Multi Asset ETFs, funds & risks
On this page you'll find:
The Best ETFs Australia multi-asset sector represents managed funds and ETFs which invest across and within various asset classes, including:
- Australian shares
- International shares
- Fixed interest & bonds
- Cash (including cash management trusts and ETFs)
- Commodities, and
- Currencies
For our purposes, every fund or ETF which invests across asset classes and uses an 'active' or 'dynamic' strategy -- i.e. it invests in more than traditional index funds or ETFs -- is considered a multi-asset fund. However, the investments made by the fund must include both 'risk-on' (e.g. shares, property, infrastructure, derivatives, etc.) and 'risk-off' asset classes (e.g. bonds, cash, currencies).
Meaning, if a fund invests in, say, cash and short-term government bonds (both 'risk-off' asset classes) according to a well-defined index, we would consider that a 'cash plus' ETF, not a multi-asset fund or diversified ETF.
Multi Asset Sector Risks
Multi-asset ETFs are a relatively new development in the Australian ETF market and they are growing fast.
However, there is a number of risks you should be aware and monitor before you buy into a multi-asset ETF, and afterwards:
- Dynamic rebalancing. In our opinion, one of the best features of a multi-asset ETF is the active or ‘dynamic’ rebalancing strategy. At Best ETFs Australia, we label ETFs and funds as ‘multi-asset’ if they use an active strategy or human input or oversight. You should read the Product Disclosure Statement to understand if you’re comfortable with the target allocations set by the ETF issuer, but also with their strategy for rebalancing. If the rebalancing happens too frequently, excessive trading costs and taxes can be passed back to investors.
- Issuer risk. We believe it’s important to diversify across ETF issuers. Although multi-asset ETFs invest across multiple asset classes, it’s important to consider using more than one ETF issuer’s products to avoid becoming overly reliant upon one provider of ETFs. A lack of diversification could expose investors to the risks of having a majority, or in some case all, of the ‘core’ of their portfolio invested by just one investment management firm.
- Sub-scale. Many of the currently available multi-asset ETFs are not yet profitable because they are small (in terms of FUM) and have low fees. This can increase the probability that an ETF issuer is forced to close the ETF.
- Performance. It can difficult to track the performance and returns of a diversified or multi-asset ETF, especially when the target allocation is not regularly adhered to. However, we’re confident multi-asset ETFs will become more transparent in time.
- Track record. Most multi-asset ETFs have not been operating for at least three years. This is our typical minimum standard for providing a rating on an ETF.
List of ETFs to watch
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This brilliant (and free!) report is issued by Best ETFs Australia, a division of The Rask Group Pty Ltd. It is not a recommendation.
Speak to a financial professional before relying on this information and please read our Financial Services Guide (FSG).