In any given year, some assets are popular while others fall out of favor. That’s why it’s wise to own a basket of differentiated assets that can lower volatility and potentially produce enhanced risk-adjusted returns. Investors can play this one-stop shop approach, known as multi-asset investing, through a handful of exchange-traded funds with portfolios that focus on four or five key asset groups. Several of these funds debuted in 2012, and they’ve quickly gained a following.
“These funds are seeing a lot of inflows right now,” says David Mazza, head of ETF investment strategy for the Americas at State Street Global Advisors. State Street’s offering in this niche, the SPDR SSgA Income Allocation ETF (INKM), has taken in more than $100 million this year, according to Mazza.
Each ETF in this group pursues a distinct approach, enabling financial advisors to select the basket of assets best suited for their clients.
SPDR SSgA Income Allocation ETF (INKM)
This fund aims to stand apart by deploying an active rather than passive management approach. Its fund managers can pick from nearly two dozen other income-focused ETFs that are part of the SPDRs program, giving extra weighting to the ETFs that seem best suited to current market conditions.
State Street fund managers use what is known as a “market regime indicator,” which helps determine if the market shows a greater preference for upside or safety (i.e. the “risk on” or “risk off” trade). Mazza says the fund management team also looks at a series of fundamental measures to ensure that the fund gets rebalanced into the best values.
This fund has been a relative under performer, rising just 9 percent since its April 2012 launch. That’s because it has a fairly aggressive 35 percent weighting in low-yielding, high-grade investment bonds. That emphasis also explains why its 30-day SEC yield 3.8 percent is less than its peers. Despite the fund’s active oversight, the 0.70 percent annual expense ratio is in the mid-range of the group average.
Mazza believes the greatest virtue of this fund is the deep level of information it provides: State Street offers a monthly strategy review on the fund’s home page under the heading ‘Active Asset Allocation ETF updates.’ “This is where we want to be as transparent as possible with our positioning,” Mazza says.
Arrow Dow Jones Global Yield ETF (GYLD)
This fund, which launched in May 2012, tracks the Dow Jones Global Composite Yield Index that goes beyond the U.S. borders in search of high-yielding stocks, bonds (corporate and sovereign), REITs and preferreds. It maintains a 20 percent weighting in each niche and rebalances quarterly to harvest profits in the fund’s strongest gainers and to re-deploy funds into recent under performers.