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Multi-Asset ETFs: The Bets of the Hour?

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The first half of 2016 was tumultuous with China and oil roiling the market in Q1 and the monumental event (or disaster!) like Brexit in the final month of Q2. Plus, growth issues persisted in several corners of the globe, especially in the developed world, and oil prices continued its see-saw ride.

Though the broader market climbed the wall of worry to start Q3 thanks to a volley of upbeat U.S. economic data,the deterrents are still rearing their ugly heads. 

Definitely, back-to-back months of strong job gains, wage growth, better housing, decent-though-not-great inflation and manufacturing data, and solid retail sales are enough to charge up investors (read: Play Global Market Rally with These ETFs).

But soft Q2 productivity, lower-than-expected GDP data for the quarter and subdued business spending are causes of concern. Added to these, the second half of 2016 may be volatile due to the presidential election.

Plus, Brexit blues may resurface anytime. Most central banks are extremely dovish on boosting growth of their respective economies. Japan and the Euro zone are practicing negative rates along with massive monetary stimulus.

All in all, the U.S. economy is on the mend, but still has a long way to go and can even derail if global macroeconomic threats flare up. Plus, stocks are deemed to be overvalued by several analysts as well as the Fed. This is especially true given the ongoing earnings recession.

If Stocks Overvalued What About U.S. Treasuries?

Not only stocks, U.S. treasuries have staged an astounding rally this year (as of August 11, 2016) with iShares 20+ Year Treasury Bond TLT adding over 16%, and PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund ZROZ and Vanguard Extended Duration Treasury ETF EDV surging even higher by over 25%.

The bet for the near-term Fed hike has taken a back seat lately. Now the question is, how long can this rally last? (read: What Does the Solid July Job Data Mean for Bond ETFs?)

Post Brexit, the yield on the benchmark U.S. 10-year Treasury note even dropped to record lows, meaning that the income prospect is pretty low in this segment. On August 8, 2016, the U.S. benchmark Treasury yield was 1.50%.

Should You Diversify Through Multi-Asset ETFs?

In such a situation, uncertainty may pull the strings of both equities and bonds’ investing. As a result, diversification may earn investors some surety in terms of returns with lower risks. Thankfully, there are some multi-asset ETF products, which can help investors to overcome these challenges (read: Multi-Asset ETFs to Counter Volatility).

Notably, the multi asset strategy looks to boost returns and lower overall volatility in the portfolio. These products normally provide a high level of current income and shun downside risks of a specific asset class at the same time. These products cater to various asset classes (equity, fixed income, and alternative securities), which have low correlation to each other.

Investors should also note that a suite of iShares multi-asset ETFs having exposure to both equities and fixed-income hit 52-week highs on August 10, 2016. These ETFs are iShares S&P Moderate Allocation ETF AOM, iShares S&P Conservative Allocation AOK and iShares S&P Growth Allocation ETF AOR.

Apart from the trio, investors can take a look at the ETFs mentioned below for juicy yields and capital gains too.

Arrow Dow Jones Global Yield ETF (GYLD)

This fund provides exposure to across five global areas – sovereign debt, real estate, equities, corporate debt and alternatives. The product gained over 18% so far this year (as of August 11, 2016). The fund yields about 8.09% annually (as of August 11, 2016).

YieldShares High Income ETF YYY

This $103.3-million fund definitely has a high expense ratio of 1.86% but yields about 9.85 annually. The fund holds 30 closed-end funds ranked the highest overall by the ISE on the basis of three criteria namely fund yield, discount to net asset value and liquidity (read: High Income ETFs Worth Their High Costs).

Around 68% of the fund is targeted at debt securities while the rest are in equities. The fund is up about 16% so far this year (as of August 11, 2016).

Principal EDGE Active Income ETF (YLD - Free Report)

The fund is actively managed and does not track an index. It has a net expense ratio of 85 bps. The fund has a tilt toward U.S. high yield corporate bonds (53%) though North American dividend equities also have a sizable exposure (21.8%). The fund has added 13.6% so far this year (as of August 11, 2016). The fund yields about 4.69% per annum (as of August 11, 2016).

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