The wave of ETF launches has now hit the multi asset space, with First Trust rolling out a product targeting the global multi asset market. The First Trust International Multi-Asset Diversified Income Index Fund (YDIV - ETF report) provides exposure to the multiple asset classes across the globe through a single investment.
Multi asset ETFs are in high demand of late, as the global markets are likely to stay volatile in the coming months due to concerns over the Fed’s QE3 tapering and its impact on interest rates as well as slowing growth in major emerging markets (read: Senior Loan ETFs: The Best Bet for Rising Rates?).
What are Multi Asset ETFs?
Multi asset ETFs are the funds that invest in a combination of diverse asset classes such as investment grade and high yield bonds, domestic and international markets stocks, preferred stocks, REITs and MLPs.
These funds offer great diversification benefits by investing across different asset classes. These aim to provide a high level of current income with stability and potential for long-term appreciation while simultaneously avoiding downside risk (read: What Does Your Income ETF Focus On?).
By investing in diverse asset classes, which have low correlations, these ETFs actually reduce volatility and provide stability to the portfolio. Diversified portfolios in general deliver superior risk-adjusted returns over the long term.
YDIV in Focus
The new ETF looks to track the NASDAQ International Multi-Asset Diversified Income Index, holding above 120 stocks in the basket. The ETF will charge investors 79 basis points a year in fees for this exposure.
According to the company filing, the product puts 25% of the total assets in dividend paying equities, 15% in fixed income securities and the rest equally in REITs, preferred securities and infrastructure companies (read: High Dividend ETFs to Buy Even If the Fed Tapers).
In terms of regional exposure, North America and Europe take the top two spots at 38% and 37%, respectively. Asia Pacific, Latin America, Asia, Africa, and Middle East also get decent allocations in the basket.
Basically, YDIV is the international counterpart of First Trust’s most popular Multi-Asset Diversified Income Index Fund (MDIV). This ETF has accumulated nearly half a billion in AUM within one year of its debut.
Can it Succeed?
There is still an appetite for such securities despite a good number of choices already in the space (see all the Zacks ETF Categories here).
The international multi asset ETF faces tough competition from the Guggenheim International Multi-Asset Income ETF (HGI - ETF report) , which has roughly $115.3 million in AUM. The fund holds 155 securities in its basket while charges investors 70 basis points a year in fees for this service.
The next is the Arrow Dow Jones Global Yield ETF (GYLD - ETF report) , which has amassed over $77 million in assets. The portfolio is equally weighted across global equities, corporate debt, sovereign debt, real estate and alternatives. It cost investors 75 bps in annual fees (see more in the Zacks ETF Center).
Among domestic counterparts, the popular multi-asset income ETFs – Guggenheim Multi-Asset Income ETF (CVY - ETF report) , iShares Morningstar Multi-Asset Income ETF (IYLD) and SPDR SSgA Income Allocation ETF (INKM) – also provide stiff competition to the new First Trust product.
However, given the huge success for the First Trust’s MDIV, it would not be much difficult for its international counterpart, YDIV, to see big inflows and solid investor interest given the global market uncertainty.
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