Asset Classes

How to identify and invest in specific asset class funds.

There are many ways to categorize the things you can invest in. Each broad category is called an "asset class." For example, the "equities" asset class is formed from shares of stock in public companies. 

 

Each category can be further broken down into sub-categories. For example, there are large-company equities and small-company equities. Also there are U.S. equities, International equities, and equities for emerging market countries.

 

So are these sub-categories each their own asset class, or should they be called "asset sub-classes?" For simplicity, we will use the term "asset class" to refer to both the categories and sub-categories. 

 

What are the asset classes?

The answer depends on how many sub-categories you would like to see. At the simplest level, there are three asset classes: stocks, bonds, and cash. A larger list of asset classes should include real estate and commodities. It's possible to invest in some assets that are not easily bought or sold (such as collectibles, art, and shares of private companies) but these are not usually considered as asset classes since they cannot be purchased in an investment account.

 

So we can create a "big five" list of asset classes. You can invest in any of these broad asset classes using an exchange-traded fund or a mutual fund. Several sample tickers are listed below.

  • Stocks
    • ETF tickers: ACWI (Global), VTI (U.S.), EFA (International)
  • Bonds
    • ETF tickers: AGG (U.S), BND (U.S.), BNDX (International), EMB (Emerging markets)
  • Cash
    • Mutual fund tickers: VMMXX (money market), STGXX (money market)
  • Real estate
    • ETF tickers: VNQ (U.S.), VNQI (International)
  • Commodities
    • ETF tickers: DBC, GSG

 

But we can also make a longer list of asset classes by sub-dividing the "big five" asset classes. The advantage of using more asset classes in our asset allocation portfolio is that we can fine-tune our allocation to focus on particular areas. This can be especially important for tactical portfolios, since those portfolios regularly change their allocation in pursuit of asset classes with better returns.

 

Ways to sub-divide asset classes

 

Stocks (also called Equities) can be sub-divided in the following ways

  • geographic region (U.S. vs. Developed Markets vs. Emerging Markets vs. Frontier Markets)
  • company size, also called "market capitalization" (Large Capitalization vs. Mid-Cap vs. Small Cap vs. Micro Cap)
  • company type (value vs. growth)

 

Bonds (also called Fixed Income) can be sub-divided in the following ways:

  • issuer: Corporate vs. Mortgage-backed vs. Government-issued
  • geographic region: U.S. Developed Markets vs. Emerging Markets
  • duration: ultra-short vs. short term vs. intermediate vs. long-term
  • quality: investment grade vs. junk (high-yield)

 

Cash can be categorized by the type of investment used such as bank deposits or Money Market funds.

 

Real Estate can be sub-divided in the following ways:

  • property type: commercial vs. residential vs. agricultural
  • geographic region: U.S. vs. International vs. emerging market

 

Commodities can be sub-divided into various categories such as precious metals, industrial metals, agricultural goods, and natural resources.

 

Below are some longer lists of asset classes that sub-divide the "big five" into more categories. The set of asset classes chosen for a particular portfolio can vary. For example, some tactical portfolio recipes may like to use asset classes that are more volatile, more concentrated by company size, or more focused on a particular geography. These lists also exclude cash, since many investors prefer to consider their cash allocation separate from their portfolio holdings.

 

List of 7 Asset Classes

This list splits equities into three parts, and includes gold as a commodity.

  • Bonds: U.S. Aggregate (BND)
  • Equities: U.S. Total Market (VTI)
  • Equities: International Emerging Markets (EEM)
  • Equities: International Developed Markets (VEU) 
  • Real Estate: U.S. (VNQ)
  • Gold (GLD)
  • Commodities (DBC)

 

 

List of 8 Asset Classes

This list includes different bond durations (long term and short term)

  • Gold (GLD)
  • U.S. Bonds: Aggregate (BND)
  • Commodities (DBC)
  • U.S. Real Estate (VNQ)
  • U.S. Equities, Total Market (VTI)
  • U.S. Bonds: Long Term Treasuries, 20+ years (TLT)
  • International Equities: Developed (VEU) 
  • U.S. Bonds: Short Term Treasuries, 1-3 years (SHY)
 

List of 12 Asset Classes

This list splits equities by region and by style (growth vs. value)

  • Bonds: U.S.  Short Term Treasuries, 1-3 years (SHY)
  • Bonds: U.S. Aggregate (BND)
  • Bonds: U.S. Long Term Treasuries, 20+ years (TLT)
  • Commodities (DBC)
  • Equities: International Emerging Markets (EEM)
  • Equities: International Growth (EFG)
  • Equities: International Value (EFV)
  • Equities: U.S. Large Cap Growth (IWF)
  • Equities: U.S. Large Cap Value (IWD)
  • Equities: U.S. Micro Cap (IWC)
  • Gold (GLD)

 

List of 59 Asset Classes

This larger list includes most of the possible combinations of geography and asset type, plus a ETF ticker symbol for each asset class. There are some holes where funds are not yet available. For example, International Equities (Small Cap Growth) is not currently available as an investable ETF. Also note that this list contains some overlapping asset classes since we wanted to include the broad asset classes in addition to the sub-classes. For example, we list a broad commodities asset class in addition to asset classes for specific commodities. 

  • Equities: Intl Dev Core (EFA)
  • Equities: Intl Dev Gro (EFG)
  • Equities: Intl Dev Value (EFV)
  • Equities: Intl Dev Sm Cap (SCZ)
  • Equities: Intl Emerg Core (EEM)
  • Equities: Intl Emerg Gro (EGRW)
  • Equities: Intl Emerg Value (EVAL)
  • Equities: Intl Emerg Sm Cap (EWX)
  • Equities: Intl Frontier (FRN)
  • Equities: US Large Core (IWB)
  • Equities: US Large Growth (IWF)
  • Equities: US Large Value (IWD)
  • Equities: US Mid Core (IWR)
  • Equities: US Mid Growth (IWP)
  • Equities: US Mid Value (IWS)
  • Equities: US Preferred Stock (PFF)
  • Equities: US MLP (AMLP)
  • Equities: US Small Core (IWM)
  • Equities: US Small Growth (IWO)
  • Equities: US Small Value (IWN)
  • Equities: US Micro Cap (IWC)
  • Commodities: Broad (DBC)
  • Commodities: Agriculture (DBA)
  • Commodities: Gold (GLD)
  • Commodities: Silver (SLV)
  • Commodities: Platinum (PPLT)
  • Commodities: Oil (DBO)
  • Commodities: Industrial Metals (DBB)
  • Real Est: Intl (RWX)
  • Real Est: US Real Estate (VNQ)
  • Real Est: US Residential (REZ)
  • Fixed Income: Intl Corp (PICB)
  • Fixed Income: Intl Hi Yield (IHY)
  • Fixed Income: Intl Inflation Prot (ITIP)
  • Fixed Income: Intl Treas (IGOV)
  • Fixed Income: Intl Treas 1-3yr (ISHG)
  • Fixed Income: Emerg Mkt (EMB)
  • Fixed Income: Emerg Mkt Corp (EMCB)
  • Fixed Income: Emerg Mkt Hi Yld (EMHY)
  • Fixed Income: Emerg Mkt Gov (PCY)
  • Fixed Income: US Bond Total Mkt (BND)
  • Fixed Income: US Corp Long 10y+ (CLY)
  • Fixed Income: US Corp Med 1-10y (CIU)
  • Fixed Income: US Corp Short 1-3y (CSJ)
  • Fixed Income: US Convertible Sec (CWB)
  • Fixed Income: US Hi Yield (JNK)
  • Fixed Income: US Hi Yield 0-5yr (SJNK)
  • Fixed Income: Muni Long (MLN)
  • Fixed Income: Muni Med (ITM)
  • Fixed Income: Muni Short (SHM)
  • Fixed Income: Muni Hi Yield (HYD)
  • Fixed Income: US Infl Prot (TIP)
  • Fixed Income: US Mort Backed (MBB)
  • Fixed Income: US Treas 20yr+ (TLT)
  • Fixed Income: US Treas 7-10yr (IEF)
  • Fixed Income: US Treas 1-3yr (SHY)
  • Fixed Income: US Treas 1-3mo (BIL)
  • Fixed Income: US Float Rate (FLOT)
  • Fixed Income: UltraShort (MINT)