U.S. Markets closed

Global Allocation ETF in Focus as Balanced Funds Rake Cash


Investors gaining confidence in the economic recovery are shoveling record amounts of cash into “balanced” mutual funds that invest in both stocks and bonds.

The huge inflows to balanced or “hybrid” funds coincide with the rise of so-called multi-asset ETFs designed to give investors exposure to a diversified portfolio with one trade and low fees.

SPDR SSgA Global Allocation ETF (GAL) is an example of this trend.

The fund invests in other ETFs – most managed by State Street — to build a global diversified portfolio comprised of equities, bonds, preferred shares, TIPS and real estate.  It also has a 1% allocation to PowerShares DB Gold Fund (DGL). [Don’t Forget About These Multi-Asset ETFs]

GAL charges a gross expense ratio of 0.35%. The ETF has posted a total return of about 18% for the trailing year, according to Morningstar.

The fund’s top three holdings are SPDR S&P World ex-US ETF (GWL) at 17%, SPDR S&P 500 ETF (SPY) at 11.4% and SPDR Barclays Aggregate Bond ETF (LAG) at 8%. GAL is relatively small with $50.5 million in assets. The ETF was launched in April 2012.

GAL is actively managed. The fund benchmarks its performance against the MSCI ACWI IMI Index, a free float-adjusted market capitalization-weighted index that is designed to measure the combined equity market performance of developed and emerging markets. The index covers approximately 98% of the global equity investment opportunity set.

GAL and other multi-asset ETFs are getting a second look from investors as balanced mutual funds enjoy a renaissance.

Assets in the mutual funds increased 3.6% during the first four months of the year, compared with 1.2% for those that only buy equities, Bloomberg News reports. The growth of funds that now balance more than $1 trillion of stocks and bonds shows the reluctance to invest after the financial crisis is easing, according to the story.

“It shows the early stages of the healing process and reduction in this still pervasive negative psychology about the stock market,” Michael Holland, chairman of Holland & Co., told Bloomberg. “We’re four years into a bull market and levels of stock ownership remain very, very low.”

SPDR SSgA Global Allocation ETF

Full disclosure: Tom Lydon’s clients own SPY.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.