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Multi-Asset ETFs to Counter Volatility

Zacks Equity Research

The global markets may have recovered from the horrible start to 2016 but the deterrents are still rearing their ugly heads. Among the reasons to worry, possibilities of a sooner-than-expected Fed rate hike, dollar strength, a shaky global market backdrop and swooning commodities will likely resurface. Added to these, being an election year, 2016 is going to be on the edge, at least for the U.S. market (read: Defensive Stocks & ETFs for Portfolio Protection).

Additionally, investors are wary of first-quarter earnings, which are appearing dull like the previous quarters. We now see three successive quarters of negative earnings growth through the fourth quarter of 2015 and the situation is likely to remain the same in the current and coming periods as well. As per Zacks Earning Trends, earnings are expected to drop 9.5% on 1.5% lower revenues for the S&P 500 index in the first quarter of 2016.

In such a scenario, uncertainty will pull some strings in the stock market in the weeks ahead. As a result, diversification may earn investors some surety in terms of return with lower risks. Thankfully, there are some multi-asset ETF products, which can help investors to ride these challenges (read: Buy Ranked Dividend Growth ETFs in Focus after Fed Meeting).

Notably, the multi asset strategy looks to boost returns and lower overall volatility in the portfolio. These products normally provide a high level of current income and shun downside risks of a specific asset class at the same time. These products cater to various asset classes (equity, fixed income, and alternative securities), which have low correlation to each other.

Below we highlight three such products which have surpassed the broader market ETF SPY in the last one-month frame (as of March 23, 2016) (read: Inside PowerShares' New Multi-Asset ETF):

Arrow Dow Jones Global Yield ETF (GYLD)

This fund provides almost equal-weight exposure across five global areas – sovereign debt, real estate, equities, corporate debt and alternatives. This is easily done by tracking the Dow Jones Global Composite Yield Index.

Further, North American firms account for 39% of the portfolio, while Europe, the Asia-Pacific and Latin America round off the top four regions with a double-digit exposure each, as per XTF.com. The product gained over 11.6% over the past one month (as of March 23, 2016). The fund yields about 9.81% annually (as of March 23, 2016).

Credit Suisse X-Links Multi-Asset High Income ETN (MLTI)

The fund looks to track the NYSE Multi-Asset High Income Index which measures the performance of a broad, diversified basket of up to 120 publicly traded securities that have historically paid high dividends or distributions. The product charges 84 bps in fees.

Business Development Companies, High Yield Bonds are Mortgage REITs its top three holdings, each with about 15% exposure. The fund added 7.9% in the last one month (as of March 23, 2016) and yields about 2.45% annually (as of March 23, 2016).

Principal EDGE Active Income ETF (YLD)

The fund is actively managed and does not track an index. It has a net expense ratio of 85 bps. The fund has a tilt toward U.S. high yield corporate bonds though North American dividend equities while U.S. REITs also have a sizable exposure. The fund added 7.4% in the last one month (as of March 23, 2016). The fund yields about 3.29% per annum (as of March 23, 2016).



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