Maybe you need a fork, not a knife

The results are in: it turns out that multi-asset investing might be more than just another ho-hum investing approach. Instead, it might deserve to be the go-to strategy for portfolio management, at least in certain markets.

The table below indicates the performance of various asset classes in certain key developed and emerging markets.

As can be seen, across all markets, a multi-asset strategy achieved an optimal outcome in terms of the risk-to-returns balance. In some cases, it outperformed domestic equity in local currency terms. Another critical point to note is that over the 20-year period covered by the table, gold outperformed equity markets in local currency terms across all markets except India.
What’s especially noteworthy here is the difference in standard deviation between equities and a multi-asset approach. With a multi-asset approach, strategic allocation among various asset classes — including equities, fixed income, commodities, and potentially even real estate — ensures that poor performance in one class can be offset by gains in another.

Also, it’s not that multi-asset strategies have only delivered good returns over a long horizon: data suggests that such strategies have done quite well in the short- and medium-term as well, as can be seen in the table below.

Thus, Indian multi-asset funds have delivered returns of 26.4% over the past year, and annualized returns of 17.2% over the last five years: undoubtedly impressive no matter how you slice it.

The outperformance of such funds has been bolstered by the surging prices of gold, which has done especially well this year: a mix of geopolitical tensions and inflationary pressures have allowed the yellow metal to once again solidify its status as a safe-haven asset.

In conclusion, going the multi-asset way not only reduces risk through diversification but also enhances the potential for returns across a broad variety of economic conditions. And a conservative asset allocation, when exercised over the long term, can lead to multi-generational wealth creation. As detailed above, this strategy has worked across many markets and has delivered equity-like returns with less volatility (and thus, less risk).

For more actionable insights backed by data and analyses, we invite you to read the latest edition of Netra in its entirety.