VanEck NDR Managed Allocation Fund: Investing Beyond the Traditional 60/40
TOM BUTCHER: David, can you tell me a little about the VanEck NDR Managed Allocation Fund?
DAVID SCHASSLER: The Fund is a global tactical allocation fund that invests using ETFs. The goal of the fund is to outperform in up, down, and sideways market environments. We follow a model provided by Ned Davis Research on a monthly basis. The model makes three primary decisions. The first decision is whether to be underweight or overweight in stocks, bonds, or cash. The Fund represents a moderate-risk asset allocation, and our starting point is the traditional 60%-40% [stocks and bonds] allocation. We can move quite a bit from this static position. For example, in an extreme bear market, we can move all the way down to 0% in stocks, or in an extreme bull market, we can go up to 90% in stocks. The Fund has a lot of flexibility. The second decision is where to invest in global equities, allocating among seven major equity regions that we either underweight or overweight. The third and final decision that the model makes is within the United States: Do we want to be overweight large-cap, small-cap, growth, or value stocks? What makes this Fund unique is that we incorporate macroeconomic, fundamental, and technical research, but we do this using an objective, data-driven approach.
BUTCHER: Lisa, can you tell be a little about Ned Davis Research and the model the fund uses?
LISA MICHALSKI: Ned Davis Research has nearly a 40-year history researching global financial market trends. We apply a data-driven, objective approach using technical, macroeconomic, and fundamental research. Ned Davis founded the company in 1980, and today we have more than 125 employees, and 40 of us are dedicated solely to research. We employ an objective, data-driven approach that relies on technical, macroeconomic, and fundamental data to formulate our 360° view of the world. The model consists of more than 130 indicators that give us a feel for the relative attractiveness of one asset class versus another. We divide the model in terms of 50% based on technicals, which tell us what the market is doing, and 50% macro-fundamental, which tell us what the market should be doing. Each indicator has an equal vote that says either I'm bullish on a particular relationship, or bearish on a particular relationship, or sometimes neutral. Those composites will determine how much we overweight or underweight one asset class relative to another. The indicators will be in favor of one asset class versus another, which we would consider bullish, which intuitively will translate to a higher overweight rating for that asset class versus the other one. We use 132 indicators, not because we simply believe that more is better, but because we are modeling 11 unique relationships, we feel that we need to have a proper weight of evidence, and a democratic process to help gauge the relative attractiveness of one asset class versus another.
BUTCHER: David, what are the key benefits this Fund can offer long-term investors?
SCHASSLER: I think one of the primary benefits is that we use macroeconomic, fundamental, and technical research. Macroeconomic and fundamental research are great long-term predictors of asset prices. However, they can be notoriously bad at timing. For timing, we introduce technical, which are designed to keep an investor on the right side of the tracks. You don't want to be wrong for too long. This is why we incorporate the price the market vis-à-vis technicals. The second benefit is that we rely on objective, data-driven research. We think about this through a “weight of the evidence approach, ” which refers to the data that we collect from each individual indicator. The "weight of the evidence" refers to how much evidence we actually have. This evidence drives the positioning of the Fund’s portfolio. We don't invest based off of gut emotion, we invest based on where the data is pointing. The third benefit is the Fund’s flexibility. Flexibility is very important, because we want to have the ability to side step the market if it is really drawing down. We have the flexibility to raise significant cash during stress scenarios. Alternatively, during a bull market, we have the ability to overweight stocks and benefit from that trend as well.
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