The Benefits of a Multi-Asset Portfolio for Investors

Annual Returns for Key Indices Ranked in Order of Performance (2003–2022)

The Periodic Table of Investment Returns conveys the strong case for diversification across asset classes (stocks vs. bonds), capitalizations (large vs. small), and equity markets (U.S. vs. global ex-U.S.). The Table highlights the uncertainty inherent in all capital markets. Rankings change every year. Also noteworthy is the difference between absolute and relative performance, as returns for the top-performing asset class span a wide range over the past 20 years.

Investing in a single asset class can be risky, as its performance can be volatile and unpredictable. To mitigate these risks, investors often turn to multi-asset portfolios, which spread their investments across different asset classes, such as equities, bonds, and commodities. In this article, we will explore the benefits of a multi-asset portfolio, particularly in comparison to traditional multi-asset funds.

Low Correlation to Each Theme

One of the main advantages of a multi-asset portfolio is low correlation to each theme. As the chart below shows, equities are the best asset class for long-term investments due to real GDP growth of economies ultimately rising. However, equities are not without their own volatility and drawdowns, which can take years to regain their losses. Investing solely in equities is risky, particularly for investors with a shorter investment horizon.

Bonds and Commodities

For a long time, bonds were not an attractive option for investors, and the typical 60/40 split between equities and bonds would not produce desirable results. However, being able to come in and out of bonds over the short term and in small doses can enhance a multi-asset portfolio's performance. This approach adds to low correlation and better performance.

Commodities are another excellent diversification into the portfolio, and investing in this asset class with the correct amount of exposure during times of low inflation and high inflation will lead to excellent uncorrelation results against bonds and equities. By adding commodities to a multi-asset portfolio, investors can benefit from the different return drivers of this asset class, such as supply and demand dynamics, geopolitical factors, and weather patterns.

Futures and Debt Structures

Investors expect a portfolio that offers uncorrelated returns with steady, stable income year on year. Being able to add in futures and debt structures enhances a multi-asset portfolio's performance. Futures allow investors to benefit from short-term price movements in commodities, currencies, and other assets without having to take physical delivery of the underlying asset. Debt structures, such as corporate bonds and real estate debt, can offer stable income streams with relatively low levels of risk.

In summary, a multi-asset portfolio can provide significant benefits for investors. By spreading their investments across different asset classes, investors can benefit from low correlation to each theme, which can help to reduce overall portfolio risk. By adding in assets such as commodities, futures, and debt structures, investors can enhance their returns and achieve a more balanced, diversified portfolio.