Multi-Asset ETFs: Smart Diversification

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A solid portfolio rarely stands on just one pillar. If one asset class struggles, others can help balance the impact – that’s the basic idea of diversification. Once investors have added broad equity ETFs, the next question often follows: what else belongs in a well-diversified portfolio?

Key building blocks with distinct characteristics

Equities represent the growth engine of any portfolio. By investing in equities, investors become partial owners of a company and participate directly in its economic success. Over long periods, equities have historically delivered the highest real returns –albeit not in a straight line. Periods of decline are part of the journey, and recovery can sometimes take years.¹
Bonds follow a different logic. Instead of owning a share of a company, investors act as lenders: governments or corporations receive capital for a defined period and, in return, pay regular interest. As a result, returns tend to be more predictable than those of equities, and price fluctuations have historically been more moderate. However, bonds can be sensitive to the interest rate environment – when interest rates rise, the prices of existing bonds typically fall. The year 2022 illustrated how pronounced this effect can be.²
Commodities – particularly gold – respond to different drivers. Their prices are influenced by supply and demand, geopolitical developments, weather conditions, and inflation expectations. As they may react differently to economic and interest rate cycles*, they can help stabilise a portfolio during certain periods. At the same time, commodities themselves can be highly volatile, which is why they are typically included only in smaller allocations.

What 150 years of market history suggest

Whether diversification truly enhances stability is illustrated by a Morningstar study. It compares a traditional 60/40 portfolio (60% S&P 500, 40% government bonds) with a pure equity portfolio over a 150-year period. During the Great Depression starting in 1929, the US equity market declined by around 79%, whereas a 60/40 portfolio fell by approximately 53%. Over the full 150-year period, Morningstar* identified 19 bear markets for equities, compared with only 11 for the 60/40 portfolio.

One notable exception remains 2022. In that year, both equities and bonds came under pressure simultaneously, as central banks raised interest rates at the fastest pace seen in decades. In this case, a 60/40 portfolio took noticeably longer than a pure equity portfolio to return to its previous peak. Diversification can therefore mitigate volatility – but not eliminate it.³

Finding the right mix

The appropriate allocation depends less on market forecasts and more on individual circumstances: investment horizon, risk tolerance, and life stage. Investors with a long time horizon – such as 40 years until withdrawal – may be better positioned to tolerate fluctuations and could therefore adopt a more growth-oriented profile with 80–90% equities. Conversely, investors focusing on preserving accumulated wealth may prefer a more defensive allocation with 30–40% equities and a higher bond component.

Between these extremes lie balanced allocations with 50–70% equities, often complemented by modest exposure to commodities, gold, or more specialised asset classes such as REITs* ( Real Estate Investment Trusts), which are typically required to distribute a large portion of their rental income as dividends. The chart below illustrates various positioning examples for multi-asset ETFs.

Source: DWS Investment GmbH, 2026.

For investors seeking exposure to multiple asset classes without continuously managing allocations themselves, so-called multi-asset ETFs may offer a solution. The allocations shown (see Chart 1) can be implemented through a single product. These ETFs combine equities, bonds and – in some cases – commodities according to a predefined target allocation. As market movements shift these weights, portfolios are rebalanced at regular intervals – typically quarterly or semi-annually – to restore the original mix.

This rebalancing process enforces a disciplined, often counter-cyclical investment approach, which can be difficult to maintain individually. Some strategies follow strict allocation rules, while others allow for tactical adjustments by the management team (active multi-asset ETFs). The implications of the equity allocation for long-term wealth accumulation can be summarised succinctly: the lower the equity share, the smoother the potential return profile – though typically with lower long-term return potential. A higher equity allocation may offer greater return opportunities, but is likely to come with more frequent and pronounced fluctuations. Multi-asset ETFs can help reduce the ongoing management effort; however, the fundamental decision regarding acceptable volatility remains. This is precisely where their value lies: they can make it easier to stay committed to a chosen investment strategy, even through more challenging market phases.

¹ UBS, 2025, Global Investment Returns Yearbook 2025, accessed on May 3, 2026

² Bloomberg, 2026, Bloomberg Global-Aggregate Total Return Index Value Unhedged USD, accessed on May 3, 2026

³ Morningstar, 2026, The 60/40 Portfolio: A 150-Year Markets Stress Test, accessed on May 3, 2026

Glossary

Interest rate cycles: The interest rate cycle describes the recurring fluctuations of interest rates over time – phases of rising and falling rates.

Morningstar: Morningstar is an independent financial research and analysis firm providing data, analytics and ratings on funds, ETFs and equities to support investment decisions.

REIT: A Real Estate Investment Trust (REIT) is a listed property company that enables investors to invest indirectly in real estate and participate in rental income and profits.

Risks of Multi-Asset Exchange Traded Funds (ETFs)

The fund is not capital protected. The value of your investment may fall as well as rise. Past performance is not a reliable indicator of future results.
Bonds are subject to credit and interest rate risk. There is a risk that the bond issuer may be unable to make interest payments or repay principal, which may result in a loss on your investment. Rising interest rates typically lead to falling bond prices, which may also affect the value of your investment.
The fund invests in commodities. Commodity prices are influenced by various economic factors such as supply and demand, weather conditions and natural events, agricultural, trade, fiscal and monetary policy, as well as political developments and other unforeseen events, all of which may impact your investment.
The value of an equity investment depends on a range of factors, including market conditions, the current economic environment, sector developments, geographic region and political events.

All opinions reflect the current assessment and may change without prior notice. Forecasts are based on assumptions, estimates, views and hypothetical models or analyses that may prove to be inaccurate. Past performance is not a reliable indicator of future performance. Source: DWS International GmbH; as of 18 May 2025. CR: 110346