Multi-asset methods are the supreme self-discipline in funding administration. Managers of those methods think about all asset courses worldwide as a part of their funding universe. For greater than 20 years, multi-asset’s rise in reputation has been one of many success tales in our trade. On this submit, we focus on a key problem for multi-asset managers — precisely and plausibly benchmarking their performances — and share the most recent traits on essentially the most consultant multi-asset-benchmark, the International Capital Inventory (GCS).
Multi-asset property underneath administration (AUM) rose from lower than $2 trillion in 2003 to about $16 trillion in 2023 (FTSE Russell, 2024). These property now signify roughly 13% of the $120 trillion international asset administration trade (BCG, 2024). Momentum towards multi-asset has cooled for the reason that COVID 19 pandemic, nevertheless. It seems that these methods will not be solely difficult to handle, but additionally difficult for traders to watch.
In contrast to single-asset methods, the dearth of well-curated, consultant multi-asset indices makes it tough for advisers and traders to evaluate how their funds evaluate the broader market (Vanguard, 2023). Second-tier approaches like peer group analyses lack enchantment and accuracy as a consequence of incentivized self-selection biases.
Measuring the International Capital Inventory
Benchmarking multi-asset methods was under-researched till we began in 2014 to research the potential of measuring the capital inventory, together with all monetary and nonfinancial property (Vacchino, Gadzinski, Schuller, 2016 and 2018).
Our purpose was to supply a International Market Portfolio for traders based mostly on a measurable benchmark of the International Capital Inventory (Vacchino, Gadzinski, Schuller, 2021), together with each bodily and monetary capital that may very well be traded available in the market no matter whether or not these property are used or not. Whereas the dimensions of monetary property are publicly accessible, it’s much less trivial to find out the weights of non-financial property.
We used knowledge from essentially the most dependable public worldwide sources from 2005 onward to reduce the info precision gaps between conventional and different property, thus giving a extra correct image of the relative weights of every asset class at one cut-off date (Vacchino, Gadzinski, Schuller,2018).
Relevance
A reliably consultant benchmark for multi-asset methods addresses the primary challenge traders expressed. Timing difficulties, greater charges and associated points pose to be a spinoff of getting lacked such consultant benchmark, previous to the provision of the International Capital Inventory measure.
These points must be addressed to additional strengthen the momentum of the multi-asset section rising into a bigger nominal and relative share of the worldwide asset administration trade. Because of the nature of their portfolios, multi-asset managers adhere to a sophisticated toolbox of evaluation strategies that’s wanted in in the present day’s markets to deploy capital effectively.
Why is that so? Capital markets have develop into tougher to navigate for the reason that international monetary disaster, regardless of quite a few regulatory measures having standardized and derisked processes. Markets are, the truth is, much less environment friendly and extra advanced in the present day.
Exemplarily, passive methods, momentum buying and selling, and short-term buying and selling within the intersect of algorithmic buying and selling have disrupted and delayed the worth adjustment mechanism. That is significantly evident in elementary approaches, the place funding horizons have considerably lengthened earlier than elementary undervaluation begins to right. Funding administration has counterintuitively changed into a defensive box-ticking train, whereas explorative conduct can be required to use elevated market inefficiency.
In parallel to this monetary oxymoron, markets have seen the rise of passive investing, issue investing, and multi-asset investing during the last 20 years. The latter two purpose to extract alpha from exploiting alternative units, with multi-asset being most versatile in using passive replication and issue investing in its portfolio building. This makes it the Swiss knife amongst funding administration methods, and a supreme self-discipline on the identical time.
The International Capital Inventory in Charts
Our most up-to-date replace of the International Capital Inventory index concluded on the next nominal aggregates and relative weights by the top of 2023:
International Capital Inventory per Asset Class in Trillions of US {Dollars}

International Capital Inventory per Asset Class by Share

The International Capital Inventory in Tendencies
The mixture nominal US greenback worth of the GCS by the top of 2023 was $795.7 trillion, and the typical annual development fee was 4.94% from 2005 to 2023. The GCS greater than doubled between 2005 and 2023. The pure diversification impact — derived from actual financial development and danger elements being causally heterogeneous on an idiosyncratic stage — results in a nominal appreciation with minimal general volatility over time. Per asset class, the volatility may be vital. In 2008, as an example, the worldwide inventory market worth halved to $32.42 trillion from $60.46 trillion in 2007.
Some current traits may be noticed:
Equities: A Rollercoaster Trip: The worldwide inventory market capitalization has skilled vital volatility over time. After reaching a peak of $111.16 trillion in 2021, it declined to $93.69 trillion in 2022, reflecting the impression of financial uncertainties and market corrections.
Debt Securities: Regular Progress: Public debt securities have steadily elevated from $20.34 trillion in 2005 to $68.02 trillion in 2022, indicating a rising urge for food for fixed-income investments. Equally, monetary establishments bonds and non-financial company bonds have additionally skilled constant development, reaching $46.55 trillion and $18.65 trillion, respectively, in 2022. The expansion in public debt is marked by vital regional disparities. Public debt in growing international locations is rising at twice the speed of that in developed international locations.
Money and Liquidity: Surge in Uncertainty: The information present a major improve in money holdings, from $13.14 trillion in 2005 to $56.78 trillion in 2022. The change within the definition of M1 in Could 2020 to incorporate financial savings accounts, given their elevated liquidity, could have additionally contributed to the noticed improve in money holdings. This implies that the surge in money holdings is just not solely as a consequence of investor uncertainty, but additionally displays a change in the best way money and liquid property are measured.
Actual Belongings: Gaining Prominence: The non-public fairness and actual property sectors have skilled substantial development, with non-public fairness property reaching $194.31 trillion and actual property property reaching $130.27 trillion in 2022. This pattern highlights the growing reputation of other investments as traders search to diversify their portfolios and doubtlessly obtain greater returns. Nevertheless, non-public markets declined 22% year-over-year to $1.0 trillion in 2023, marking the sector’s lowest AUM since 2017.
Multi-Asset Implications
The noticed traits in international monetary asset allocation have a number of implications for traders:
Diversification is Key: The volatility within the fairness markets and the regular development in debt securities and different investments underscore the significance of sustaining a well-diversified portfolio to mitigate danger and seize potential alternatives.
Liquidity Administration: The surge in money holdings means that traders are prioritizing liquidity and capital preservation, which can be a prudent technique within the face of market uncertainties.
Different Investments: The growing prominence of other investments like non-public fairness and actual property highlights the necessity for traders to contemplate increasing their funding horizons past conventional asset courses. Non-public markets proceed to supply diversification alternatives, with institutional traders allocating 27% of their portfolios to non-public property as of early 2023, up from 17% a decade in the past.
Steady Monitoring: The dynamic nature of the worldwide monetary panorama requires traders to constantly monitor and adapt their funding methods to capitalize on rising traits and mitigate potential dangers.
Key Takeaway
Incorporating the GCS as a benchmark offers multi-asset managers a dependable, data-driven basis for developing portfolios that aren’t solely diversified but additionally aligned with international financial traits. It permits multi-asset managers to judge asset courses comprehensively and allocate strategically throughout sectors and areas.