Whether it is Spider Man, Iron Man, or Thor – all have unique superpowers. But when they come together as the Avengers, they emerge even stronger. The most dangerous villains don’t stand a chance against this united force.
Similarly, in investment, every asset class provides unique advantages. But when they come together in one portfolio, they make it stronger. This enables your portfolio to battle risks more efficiently and generate superior risk-adjusted returns. This, in a nutshell, is Multi-Asset Strategy.
In this article, let us learn all about Multi-Asset Strategies
- Understanding Multi-Asset Strategies
- Sub-Asset Classes
- Types of Multi-Asset Strategies
- Who Offers Multi-Asset Strategies
- Multi-Asset Strategies are suitable for whom
- Key Benefits of Multi-Asset Strategies
Understanding Multi-Asset Strategies
Multi-Asset Strategies involve investing in multiple asset classes, such as stocks, bonds, and alternatives – like real estate, gold, cash and cash equivalents, and private equity. The weightage or exposure to each asset within the portfolio is determined based on the individual investor’s risk appetite, investment horizon, and financial goals.
Such a portfolio, built through careful asset allocation, provides diversification, reduces risk, and helps in achieving financial goals effectively.
Typically, it was felt that diversifying a portfolio with equities and bonds was sufficient. But this was proved wrong during the 2008 Global Financial Crisis. At the time, both equity and bond markets were impacted, and the need for diversification beyond these two asset classes was felt strongly. This led to the rising popularity of Multi-Asset Strategies, globally.
A great example of multi-asset strategies is PL’s Multi-Asset Dynamic Portfolio (MADP). It is India’s first 100% quant-based multi-asset investment strategy. This portfolio management service (PMS) strategy has been created by Quantifi, PL’s quantitative research and investment management arm.
MADP provides exposure to seven different asset classes. The proprietary meters, quant technology, and dynamic asset allocation model ensure that the investment is made in the right asset class at the right time during various market cycles, thereby providing capital appreciation and long-term stability.
To know more about MADP, click here
Broadly, the asset classes are divided into stocks, bonds, and alternatives. But each asset class comprises several sub-asset classes within it.
Stocks can be categorised into several categories such as:
- Market cap: Large cap, Mid cap, Small cap
- Style: Growth, Value
- Sector: FMCG, Pharma, BFSI, and many more
- Geography: Domestic i.e. Indian markets, US, Asia, Japan, and so on
Bonds are divided into
- Duration: Long, medium, and short-term
- Credit Quality: AAA, AA, and so on
- Geography: Global, Domestic, Emerging Markets, and so on
- Currency: Rupee, USD, Euro, etc
- Hedge strategies
- Private Equity
- Real Estate
Types of Multi-Asset Strategies
Multi-Asset Strategies are not a one-size fits all investment approach. It is a carefully calibrated portfolio, based on several factors. Different types of Multi-Asset Strategies are now available for investors to choose from.
The most common ones are:
- Target Risk: In this type of multi-asset strategy, the asset allocation is determined based on the risk appetite of investors – aggressive, moderate, or conservative. An aggressive multi-asset strategy would have a higher allocation to equities while a conservative multi-asset strategy would have a higher allocation to relatively safer asset classes like debt.
- Target Date: This type of Multi-Asset strategy is designed to achieve specific returns in a specific time frame, and towards a particular goal. The allocation is determined with the target date of withdrawal in mind.
- Global Macro: In this multi-asset strategy, investment is made globally, across asset classes, to generate better risk-adjusted returns.
Who offers Multi-Asset Strategies
Over the years, Multi-Asset Strategies have gained prominence. They offer product differentiation as well as higher flexibility in investment.
Different types of financial services companies, like asset management firms, mutual fund houses, and brokerages offer Multi-Asset Strategies.
PL’s in-house team of experts have created a first-of-its-kind multi-asset strategy called MADP.
You can learn all about MADP here
Multi-Asset Strategies are suitable for whom
Multi-Asset Strategies are widely used by asset management firms, insurance companies, and other large institutional investors.
Individual investors also use multi-asset strategies to bring in diversification and achieve financial goals. Mutual Funds, PMS, and AIFs are vehicles through which individual investors can avail this investment strategy.
If you are a PL client, then you can invest in multiple asset classes under one roof.
Click here to open a Demat account with PL now
Also check out our flagship Multi-Asset Dynamic Portfolio PMS here
Key Benefits of Multi-Asset Strategies
Multi-Asset Strategies offer a range of benefits to individual and institutional investors. Here are some of the key ones you should know:
As the name suggests, Multi-Asset Strategy means investing in multiple asset classes. This enables you to diversify your portfolio and reduce concentration or over-dependence on a single asset class. Thus, volatility or underperformance of a single asset class doesn’t heavily impact the overall health of the portfolio.
Better Risk-Adjusted Returns
Diversification reduces risk and thereby protects returns. As a result, your portfolio has the potential to generate better risk-adjusted returns in the long term.
Multi-Asset Strategies that are dynamically rebalanced can ensure that the investment is made in the right asset class at the right time during various market cycles.
PL’s in-house flagship PMS, MADP, rebalances the portfolio when an asset class is on the verge of a large inflection point. Such an agile and dynamic allocation strategy protects investors’ capital in a down cycle and participates in an upcycle, thereby generating consistent returns over the long-term.
Opting for a professionally managed Multi-Asset Strategy saves you the trouble of actively monitoring and rebalancing your portfolio. Instead, trained investment managers can handle your portfolio and ensure you are on track to meet your goals.
By minimizing risk through exposure to multiple asset classes, your portfolio can enjoy better stability in the long term.
Evidently, the benefits are plenty. But bear in mind that Multi-Asset Strategies require solid research and a good understanding of issues and events impacting different asset classes.
When done right, Multi-Asset Strategy has the ability to tide over volatility, protect your portfolio and generate superior risk-adjusted returns.
PL’s Multi Asset Dynamic Portfolio is a quant-based asset allocation strategy, which takes passive exposure to asset classes via Index Funds or ETFs to eliminate stock and sector selection risk, while focusing solely on asset allocation. This enables it to drive superior absolute risk adjusted returns across economic and market cycles.
To know more about PL’s Multi Asset Dynamic Portfolio , click here