Asset Mix

Asset mix is the breakdown of all assets within a fund or portfolio. Broadly, assets can be assigned to one of the core asset classes: stocks, bonds, cash and real estate. An asset mix breakdown helps investors understand the composition of a portfolio.

Asset mix breakdowns are one aspect of regular investment reporting. Fund managers provide investors with detailed percentages invested by each asset category in the portfolio. The market value of investments from each asset category is represented as a percentage of the total portfolio. Thus, the comprehensive mix of assets will equal 100% and show the breakdown of investments across the entire portfolio.

The asset mix of a portfolio is an important consideration for investors. It can be a key determinant of the risk/reward profile of the fund. It can also provide insight on the long-term performance expectations.

Investors view funds by their investment holdings which may be concentrated in a core asset class such as equity or fixed income. Other asset categories for investment may include commodities or international investments.

When an investment fund is highly concentrated in one asset class or category its asset mix will likely be more detailed at a granular level. For example, the asset mix of an equity fund may report investment percentages in large-cap, mid-cap and small-cap stocks. If it is an international equity fund, the standard asset mix breakdown may be more focused on the percentage of market value invested by country. For fixed income funds, investors will typically see asset mix breakdowns by credit quality or duration percentages.

Investors will generally find more traditional asset mix breakdowns by asset class in asset allocation or balanced funds. These funds often advertise the asset mix of the portfolio for investors. The T. Rowe Price Balanced Fund is one example. The Fund is managed to invest approximately 65% of its total assets in common stocks and 35% in fixed income securities.

Other popular types of asset allocation funds include target-date funds. These funds follow a glide path that shifts their asset mix at various points along a timeline, managing for a target utilization date. The Vanguard Target Retirement 2060 Fund is one example. The Fund begins with an asset mix of 85% stocks and 15% bonds. At its target date in 2060 the Fund’s allocation will shift to 50% stocks, 40% bonds and 10% short-term TIPS.

Across the industry, portfolio managers use many different methodologies to determine the asset mix of a portfolio. Modern portfolio theory provides a basis for analyzing investments and determining appropriate allocations based on risk preferences and risk management objectives. Asset allocation portfolios are a blend of both equity and fixed income asset classes. The historical risk and return of these two asset classes show equities providing greater potential for higher returns along with higher risks. Historically, fixed income allocations have provided lower comparable returns also with lower risk. The balance of risk and potential return through the use of both equity and fixed income investments overall is a guiding principle in determining the asset mix of an investment portfolio.