Institutions Lean on ETFs for Multi-Asset Exposure

January 31, 2022 GeneAka Investment Comments Off

More institutional investors are increasingly using exchange traded funds (ETFs) to pad portfolios with real asset exposure amid the market volatility.

An Institutional Investor survey of 766 respondents that included asset allocators notes the shift to ETFs.

“Multi-asset managers – which, by definition, invest across asset classes in an effort to achieve particular outcomes such as growth, income, or risk mitigation – see ETFs as especially useful for their transparency (58%), trading flexibility (55%), liquidity (54%), and transaction cost efficiency (53%) according to 362 asset managers and hedge funds participating in a global survey conducted by Institutional Investor (‘Managing Market Volatility in 2021’),” an Institutional Investor article notes.

“Nearly all asset managers in the study employ multi-asset strategies, which as their name suggests, allow portfolios to be managed using a range of asset classes, sectors, and styles,” the article adds further. “The wide variety and number of ETFs available today make them a natural fit in multi-asset strategies, and institutional investors in the study say they sometimes deploy ETFs as a substitute for individual securities or derivatives.”

Furthermore, ETFs give investors niche exposure and entry to markets that active management is unable to access. Wrapping up real assets in an ETF wrapper also provides much-needed liquidity when unloading assets.

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“As a multi-asset investor, there’s not always an actively managed strategy to access every asset class that I want access to. Sometimes ETFs are the only way to get exposure to the asset class I want, and that combined with their liquidity makes them an easy choice,” one portfolio manager who took part in the survey notes.

Getting real asset exposure doesn’t mean that an investor needs to hold multiple tangible assets to get diversified exposure. An all-in-one solution is the FlexShares Real Assets Allocation Index Fund (ASET ), where volatility is minimized due to the fund holding companies that represent real asset exposure instead of the actual tangible assets themselves.

ASET seeks investment results that correspond generally to the price and yield performance of the Northern Trust Real Assets Allocation IndexSM. The underlying index measures the performance of an optimized allocation to the underlying funds that is intended to provide exposures to certain real assets and minimize the overall volatility of an investment in the underlying funds.

As of January 26, the top three sector allocations were real estate, industrials, and utilities. Moreover, ASET takes a global approach by investing in countries outside of the United States as well, including Canada, the United Kingdom, and Japan.

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