The Science and Art of Multi-Asset Investing

Generating consistent returns under uncertain conditions is a challenge. Can multi-asset strategies make the job a little easier? We think so. But a lot depends on how they’re designed.

Institutional investors today are wrestling with strategic allocations in the face of a challenging environment. Expected returns for stocks and bonds are low. Regulatory oversight is increasing. There’s a massive industry shift from active to passive investment strategies. And additional investment objectives such as environmental, social and governance considerations are growing more important.

We think a flexible and well-diversified multi-asset approach can help. But there are a myriad of asset classes and strategies to choose from—traditional and nontraditional, active and passive, liquid and illiquid. There are also many approaches to designing such a solution.

In our view, a multi-asset solution has to do three things:

  1. Generate excess returns above an optimal mix of stocks and bonds
  2. Diversify an overall portfolio to ensure more consistent returns
  3. Limit volatility and protect investors against large drawdowns

But to be truly effective, multi-asset solutions need to be dynamically managed, unconstrained and fully integrated. Simply stitching together a number of single-asset strategies into one portfolio isn’t enough. What truly drives the returns of each building block? In which environments is it expected to be more effective or less effective? How do the pieces fit together and how do they alter the portfolio’s overall characteristics?


History is a good starting point in answering these questions—but it’s only a starting point.

The following Display compares the historical risk-adjusted returns of several building block strategies and asset classes, as measured by their long-term Sharpe ratios, with their consistency of return—in other words, how reliable is that Sharpe ratio over a given time period?