Multi-Asset Class

It refers to an investment that consists of multiple asset classes


The term "multi-asset class" refers to an investment that consists of multiple asset classes (such as cash equivalents, equities, or bonds). 

Such investment, also known as an investment strategy, always includes more than one asset class, resulting in a collection of assets that adds diversification to a portfolio. 

The weights assigned to each asset class and the types of asset classes are often determined by the investor's preferences.

Its main goal is to increase portfolio diversification by distributing investments across multiple asset classes. 

Rather than exposing an investor to the dangers of a single asset class, multi-asset portfolios invest across assets that are not perfectly correlated. This increases the portfolio's risk-reward potential and results in a less volatile investment experience.

Fund managers in these funds rebalance the portfolio based on market movements, taking profits from performing assets and lowering exposure to poor ones.

This reduces overall portfolio risk, also known as volatility, but may also reduce potential returns. 

A multi-asset investor, for example, may invest in bonds, cash, equity, and assets, whereas a single investor may only invest in stocks. 

In reality, one asset class may outperform for some time, but different assets have historically performed at different times and rarely occur simultaneously. 

The different types include: 

  • Personal Portfolio - Investors with sufficient capital may elect to become their asset managers and construct a multi-class portfolio. Family offices also give their clients personal asset allocation based on the investor's preferences.
  • Risk tolerance funds - These are funds that are designed for an investor's perceived risk tolerance. 
  • Target date funds - Some companies provide multi-asset class investments that vary asset allocations based on a time horizon.
  • Hedge funds - Hedge funds employ a multi-asset class investment strategy, investing in both traditional and alternative asset classes.

Risk tolerance funds

Many mutual funds offer asset allocation funds designed to perform based on the investor's risk tolerance. The funds are available in various styles, from aggressive to conservative. 

When an investor's risk tolerance is high, he or she will put a more significant percentage of their money into equities, sometimes as much as 100%.

When risk tolerance is low, investors can put their money into bonds, treasury notes, and fixed income, considered less risky than equities. 

An aggressive fund is the Fidelity Asset Manager 85% Fund. The 85-15 rule ensures that 85% of funds are allocated to equities and 15% to other assets such as fixed income and cash. 

For many conservative investors, the Fidelity Asset Manager 20% Fund, which has 20% stocks, 50% fixed income, and 30% short-money market funds, may be a better option. 

The target-risk fund's manager ensures that the risk exposure of the fund is within acceptable limits. 

Other companies that offer such funds include: 

Target date funds 

These are funds that invest according to the investor's time horizon. This means that multi-asset funds will adjust their investment allocation based on the time horizon of their investors. As a result, investors usually choose a fund that matches their time horizon.

A target-date fund is for investors looking to invest for the long term and have a specific 'target date' in mind, such as retirement. When the 'target date approaches, this fund is meant to be used as an investment withdrawal plan. 

For example, if an investor is not retiring or has a time horizon of more than 30 years, he or she would choose one of the 2052 or later target funds: the more recent the fund's launch date, the more aggressive the fund's initial investment strategy. 

A 2050 target-date fund typically invests over 85% to 90% in equities and the rest in fixed income.

As the target date approaches, the fund's allocation will typically shift to a more conservative approach, with a decrease in stock allocation and an increase in bond, cash, and cash equivalent allocations. 

As a result, investors with a shorter time horizon may prefer to invest in recently matured funds. This would put more money into fixed income, lowering overall risk and concentrating capital preservation. 

After reaching the target date, a target-date fund may or may not be terminated. Some investors may wish for the fund to be managed by fund managers in accordance with their revised investment objectives and policies on an ongoing basis. 

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Pros and cons

The pros and cons are:


Multi-asset managers can assist in capturing opportunities and adapting to changing market conditions by employing a multi-asset strategy. These assist managers in making tactical changes at various stages of the economic cycle. 

An investor can benefit from the gains of all asset classes while avoiding the high risk associated with them by spreading their investments across multiple assets. If one asset's value drops, the others' value may be able to compensate. 

Some of the main advantages include:

  • Take advantage of market volatility 
  • Capturing the upside market
  • Cushioning capital during a market downturn
  • Increased diversification
  • Overall steadier return as assets balance out each other's return 


The most significant disadvantage is that diversification is unlikely to outperform a fund that invests solely in one asset class. 

Because it contains bonds, cash, and other assets that may not earn a consistent return, a multi-asset fund may not perform as well as most stock funds. Fixed income portfolios, such as bonds, are not typically designed for significant gains. 

Another disadvantage is the high management fee charged by target-date fund managers compared to single-asset fund managers. 

This is because, rather than passively tracking the stock market index, target-date funds are usually actively managed by a professional. 

The amount of time and energy a manager devotes to balancing the fund's assets is reflected in the overall management fee charged to the investor. 

The importance of diversification

Investors use diversification to manage risk and reduce the impact of market volatility on their portfolios. 

Diversification is based on the premise that different asset classes would respond differently to the same market event. Hence, when one asset underperforms, the impact will be minimized by those assets that perform well.

This is the diversification principle, or, to put it another way, not putting all your eggs in one basket.

However, most of the time, investors do not understand the concept of diversification. Many investors, for example, will diversify their investments by allocating some to energy, finance, healthcare, technology, or emerging market equities. 

In actuality, they have just invested in various sectors of the equities asset class and are subject to the ups and downs of that market. So therefore, not achieving diversification. 

While diversifying your portfolio cannot remove the danger of losing money, it is widely recognized as an effective approach to improving your overall returns for a given degree of risk.

After the 2008 financial crisis, investors sought out new methods to achieve diversification. Although somewhat simple, the main strategy used was the basic 'set it and forget it method. This method allows investors to allocate their funds to a mixture of fixed asset income classes and public equities. 

With this strategy, Bloomberg Barclays US Aggregate Bond Index estimated an annualized return of +4.4% without experiencing a loss. This indicates sufficient return generating and capital protecting elements in this allocation method.  

However, the time-tested link between stocks and bonds unraveled in early 2018, demonstrating that, according to classic financial theory, bonds are not necessarily a good diversifier against equity market volatility.

In today's market environment, diversifying a portfolio entails investing across the entire global market spectrum, including equities and a variety of fixed income assets ranging from government bonds to high yield, emerging market debt, and loans, as well as alternative asset classes such as infrastructure, property, and asset leasing.

The growth of multi-asset investing 

Such investing has become increasingly popular in recent years. 

This is due to several driving factors, such as: 

  • The global financial crisis in 2008: This event demonstrated to investors that just diversifying your portfolio with shares and bonds was insufficient to avert a significant loss of wealth. 

Equities and bonds dropped in lockstep, prompting investors to seek alternative options that were diversified and blended a wider variety of less tightly correlated asset types.

  • A focus on investors' solutions: As investors seek assets that may satisfy their objectives, there has been a rise in demand for a more outcome-focused investment approach. 

These might take the shape of a steady income, a combination of capital growth and income, or total returns.

  • Demand for an off-the-shelf solution: Multi-asset funds enable investors to delegate all investing choices to a professional, who will manage their assets in accordance with a predetermined result and risk level. 

This has proven especially successful in wholesale, freeing financial advisers to focus on customer relationships and other aspects of their business models, such as financial planning.

  • Current market conditions: Due to the changing economic and political environment and increased market volatility, investors have turned to multi-asset funds to help them navigate these choppy waters.
  • The shift from active to passive management: segregated, index-based investment mandates and index-tracking mutual funds and exchange-traded funds (ETFs)

This move has given investors relatively easy and low-cost access to a broader range of asset types. 

As a result, the breadth of passive investing alternatives in asset classes formerly the domain of active managers, such as emerging market debtcommodities, real estate, and infrastructure, has grown significantly during the last two decades.

  • Constructing portfolios using risk premia: This pattern illustrates the emerging agreement that factor risk premia, whether in stocks or other asset classes, drive the majority of long-term investment outcomes. 

As a strategic asset allocation aim, a popular former strategy for such investment would have emphasized a 60% - 40% split between equities and bonds. 

However, investors currently seek to include a greater range of systematic risk strategies into their long-term asset allocation and target the corresponding risk premia. 

This has increased managers' ability to assess diversification across risk spectrums other than the typical asset class range.

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Researched and authored by Freida Lee | LinkedIn 

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