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  • Guided Allocation

    Preponderance of Bullish Evidence

    David Schassler, Portfolio Manager
    December 13, 2019
     

    The VanEck Vectors® Real Asset Allocation ETF (RAAX®) uses a data-driven, rules-based process that leverages over 50 indicators (technical, macroeconomic and fundamental, commodity price, and sentiment) to allocate across 12 individual real asset segments in five broad real asset sectors. These objective indicators identify the segments with positive expected returns. Then, using correlation and volatility, an optimization process determines the weight to these segments with the goal of creating a portfolio with maximum diversification while reducing risk. The expanded PDF version of this commentary can be downloaded here.

    Overview

    In November the VanEck Vectors Real Asset Allocation ETF (“RAAX”) returned -1.41% versus -0.77% for its blended benchmark and -2.56% for the Bloomberg Commodity Index.

    RAAX was fully allocated to real assets in November across natural resource equities, gold and gold equities, global infrastructure, REITs and MLPs. Gold and gold equites were RAAX’s largest detractors from performance. Its gold bullion holdings lost 3.26% and its gold equity holding declined approximately 3.80%. Its holdings in REITs and MLPs were also down 1.30% and 3.14%, respectively.

    Despite these losses, there were some real assets that performed well last month and benefitted performance. RAAX’s exposure to oil services stocks returned 5.03% and its exposure to global metals and mining returned 3.57%.

    RAAX remained fully invested and well diversified in December. It also added exposure to the low carbon energy industry and to the integrated oil and gas industry. We believe that RAAX will benefit from the addition of these natural resource equity investments because it increases diversification and provides exposure to the rapidly growing low carbon energy industry.

    Average Annual Total Returns (%) as of November 30, 2019
      1 Mo YTD 1 Year Life
    (04/09/18)
    RAAX (NAV) -1.41 0.93 2.07 -0.05
    RAAX (Share Price) -1.30 0.81 2.03 -0.05
    Blended Real Asset Index * -0.77 11.24 4.75 1.53
    Average Annual Total Returns (%) as of September 30, 2019
      1 Mo YTD 1 Year Life
    (04/09/18)
    RAAX (NAV) 0.04 1.87 0.02 0.58
    RAAX (Share Price) 0.08 1.85 0.01 0.65
    Blended Real Asset Index * 1.83 10.12 -0.82 1.01

    The table presents past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect temporary contractual fee waivers and/or expense reimbursements. Had the ETF incurred all expenses and fees, investment returns would have been reduced. Investment returns and ETF share values will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. ETF returns assume that distributions have been reinvested in the Fund at “Net Asset Value” (NAV). NAV is determined at the close of each business day, and represents the dollar value of one share of the fund; it is calculated by taking the total assets of the fund, subtracting total liabilities, and dividing by the total number of shares outstanding. The NAV is not necessarily the same as the ETF’s intraday trading value. VanEck Vectors ETF investors should not expect to buy or sell shares at NAV.

    †Returns less than a year are not annualized.

    Expenses: Gross 1.04%; Net 0.64%. Expenses are capped contractually at 0.55% through February 1, 2020. Expenses are based on estimated amounts for the current fiscal year. Cap exclude certain expenses, such as interest, acquired fund fees and expenses, and trading expenses.

    Below are additional details on these new investments:

    Low carbon energy is a new addition to the natural resource equity component, and this is RAAX’s first investment in the low carbon energy industry. Low carbon energy companies are primarily engaged in the alternative energy industry including bio-fuels, wind, solar, hydro and geothermal sources and also the various technologies that support the production, use and storage of these sources.

    Another new addition to the natural resource equity component is exposure to the integrated oil and gas industry. The integrated oil and gas companies are generally large-cap U.S. energy stocks that develop and produce crude oil and natural gas, provide drilling and other energy related services.

    In December, RAAX remains well diversified with allocations to natural resource equities (29%), gold and gold equities (27%), global infrastructure (19%), REITs (15%), MLPs (5%) and diversified commodities (5%).

    A Deeper Dive

    Below is the overall real asset economic composite. A score of 0 represents the lowest risk level and a score of 100 represents the highest risk level. A score of 60 or higher will result in our most defensive posture. The current score of 12 indicates a stable risk regime for real assets.

    Overall Risk Score

    RAAX_OverallRisk_2019.11.png

    The risk score can be decomposed into key factors that drive real asset prices. These include price trends, economic activity, realized volatility, economic activity and investor sentiment.

    Price trends are bullish. Although the natural resource equity and commodity price trends remain bearish, the other real assets, in aggregate, remain bullish.

    Price Trend Risk Score

    RAAX_PriceTrend_2019.11.png


    Economic risk remained subdued:

    Economic Risk Score

    RAAX_EconomicRisk_2019.11.png


    Volatility in real asset prices is not extreme:

    Price Volatility Risk Score

    RAAX_PriceVolatilityRisk_2019.11.png


    Investor sentiment risk is not at an extreme:

    Investor Sentiment Risk Score

    RAAX_SentimentRisk_2019.11.png


    Due to the preponderance of bullish data, RAAX will remain fully invested and well diversified in December. Its large allocation to gold should provide downside protection in the event that there is a sudden change in the investment climate. Overall, this mix of assets, with its broad diversification and heavy weighting to gold, in our view, places RAAX in a strong position to perform regardless of what the market throws at it. .

    Real Asset Class Allocations

      Dec-19 Nov-19 Change from Previous Month
    Low Carbon Energy Equities 3.7% 0.0% 3.7% New
    Energy Equities 3.7% 0.0% 3.7% New
    Agribusiness Equities 7.3% 4.9% 2.4% Increase
    Cash 0.2% 0.0% 0.2% Increase
    Global Infrastructure 19.4% 19.4% 0.0% No Change
    Gold Bullion 22.3% 22.3% 0.0% No Change
    Diversified Commodities 4.9% 4.9% 0.0% No Change
    Steel Equities 0.0% 0.0% 0.0% No Change
    MLPs 4.6% 4.9% -0.3% Decrease
    Coal Equities 3.7% 4.9% -1.2% Decrease
    Oil Services Equities 3.7% 4.9% -1.2% Decrease
    Global Metals & Mining Equities 3.6% 4.9% -1.3% Decrease
    Unconventional Oil & Gas Equities 3.6% 4.9% -1.3% Decrease
    REITs 14.5% 16.5% -2.0% Decrease
    Gold Equities 4.9% 7.8% -2.9% Decrease

    DISCLOSURES

    Please note that the information herein represents the opinion of the author, but not necessarily those of VanEck, and these opinions may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.

    This content is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this content. Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.

    The Blended Real Assets Index consists of an equally weighted blend of the returns of Bloomberg Commodity Index, S&P Real Assets Equity Index, and VanEck® Natural Resources Index. Equal weightings are reset monthly. The S&P Real Assets Equity Index measures the performance of equity real return strategies that invest in listed global property, infrastructure, natural resources, and timber and forestry companies. The VanEck Natural Resources Index is a rules-based index intended to give investors a means of tracking the overall performance of a global universe of listed companies engaged in the production and distribution of commodities and commodity-related products and services. Sector weights are set annually based on estimates of global natural resources consumption, and stock weights within sectors are based on market capitalization, float-adjusted and modified to conform to various asset diversification requirements. The S&P 500® Index (S&P 500) consists of 500 widely held common stocks, covering four broad sectors (industrials, utilities, financial and transportation).

    The S&P Real Assets Equity Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright© 2019 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spdji.com. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

    The Solactive MLP & Energy Infrastructure Index tracks the performance of MLPs and energy infrastructure corporations. The MVIS U.S. Listed Oil Services 25 Index is intended to track the overall performance of U.S.-listed companies involved in oil services to the upstream oil sector, which include oil equipment, oil services, or oil drilling. The Dow Jones Equity All REIT Index, designed to measure all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. The NYSE Arca Gold Miners Index is a modified market capitalization-weighted index composed of publicly traded companies involved primarily in the mining for gold. The Index is calculated and maintained by the New York Stock Exchange. The S&P® North American Natural Resources Sector Index: a modified capitalization-weighted index which includes companies involved in the following categories: extractive industries, energy companies, owners and operators of timber tracts, forestry services, producers of pulp and paper, and owners of plantations. The S&P® GSCI Total Return Index is a world production-weighted commodity index comprised of liquid, exchange-traded futures contracts and is often used as a benchmark for world commodity prices.

    Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.

    An investment in the Fund may be subject to risks which include, among others, in fund of funds risk which may subject the Fund to investing in commodities, gold, natural resources companies, MLPs, real estate sector, infrastructure, equities securities, small- and medium-capitalization companies, foreign securities, emerging market issuers, foreign currency, credit, high yield securities, interest rate, call and concentration risks, all of which may adversely affect the Fund. The Fund may also be subject to affiliated fund, U.S. Treasury Bills, subsidiary investment, commodity regulatory (with respect to investments in the Subsidiary), tax (with respect to investments in the Subsidiary), liquidity, gap, cash transactions, high portfolio turnover, model and data, management, operational, authorized participant concentration, no guarantee of active trading market, trading issues, market, fund shares trading, premium/discount and liquidity of fund shares, non-diversified and ETPs risks. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund’s returns. Small- and medium-capitalization companies may be subject to elevated risks.

    Diversification does not assure a profit or protect against a loss.

    Fund shares are not individually redeemable and will be issued and redeemed at their net asset value (NAV) only through certain authorized broker-dealers in large, specified blocks of shares called “creation units” and otherwise can be bought and sold only through exchange trading. Shares may trade at a premium or discount to their NAV in the secondary market. You will incur brokerage expenses when trading Fund shares in the secondary market. Past performance is no guarantee of future results.

    Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.