Multi-Asset Class ETFs – minimize the stress of asset allocation

What are Multi-Asset Class ETFs?

A Multi-Asset Class ETF allows investors to invest in multiple asset classes through a single ETF. This will enable investors to gain the diversification benefits of investing in multiple asset classes without the hassle and trading costs of investing in the individual asset classes. 

An investor can simply purchase one security that includes different asset classes, rebalanced by a portfolio manager at a relatively low cost.

Examples of separate asset classes include:

• Equities
• Bonds
• Cash and cash equivalents
• Foreign exchange 
• Derivatives
• Commodities
• Alternative assets (real estate, private equity, crypto etc.)

Multi-Asset Class ETFs may employ an active strategy of rebalancing based on market expectations, whereas some may adopt a passive buy-and-hold strategy. This will influence the management expense ratio paid on the Multi-Asset Class ETF, with active management requiring greater management oversight and consequently higher fees.

Why use Multi-Asset Class ETFs?

Using Multi-Asset Class ETFs allows investors to simplify their investment process, gain diversification, and reduce investment risk while simultaneously minimizing costs.

Without the use of a Multi-Asset Class ETF, investors would need to seek out individual securities and exposures to the separate asset classes, then oversee the purchasing/selling of securities in order to meet a specified asset mix. This results in high transaction costs and high implicit costs of time and stress to identify and construct a multi-asset class portfolio.

Using a Multi-Asset Class ETF makes this process much simpler and quicker. An investor only needs to identify which Multi-Asset Class ETF has a strategy and asset mix that aligns with what they are looking for, and then they only need to purchase one single type of security instead of multiple different securities across different asset classes.

Risks of using Multi-Asset Class ETFs

Multi-Asset Class ETFs come with risks as well, including the risk that the asset allocation of the ETF does not match the investor’s asset allocation requirements. 

Furthermore, ETFs are subject to market risk as the prices of the ETF may not fully reflect the underlying securities. 

Lastly, Multi-Asset Class ETFs may be more illiquid than more popular ETFs, which can result in wider bid-ask spreads and increased transaction costs. 

Top 5 Multi-Asset Class ETFs in the US 

Ranked by AuM as of June 9th, 2022.

1. FPE - First Trust Preferred Securities and Income ETF
2. AOR - iShares Core Growth Allocation ETF
3. AOM - iShares Core Moderate Allocation ETF
4. AOA - iShares Core Aggressive Allocation ETF
5. RPAR - RPAR Risk Parity ETF
6. AOK - iShares Core Conservative Allocation ETF
7. PTNQ - Pacer Trendpilot 100 ETF
8. TDSC - Cabana Target Drawdown 10 ETF
9. FPEI - First Trust Institutional Preferred Securities and Income ETF
10. MDIV - First Trust Multi-Asset Diversified Income Index Fund