With roughly two-thirds of its assets in stocks and ADRs, this ETF is firmly grounded in the equity markets. It also tilts heavily toward energy-related investments such as energy stocks and master limited partnerships. According to the firm’s latest fact sheet, about one-quarter of assets are in traditional energy stocks, with another 20% in investments related to oil and gas storage and transport, oil and gas exploration and production, and integrated oil and gas. Another 36% of the portfolio is in the financials sector.  

At $786 million in assets, First Trust Multi-Asset Diversified Income (MDIV) has target allocations of 25% for common stocks and ADRs, 20% for real estate investment trusts, 20% for preferred securities, 20% for master limited partnerships and 15% for bonds. The bond sleeve is filled through a single investment, the iBoxx $ High Yield Corporate Bond ETF. The common stock basket has about 50 holdings, and the rest have 25 holdings filtered for yield and other criteria.

Matthew Sauer, chief investment officer at the ETF Investor Guide newsletter, points to the First Trust offering as the more diversified of the two. Because bonds and preferred securities occupy substantial real estate in the fund, it has the potential to be less volatile.

“The portfolio is well diversified across income-producing securities, with hefty exposure for each asset class,” he noted in a recent blog.

“Its low-volatility approach has worked in the past, and aside from periods of major financial market stress such as 2008, it will continue working in the future. A longer track record of rising dividends would be encouraging.” On the other hand, he pointed out that with its heavy emphasis on equities and minimal bond exposure, the Guggenheim ETF could hold up better than other multi-asset ETFs in a rising rate environment.

A number of smaller multi-asset ETFs, most introduced in the last year or two, have assets ranging from about $100 million to $200 million. Arrow Dow Jones Global Yield ETF (GYLD) achieves a yield of around 6% by splitting the portfolio in equal proportion into global corporate debt, global alternative, global equity, global real estate and global sovereign debt. With 57% of its assets in non-U.S. markets, and significant exposure to non-U.S. currency, the fund has broad exposure to foreign markets. At the more conservative end of the spectrum is the iShares Morningstar Multi-Asset Income (IYLD). Its split of 60% bonds, 20% stocks and 20% alternative income produces a yield of 6.4%, and it has an expense ratio of .65%.

Rather than maintain a static asset allocation, some newer funds launched earlier this year move things around more with active allocation management. Launched in August, WBI Tactical High Income Shares (WBIH) caps equity and bond exposure to 80%, including securities often found in the multi-asset space such as master limited partnerships and high-yield bonds. It also has a stop-loss discipline to limit losses. At 1.08%, its expense ratio is on the high side, but time will tell if it’s worth it.

Managers of another actively managed offering, First Trust Strategic Income (FDIV) can also shift allocations. According to the fund’s latest fact sheet, its largest allocation is dividend-paying equities (27%), followed by master limited partnerships (22%) and preferred securities (17%).

Two smaller international and global multi-asset ETFs round out the roster. The $13 million First Trust International Multi-Asset Diversified Income ETF (YDIV) has an expense ratio of .70% and a yield of 4.2%, while the $32 million Guggenheim International (HGI) has an expense ratio of .83% and a yield of 3.9%.

While diversification is marketed as a drawing card for all of these ETFs, it’s important to note that an unusually prolonged period of low interest rates have pushed up valuations, as well as correlation, across a wide variety of income-producing securities. All of them will be vulnerable if rates rise and income seekers abandon more exotic fare to return to old-fashioned CDs and bonds.

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