Get income and wealth diversification with CVY


Given the relatively low interest rates and the volatility yet to come in 2022, multi-asset exposure with an ETF is like that Invesco Zacks Multi-Asset Income ETF (CVY) could help solve the two problems.

In times of market uncertainty, taking multi-asset exposures can help diversify a portfolio by adding uncorrelated assets to the mix to reduce concentration risk in a particular asset class. But if an investor wants multi-asset exposure and income at the same time, CVY is to the rescue.

With a 30-day SEC yield of nearly 4%, CVY outperforms benchmark safe-haven government bonds. Compared to the 30-year Treasury yield of 1.9%, CVY is almost twice as high.

According to its fund description, CVY is based on the Zacks Multi-Asset Income Index. The Fund invests at least 90% of its total assets in the securities and depository receipts that make up the index.

The index consists of national and international companies, including US-listed common stocks, American Depositary Receipts (ADRs) that pay dividends, Real Estate Investment Trusts (REITs), Master Limited Partnerships (MLPs), closed-end funds and traditional preferred stocks. The index is calculated on the total gross return, which reflects the dividends paid.

Diversification is key in 2022

Given the market volatility in the New Year with the Omicron variant and inflation as the main drivers, investors can use multi-asset exposure to hedge against big market moves, especially when it is going down. This is particularly the case because different asset classes rotate annually when evaluating winners and losers.

“Asset class performance varies by time period, making it difficult to predict losers and winners on an annual basis,” read a Morningstar article. “The picture below shows the calendar year-related returns (in INR) for various asset classes / markets.”

“The best performing asset for each year is highlighted in dark green and the worst performing asset is highlighted in red,” the article adds. “A closer look at the graph shows that winners in certain years were losers in subsequent periods and vice versa.”

That said, exposure to multiple asset classes can prevent investors from focusing too much on an asset that may or may not be performing.

“For example, Indian stocks outperformed in 2009 and 2010 but turned out to be the worst performers in 2011,” the article adds. “When global equity markets saw sharp corrections in 2008, debt outshone. In 2013 and 2019, when Indian stocks generated poor returns, international equity markets such as the US and Europe performed outstandingly. On a CAGR basis, developed markets driven by US stocks have outperformed Indian stocks since 2008. “

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