Multi-Asset ETFs For the Long Term

June 20th at 6:00am by Tom Lydon

Multi-asset exchange traded funds are a new way to play the income focused theme in this current low interest rate environment. These funds cover the gamut from select asset classes and high-yield bond investments, and can fill out a long term strategy.

“These funds could be attractive to income-oriented investors who tend to be more overweight traditional income securities, such as utilities, and safer lower-yielding bonds. These products also provide exposure to higher yielding energy MLPs without the tax complications,” Patricia Oey for Morningstar wrote in a recent article.

A huge benefit of investing in a multi-asset approach with an ETF is that the cost is much lower. Ari Weinberg for Forbes reports that pre-packed multi-asset products have high advisory fees built into the product, which can eventually take away from profit or original capital. [Multi-Asset ETFs See Top Inflows]

Many of the newer multi-asset ETFs trading also have fixed-income securities in their portfolios. Up until recently, fixed income ETFs had become investor havens due to overall stock market uncertainty that is associated with the trouble in the Eurozone. These ETFs have become a one-shot investment for investors’ need for stable income and diversification. [High Yield ETFs Go Global]

For example, iShares Morningstar Multi Asset Income Index Fund (NYSEArca: IYLD) has a decent allocation to fixed income iShares funds. A large portion of the weight is given to iShares iBoxx $ High Yield Corporate Bond (NYSEArca: HYG), iShares Barclays 20+ Year Treasury (NYSEArca: TLT). [ETFs for Income]

SPDR SSGA Income Allocation ETF  (NYSEArca: INKM) holds SPDR Barclays Capital Long CorpTerm Bond ETF (NYSEArca: LWC) and SPDR Barclays Capital High Yield Bond ETF (NYSEArca: JNK).

Currently, multi-asset ETFs are generally used for tactical investments in a long term strategy. The pre-packaged ETF is not used as a day trading tool at this time.

“Advisers are under a lot of pressure to provide income,” Sanjay Arya, Senior Vice President at Morningstar said. For this reason, the need for multi-asset income-focused ETFs is a trend in the making. [Europe Woes Sap High-Yield Bond ETF Demand]

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.