Multi-asset 101

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Introduction

Nobody has a crystal ball to tell when a significant event is going to shock the financial market. But that does not imply there is no way to deal with market volatility. In fact, for long-term investors, building a multi-asset portfolio is the best way to manage risk. You might think that managing various investment vehicles (i.e. different asset classes in different sectors from around the world) is going to be cumbersome and costly. There are actually solutions. One of which is to invest in mutual funds with a multi-asset strategy. The goal is to strive for steady returns amidst the ups and downs of an economic cycle over a long-term time horizon.

Investing 101: Why diversify? Because winners rotate.

Equities and bonds react differently to the same market condition. Put together, they can be complementary and help balance the risks and returns of an investment portfolio more effectively.

What is ‘multi-asset’?

The financial market can be rough, and black swan events can catch investors off guard.

Multi-asset strategies are more than stocks and bonds

The financial market can be rough, and black swan events can catch investors off guard. Investors should therefore always assess whether their approaches are on track to deliver desired results and manage downside risks that are linked to asset prices. After all, historical data has already indicated that no particular investment can be an all-time winner outperforming other asset classes perennially.

As a result, investing in just one single type of equities or bonds might not be sufficient to achieve satisfactory results. Investors should consider utilising different types of securities or financial tools for diversification purposes, which means building a multi-asset portfolio. Apart from the more familiar investment vehicles such as bonds and equities, it is also worth including real estate and money market instruments in a portfolio to enhance its diversity.

Achieving a smoother investment journey

Getting wealthy is a dream to many, and making investment is one of the avenues.

Achieve a smoother investment journey for less vexation

Getting wealthy is a dream to many, and making investment is one of the avenues. While investing, a lot of people wish to make outsized returns, yet at the same time they would strive to maintain stable performance in the long run, so that they may not have to suffer so much anxiety due to short-term volatility. Some asset classes (such as equities) tend to yield higher potential returns, but the associated risks are also higher. On the contrary, relying solely on low-risk assets might put a dent on the overall performance of a portfolio.

How to strike a balance between making returns and capping short-term volatility? A multi-asset investment portfolio, whose different asset classes - from different geographies and denominated in different currencies - will be rebalanced from time to time according to changing market conditions. The aim is to diversify its income sources and lower the overall risks.

The key to portfolio construction

As a rule of thumb, building a highly diversified portfolio helps generate relatively more stable, long-term returns.

Putting together the vastly different things for diversification

As a rule of thumb, building a highly diversified portfolio helps generate relatively more stable, long-term returns. But how can the strategy be actualised? Practically, that means the different asset classes held in a portfolio have to be complementary or lowly-correlated (i.e. they react differently to the same macroeconomic condition).

It is well-known that the risk-return profiles of stocks and bonds are vastly different, so are securities from different geographical markets or denominated in different currencies. More precisely, global corporate bonds and emerging market bonds have relatively low correlation. And within emerging market debts, those denominated in US dollar can perform differently compared to their counterparts issued in local currencies.

Multi-asset investment threshold

A multi-asset portfolio helps withstand market shocks. But its construction entails good understanding of a huge variety of financial instruments from around the world.

Building a multi-asset portfolio may not have to be costly

A multi-asset portfolio helps withstand market shocks. But its construction entails good understanding of a huge variety of financial instruments from around the world. Investors might find the task daunting. After all, managing a multitude of asset classes just cannot be simple and the investment threshold is unlikely to be low.

The truth is: the opposite holds true. Investors can achieve the goal of diversification through investing in different types of multi-asset mutual funds based on his or her investment objectives and risk tolerance. These vehicles are overseen by professional portfolio managers dexterous with asset allocation. Such strategy allows one to diversify and may not have to be costly.

Resources

Equity 101

Investing in equities unlocks potential returns from share price growth and dividend payouts.

Fixed Income 101

Regardless of your investment approach - be it conservative or aggressive - do always include bonds in your portfolio.

Interest rate and inflation 101

Learning the relationship between interest rates and inflation is of utmost importance to successful investment.

Risk Warning

This page is prepared for general information purposes only and does not have any regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive it. This page does not constitute an offering document and should not be construed as a recommendation, an offer to sell or the solicitation of an offer to purchase or subscribe to any investment. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management (Hong Kong) Limited (“AMHK”) accepts no liability for any failure to meet such forecast, projection or target. AMHK has based on information obtained from sources it reasonably believes to be reliable. However, AMHK does not warrant, guarantee or represent, expressly or by implication, the accuracy, validity or completeness of such information.