VanEck NDR Managed Allocation Fund Celebrates Anniversary
TOM BUTCHER: VanEck NDR Managed Allocation Fund is a year old. Can you tell me a little bit about the Fund and its first year?
DAVID SCHASSLER: Our goal was to launch a global tactical asset allocation fund that really performs well in all market environments, so we partnered with Ned Davis Research. We follow a rules-based discipline that incorporates macroeconomic, fundamental, and technical research. This is done using an objective, data-driven approach: We take the emotion out of investing. The Fund has definitely performed in line with our expectations. For the first year, we were up 11.27% versus 9.97% for our benchmark, a blended benchmark of 60% MSCI All Country World Index and 40% Barclays US Aggregate Bond Index. The one-year period was from May 11, 2016, through the end of April of this year. That put us in the top 25th percentile of the Morningstar tactical asset allocation peer group. We are pleased that the Fund has performed in line with our expectations, given its one-year milestone.
BUTCHER: There were some pretty major events last year, such as Brexit and the U.S. presidential election. How did they affect the Fund, or not?
SCHASSLER: Last year was exciting. We launched on May 11, 2016, and the Brexit vote happened at the end of June. The world was surprised when the U.K. decided to Brexit. With that decision, the U.K., in U.S. dollar terms sold off 16.5%. We had no exposure to the U.K. and very little exposure to developed Europe. This helped the Fund to perform well right out of the gate. That was the preamble to the U.S. elections. Leading into the elections, we had an 81% allocation to stocks, which is a lot for us, because our neutral allocation is 60% stocks, 40% bonds. We were all surprised when Donald Trump won. The futures that night, during the elections, gapped down around 5% for the S&P 500 Index. We thought the next day was going to be a very uncomfortable day. Luckily, the markets digested the information as a positive. Trump’s pro-growth agenda was a positive for markets. The markets took off and haven't looked back since, and the Fund has performed well.
We invest based off a rules-based model from Ned Davis Research. The model does not specifically factor in those events. What it really does is “read the tea leaves” from looking at macroeconomic, fundamental, and technical indicators and say, for example, “Maybe there's more risk than reward in Europe and, within the U.S., stocks look attractive.” That is why we performed well during those periods. Not because of those specific events. We were happy to see how the Fund managed through them.
BUTCHER: David, can you tell me a little bit more about NDR’s approach to research and the three categories of indicators that the research uses, technical, macro, and fundamental?
SCHASSLER: From a high level, what makes the discipline unique is that it incorporates macroeconomic, fundamental, and technical research. What we think of as the three pillars of investment research. Each is necessary in order to get a very comprehensive view of the markets. Macroeconomic and fundamental indicators are used to determine where the market should be going. Technical indicators are the price of the market, and quite a bit of information can be extracted from this price. It tells you where the market is now. We don't want to be wrong for too long if the market's going against us. Alternatively, if the market continues to rise, we want to participate in that as well. Incorporating the price of the market, knowing how the market's behaving is very important to this process.
BUTCHER: For the model to work, there must be a certain degree of flexibility in it?
SCHASSLER: Flexibility is a big part. We don't want to lock investors into falling markets. By that I mean, if all the indicators are saying don't own stocks, we don't want to own stocks. Therefore, the Fund can, in essence, completely remove exposure to risk assets. We can completely sell down our stock allocations, as well as our fixed income, and own 100% cash. Alternatively, if we’re in a raging bull market, we can own up to 90% stocks. There's a lot of flexibility and we think that's a really big differentiator for the Fund.
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The Fund's benchmark index (60% MSCI ACWI/40% Bloomberg Barclays US Agg) is a blended index consisting of 60% MSCI All Country World Index (ACWI) and 40% Bloomberg Barclays US Aggregate Bond Index. The MSCI ACWI captures large and mid-cap representation across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries and covers approximately 85% of the global investable equity opportunity set. The MSCI benchmark is a Gross Return index which reinvests as much as possible of a company’s gross dividend distributions. The Bloomberg Barclays US Aggregate Bond Index is a broad based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. This includes Treasuries, government-related and corporate securities, mortgage-backed securities, asset-backed securities, and collateralized mortgage-backed securities.
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The Morningstar Tactical Allocation category includes portfolios that seek to provide capital appreciation and income by actively shifting allocations across investments. These portfolios have material shifts across equity regions, and bond sectors on a frequent basis. To qualify for the tactical allocation category, the fund must have minimum exposures of 10% in bonds and 20% in equity. Next, the fund must historically demonstrate material shifts in sector or regional allocations either through a gradual shift over three years or through a series of material shifts on a quarterly basis. Within a three-year period, typically the average quarterly changes between equity regions and bond sectors exceeds 15% or the difference between the maximum and minimum exposure to a single equity region or bond sector exceeds 50%. Class A shares of the Fund ranked #79 out of 319 funds in the category for the period of May 11, 2016 through April 30, 2017.
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