"Should I build my own mix of ETFs or just choose one that does it all?" It’s a common question for investors trying to balance control with simplicity. Multi-asset exchange-traded funds (ETFs) sit right in the middle, offering broad exposure, automatic rebalancing, and a hands-off way to stay diversified.
Building a well-rounded investment portfolio can feel like juggling several puzzle pieces at once. You're managing risk, choosing asset classes, considering geographic exposure, and aligning with your goals and time horizon. Multi-asset ETFs aim to make that process a little simpler. But how exactly do they work, and what role can they play in your investing strategy?
Let's explore what multi-asset ETFs are, how they differ from diversified ETFs, and the benefits and limitations they bring to the table. Most importantly, we’ll look at how you might incorporate them into your portfolio – whether you're just starting out or refining a more complex strategy.
What are multi-asset ETFs?
A multi-asset ETF is a type of fund that provides exposure to more than one asset class. It commonly includes a mix of equities (shares), fixed income ( bonds ), cash equivalents, and sometimes even commodities or real estate. These funds are typically designed to offer a balanced approach to investing, often targeting a specific risk level or investment objective.
For example, a conservative multi-asset ETF might hold a larger proportion of bonds and cash, while a growth-oriented version could lean heavily toward equities. Some ETF providers offer a range of options – conservative, balanced, growth, and high growth – allowing investors to choose the blend that best suits their risk tolerance and investment goals.
Multi-asset ETFs can be appealing for investors looking for a “set-and-forget” option that still provides diversified exposure across markets and asset classes.
How do multi-asset ETFs differ from diversified ETFs?
At first glance, multi-asset ETFs and diversified ETFs might seem similar – they both aim to reduce risk by spreading investments across a broad range of securities. But there are key differences.
A diversified ETF typically refers to a fund that invests in many different securities within a single asset class. For example, a broad-based share ETF might track the entire Australian or global stock market, giving you exposure to hundreds or even thousands of companies. These ETFs help manage risk by diversifying across sectors and geographies, but they’re still concentrated in one asset class.
Multi-asset ETFs, on the other hand, diversify across asset classes as well. This means you’re not just spreading your investments across different companies or regions, but also across fundamentally different types of assets that tend to behave differently under various market conditions. For instance, bonds may hold their value or even rise when shares fall, helping smooth out volatility.
In short, all multi-asset ETFs are diversified, but not all diversified ETFs are multi-asset.
Learn more in our guide to diversified ETFs , our comparison of diversified ETFs versus “normal” ETFs , and our comparison diversified ETFs and DIYing your portfolio .
What are the potential benefits of multi-asset ETFs?
Multi-asset ETFs come with a number of potential advantages, especially for those looking for a simplified or hands-off investment solution.
1. Built-in diversification
Rather than needing to select and balance multiple ETFs or asset classes yourself, a multi-asset ETF does it for you. This can save time, reduce complexity, and lower the risk of making poor allocation decisions – particularly in volatile markets.
2. Automatic rebalancing
Many multi-asset ETFs are actively managed or follow a rules-based approach to maintain their intended asset allocation. If market movements cause the portfolio to drift from its target mix, it’s automatically rebalanced without you needing to lift a finger.
3. Cost-effective exposure
Although fees vary, multi-asset ETFs may be cheaper than building a similar portfolio yourself from multiple ETFs. This is especially true when you factor in brokerage fees and the administrative effort of ongoing rebalancing.
4. Simple entry point
For new investors or those with smaller amounts to invest, a multi-asset ETF can provide instant exposure to a broad, balanced portfolio with a single trade.
What are the potential drawbacks?
While multi-asset ETFs offer simplicity and diversification, they aren’t necessarily the right fit for everyone.
1. Limited customisation
By design, multi-asset ETFs are “one-size-fits-most.” That means you won’t have much control over the specific underlying holdings or the timing of portfolio changes. If you have strong views about certain sectors, geographies, or asset classes, a more hands-on approach might suit you better.
2. Overlap with other holdings
If you already hold other ETFs or investments, adding a multi-asset ETF could create overlap – especially in large-cap equities or government bonds. That could distort your overall asset allocation or increase exposure to assets you didn’t intend to prioritise.
3. Fees can vary
While many multi-asset ETFs are cost-effective, they may have higher fees than single-asset passive ETFs, particularly if they’re actively managed. It’s worth comparing the management fees with alternative ways to build a similar portfolio yourself.
How can you incorporate multi-asset ETFs into your portfolio?
Depending on your goals, risk tolerance, and how much time you want to spend managing your portfolio, there are a few different ways to use multi-asset ETFs.
1. Core-satellite approach
The core-satellite approach uses a broad investment as the base (core), with smaller, targeted picks (satellites) added around it.
Some investors incorporate a multi-asset ETF as the core of their portfolio. This provides broad, balanced exposure across major asset classes in a single holding. You could then add a few satellite investments to reflect your own investment ideas or target additional growth. Examples of satellite investments include thematic ETFs and individual shares.
2. Starter portfolio
Multi-asset ETFs can be a good entry point for new investors who want to start investing without needing to make complex decisions about asset allocation. As your confidence grows, you may choose to diversify further or build a more tailored strategy over time.
3. Hands-off long-term strategy
If your goal is long-term wealth accumulation and you don’t want to regularly research and rebalance, a multi-asset ETF could serve as a low-maintenance solution. Choosing a fund that matches your investing horizon and risk tolerance – and sticking with it – can be a solid approach to growing wealth over time.
Considering the role of multi-asset ETFs in your portfolio
It’s easy to focus on finding the top-performing ETF, but the real value comes from choosing investments that align with your goals, risk tolerance, and how you like to invest. Multi-asset ETFs offer a straightforward, diversified, and often cost-effective way to get started or stay invested.
But like any investment decision, it’s worth doing your homework. Think about what you want your portfolio to do for you – and how hands-on (or hands-off) you want to be in getting there. Whether you use a multi-asset ETF as your foundation or just one piece of the puzzle, the most important part is that it fits your vision.
Happy investing!
