Real Asset Allocation ETF: Seeking to Capture Real Benefits while Limiting Drawdowns
GILLIAN KEMMERER: Welcome, I’m Gillian Kemmerer. Building on a legacy in the real asset space, VanEck is soon to debut a new fund, ticker RAAX. It is a real assets ETF that can invest in commodities, natural resource equities, REITs, MLPs, and infrastructure. It uses ETFs to gain exposure and can also be 100% in cash. Here to tell us more about the launch, VanEck's own David Schassler and Roland Morris. Thanks for joining us. So, Dave, why don't we start with an elevator pitch for the fund?
DAVID SCHASSLER: This is a tactical real asset allocation strategy. Our performance goal is to capture most of the upside of real asset investing. We want to do it with less volatility, and smaller drawdowns than other real asset investments. We follow a rules-based objective, data-driven model created by VanEck, and this leverages the firm's 50 years of hard asset investing. We apply that to five core real asset sectors. We think together this creates a comprehensive robust real asset allocations solution.
KEMMERER: Roland, coming to you. Why do you think that this fund is really well positioned now? And why should investors be considering real assets in their portfolio?
ROLAND MORRIS: We're excited about this because of where we see ourselves in this particular cycle. When you think about where we are in the commodity cycle right now, we have a situation where we have global growth improving, we have a dollar that's been weakening recently, and we have supply dynamics in the commodity markets which are back in balance. And markets are starting to tighten. As this global economy continues its momentum and its growth, we're starting to get to the point where we're consuming more commodities than we're producing, and that are available to the marketplace. We're really, in my opinion, in a situation where all the headwinds that had hurt commodity markets over the last several years have become tailwinds. To me this is a great opportunity to consider and on top of all that, it is a sector that typically gives you a defense against inflation.
The U.S. economy is actually almost at capacity. We're basically at full employment, and we've added some stimulus recently with tax reform and tax cuts, and deregulation – which has been a theme since this new administration came in. Then, on top of all that, we have an expansionary budget that was just passed. All of these things to us at VanEck set the stage for potentially some inflationary pressures building. And global growth has been very strong, which is an important ingredient driving commodity demand. So we're excited about bringing this product to the market, because we think the time is great and we think it's an exposure that investors are going to seek out.
KEMMERER: Now that we understand why the macro environment is supportive, why don't you tell us a little bit about the investment process?
SCHASSLER: There are significant challenges to real asset investing; these are predominantly cyclical sectors. Our model focuses on the specific drivers for each real asset sector, as well as what the market is telling us vis-à-vis pricing. What we're doing is looking at what drives these individual real asset equities. We want to understand the supply and demand dynamics. We want to understand what the commodity prices are doing. We want to understand what the technicals are doing on the equities themselves. So, very simply, this investment process buys the individual real asset sectors that our model is bullish on, and we avoid the sectors that we're bearish on. We want to make sure that we’re the most diversified that we can be, and give you the lowest volatility profile that we can. That's how we invest, and we think, altogether, this gives a very comprehensive, robust investment solution for real asset investors.
MORRIS: I think this process, by removing human judgment and making it systematic, you create a situation where this product can be very valuable to investors. And, again, you are also seeking to limit some of the downside by having that ability to raise cash if the market starts to run up in volatility, and all the things that Dave and his team has put together for this.
KEMMERER: Now that we understand the investment process overall, can you give us a few example sectors and how they work?
SCHASSLER: So, again, [we are] comprehensive from a real asset perspective: commodities, commodity equities, REITs, infrastructure, and MLPs, we approach each of these differently. We want to understand what makes each real asset sector tick, and then jump into it from a quantitative perspective and model that. If we're going to look at something like REITs, we're going to want to understand the strength of the housing market. We're going to want to look at things like new home sales. We're going to look at things like existing home sales. That's our approach to model building.
KEMMERER: Thank you both so much for taking the time not only to share how real assets are fairing and why it's a good time to be invested in them and how exactly this product works.
SCHASSLER: Thank you so much.
MORRIS: Thank you.
KEMMERER: And thank you for tuning in. For this and other insights from VanEck specialists, visit vaneck.com/subscribe. From New York, I'm Gillian Kemmerer.
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