense ratio came in at 1.05% and annual dividend yield currently stands at 1.05%. The ETF is relatively flat in the past one-month frame.
In Conclusion
These ETFs have outperformed the broad market fund (SPY) by wide margins over the past month and this trend is likely to continue in the weeks ahead given the uncertain stock market conditions. These appear to be the perfect choices in a world torn by strife, as they look to satisfy investor’s need of greater stability in uncertain times. Further, these funds seek to take advantage of the current trends by modifying their asset allocation based on a various market and economic factors.
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ARROW-DJ GL YLD (GYLD): ETF Research Reports
ISHARS-MD AL (AOM): ETF Research Reports
ISHARS-MO MA (IYLD): ETF Research Reports
WBI-TAC INC SH (WBII): ETF Research Reports
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