Market shocks have returned to the major stock market indexes after the identification of a new COVID-19 variant, but a multi-asset strategy can help dampen the impact.
Even before news of the variant hit, markets were already in a daze with regard to rising inflation. Now, more macroeconomic data could give investors more roller coaster rides through the end of 2021.
“The uncertainty regarding Omicron is high, but coupled with the disappointing jobs number and investors decided to dump in front of the weekend,” said Ryan Detrick, chief market strategist at LPL Financial.
While the temptation is high to stay in stocks that can withstand the effects of a pandemic, such as big tech names, a better way is to add uncorrelated assets. One of the easiest ways is to introduce more bonds to a portfolio to get multi-asset exposure.
“We’ve seen this month a return to safe haven bond investments because equities have underperformed,” said Agnes Belaisch, managing director and chief European strategist at Barings Investment Institute. “When you have a multi-asset strategy in your portfolio it’s easier to play relative asset value and to protect yourself like this and to switch from equities to bonds — that right now are providing some havens when the volatility is rising.”
Two Bond ETF Options for a Multi-Asset Strategy
Investment-grade corporate bonds are an option, and FlexShares has two funds that vary by duration. Up first is the FlexShares Credit-Scored US Long Corporate Bond Index Fund (LKOR).
Per the fund description, LKOR seeks investment results that correspond generally to the price and yield performance of the Northern Trust US Long Corporate Bond Index. The underlying index reflects the performance of a broad universe of U.S. dollar-denominated investment-grade corporate bonds that can potentially deliver a higher total return than the overall investment-grade corporate bond market, as represented by the Northern Trust US Investment Grade Long Corporate Bond Index.
Next, investors can get exposure to the shorter end of the yield curve via the FlexShares Credit-Scored US Corporate Bond Index Fund (SKOR). SKOR seeks investment results that correspond generally to the price and yield performance of the Northern Trust US Corporate Bond Index, which reflects the performance of a broad universe of U.S. dollar-denominated investment-grade corporate bonds that can potentially deliver a higher total return than the overall investment-grade corporate bond market, as represented by the Northern Trust US Investment Grade Corporate Bond Index.
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