Best Multi-Asset ETFs

by: Matthew Sauer, Esq.


MDIV sets the bar for multi-asset ETFs.

GYLD offers more diversification, but takes some risks in the process.

MDIV can hold up if the U.S. dollar continues to rally.

Multi-asset ETFs offer investors diversification within a single ETF. Stocks, bonds, preferred stock, REITs, MLPs and commodities are some of the assets that can be found in a multi-asset fund. These funds are attractive to investors, due to the promise of diversification and sometimes high yields. After covering most of the multi-asset ETFs out there, it's time to choose the best. Below are the funds covered.

First Trust Strategic Income ETF (NASDAQ:FDIV)

SPDR Income Allocation ETF (NYSEARCA:INKM)

iShares Morningstar Multi-Asset High Income Index ETF (BATS:IYLD)

First Trust International Multi-Asset Diversified Income Index ETF (NASDAQ:YDIV-OLD)

Arrow Dow Jones Global Yield ETF (NYSEARCA:GYLD)

Guggenheim Multi-Asset Income ETF (NYSE:CVY)

First Trust Multi-Asset Diversified Income Index ETF (NASDAQ:MDIV)

Some funds that could qualify as multi-asset are not are not included, such as the four asset allocation ETFs from iShares (iShares Aggressive Allocation ETF (NYSEARCA:AOA), iShares Growth Allocation ETF (NYSEARCA:AOR), iShares Conservative Allocation ETF (NYSEARCA:AOK) and iShares Moderate Allocation ETF (NYSEARCA:AOM). Those funds do have multi-asset exposure, but their goal is to act more as a one-stop fund for a portfolio, not as a way to boost income across high-yield asset classes. Another fund not included is YieldShares High Income ETF (NYSEARCA:YYY), which has a 30-day SEC yield of 8.5 percent. While it does hold several classes of assets, the fund only holds closed-end funds, and most of those are bond or equity funds. In contrast, the multi-asset funds above all have a diverse multi-asset index or benchmark, and either hold the assets directly or via ETFs.

Each of the multi-asset ETFs takes a slightly different approach. CVY delivers the most common equity exposure; while IYLD has the largest fixed income exposure. MDIV is the most balanced. GYLD is a global fund, and YDIV an international fund. INKM and FDIV are actively managed multi-asset funds, where INKM is an ETF of ETFs and FDIV holds underlying assets.

In terms of income, this is the most recently reported 30-day SEC yield for each fund, from highest to lowest:

  • IYLD 6.4%
  • GYLD 5.9%
  • MDIV 5.5%
  • CVY 5.2%
  • YDIV 4.5%
  • INKM 3.5%
  • FDIV 3.2% (no SEC yield available. Figure based on most recent monthly dividend, annualized.)

Best Multi-Asset ETF

Ignoring the changing trends in the market and taking into account factors such as volatility, the default multi-asset ETF is MDIV. The fund has a diversified portfolio, with assets spread across common stocks, MLPs, preferred stock, REITs, and high-yield bonds (in the form of iShares iBoxx $ High Yield Corporate Bond ETF, or HYG). MDIV doesn't take on extra risk to generate higher yield, and income has been steady to rising in most months. At various times, MDIV will not be the best-performing fund, but it will be a consistent one.

Runner Up

GYLD is a very close second, and for many investors, it may be the first choice. It is more diversified than MDIV, due to adding foreign exposure. Assets are spread evenly across five asset class baskets, and each basket invests in global assets. Its portfolio offers about 40 percent exposure to non-U.S. dollar currencies and 60 percent exposure to non-U.S. assets. However, in order to pick up yield, GYLD doesn't look like a typical global fund with most overseas assets in developed market. For example, South Africa recently represented the largest country exposure in the fund after the United States. That could make for greater volatility during the next emerging market crisis.

Best Multi-Asset ETF for a Rising / Falling U.S. Dollar

With mainly domestic exposure, MDIV is the choice for a rising U.S. dollar. YDIV takes the MDIV strategy and goes overseas; with the most foreign exposure, it is the best option during a bear market for the greenback. In order to fill the portfolio allocations of the various asset classes, it does load up on Canadian and Australian assets. This concentrates risk in two currencies that are heavily influenced by commodity prices. When the U.S. dollar is weak, though, commodity prices tend to rise.

Best Multi-Asset ETF for a Bear Market

With about 75 percent of assets in fixed income, IYLD is going to shine during a normal bear market that doesn't involve fear over the solvency of the financial system or foreign governments. Exposure to high-yield mortgage back securities, emerging market bonds and high-yield debt would have been an issue in 2008, but in a normal economic downturn, the fund will beat competitor funds that are heavily exposed to equities.

Best Multi-Asset ETF for Rising Interest Rates

CVY would be the winner if the competition is restricted to multi-asset ETFs, due to having about two-thirds of assets in equities. CVY started beating MDIV in May 2013, when interest rates started rising. However, iShares Select Dividend ETF (NYSEARCA:DVY) has beaten CVY in total return over the past 5 years, with lower volatility. CVY is the best choice among multi-asset ETFs in a rising rate environment, because it has the lowest fixed income exposure, but if the overriding concern is not current income, investors can find many dividend ETFs that will outperform CVY, with similar-to-even lower volatility.

Best Actively Managed Multi-Asset ETF

To be determined. INKM hasn't impressed thus far, and FDIV is not even two months old.

For detailed coverage of any of the funds mentioned, see the links at the top of the article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.