Van Eck Blogs http://www.vaneck.com/Templates/PageLayout_Special_rwd.aspx?pageid=12884903011?blogid=2147483856 Insightful, Weekly Commentary on the Municipal Bond Markets 2016-05-03 en-US Emerging Markets Local Currency Bonds: A Market to Revisit http://www.vaneck.com/blogs/etfs/emerging-markets-local-currency-bonds-a-market-to-revisit-may-2016/ Van Eck Blogs 5/2/2016 12:00:00 AM

Authored by William Sokol, Product Manager, ETFs

Emerging markets ("EM") government bonds, particularly those denominated in local currencies, have bounced back in 2016. It's time to look again at what they can offer.

The past few years have not been kind to EM local currency bonds. Falling commodity prices and concerns about slowing global growth resulted in weak performance across many EM asset classes. Local currency bonds were particularly impacted by the robust U.S. dollar, which remained strong throughout 2015, and the prospect of four potential Federal Open Market Committee rate hikes in 2016. These headwinds caused investors to push valuations down to levels of extreme weakness, particularly on several EM currencies, which may have been oversold heading into 2016.

Q1 Tailwinds Provide Support

However, the Federal Reserve's sentiment may have changed. The Fed appears to be taking a more dovish stance and the market is now expecting fewer rate hikes this year. Some immediate results could include a pullback in the U.S. dollar and the re-emergence of a risk-on appetite. These tailwinds have been strengthened by the first quarter rebound in commodity prices and the prospect of pro-growth political reform in several EM countries.

EM local currency bonds benefited from these supportive factors, which contributed to a return of 11.02% in the first quarter, as represented by the J.P. Morgan GBI-EM Diversified Index, significantly outperforming EM hard currency sovereign bonds and corporates. Every country in the index had both positive local bond market returns and currency appreciation for the period. Dedicated local currency funds also received significant inflows towards the end of the quarter.

Positive Flows as Investors Take Notice

Why the positive flows? After years of volatility and weak performance, EM local currency bonds may be underrepresented in many investors' portfolios. In addition to market conditions being favorable in the first quarter, local currency bonds have some particularly attractive characteristics that stem from two distinct sources of return they provide: local interest rates and currencies.

Because of these distinct drivers of return, local currency EM bonds have exhibited low historical correlations with other segments of the fixed income market, especially core U.S. investment grade sectors, as shown below. Local currency EM bonds have also historically provided higher yields versus other EM bond sectors, with an investable universe that tends to be skewed more towards higher quality issuers. For example, 84% of local currency EM government bonds were rated investment grade at the end of the quarter, versus 63% of those denominated in hard currencies, as measured by the BofA Merrill Lynch Emerging Markets External Sovereign Index.

Low Correlation to Certain U.S. Fixed Income Sectors
As of March 31, 2016
 

 
Source: Morningstar.

 

Historically Higher Yields Versus Other EM Sectors
As of March 31, 2016
 

 
Source: FactSet. Index performance is not illustrative of fund performance. Fund performance current to the most recent month end is available by visiting vaneck.com/emlc.

 

These unique drivers of return are also sources of risk, and should be considered along with credit, economic, political and other risks associated with EM investments.

We believe that local currency EM bonds may potentially provide unique diversification benefits within a global fixed income portfolio, with both potentially higher yields and higher credit quality versus other EM fixed income sectors. For investors who have reduced their exposure in recent years, we believe it is a market worth revisiting.

Investors interested in this space may find easy access to local currency denominated bonds issued by emerging markets governments through VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC).


 
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Investment Outlook: Commodities Stand Out http://www.vaneck.com/blogs/market-insights/investment-outlook-commodities-stand-out-april-2016/ Van Eck Blogs 4/27/2016 12:00:00 AM

Wednesday, April 27, 2016

Watch Video Video - Investment Outlook: Commodities Stand Out  

Jan van Eck, CEO, shares his investment outlook.

Watch Now  




TOM BUTCHER: Jan, commodities have seen a rebound in 2016. What's your outlook for the rest of the year?

JAN VAN ECK: We're very happy about the first quarter rebound. We do think commodities have bottomed and there are a couple of factors to consider. What we always stress, because I think it's the most important thing for people to understand, is the supply response. We think there has always been a growing demand for commodities around the world, whether it's energy, natural gas, oil, or metals, such as copper. What caused prices to fall was an oversupply situation, which we think has been corrected. We're glad to see that demand has caught up with supply.

I think the way for investors to think about this current environment is to consider this as an opportunity if one takes a much longer term perspective. We investors tend to be very focused on the short term. Energy is now very low as a percent of the overall S&P 500® Index. At its peak it was close to 16% and it's near 6% now. Taking a multi-decade perspective tells us that energy is relatively cheap right now. Similarly, if you look at gold shares over a longer period of time, you may see that while they've risen a great deal this year, they may still have much further to go because they fell so far.

My Message to Investors: This is a Great Opportunity

That is my number one message to investors: This is a great longer term opportunity. Don't obsess about the correct entry point.

BUTCHER: But global growth has been slow, debt levels have been high, and some governments have actually resorted to negative rates.

VAN ECK: We've seen this year a real inflection point, as Japan brought some of its interest rates negative. The question is how do you get economic growth going? After the financial crisis in the U.S., we had the same response: zero interest rates to try to stimulate economic growth. I think central banks are now basically taking it to the next level, i.e., negative interest rates. Federal Reserve Chair Janet Yellen spoke about this in her recent testimony, and former Fed Chair Ben Bernanke has been speaking about negative interest rates as well.

Negative Interest Rates May Cause Investors to Disengage

We think negative rates can be dangerous. Rather than stimulating the economy, negative interest rates, I believe, can cause people to withdraw from participating. Think about it from an investor's perspective. It is very worrisome when a bank will only give you 99 cents at the end of the year when you gave it a dollar in January. I think that can make people take less risk rather than engage in order to help stimulate growth.

Negative interest rates are fantastic for gold because gold doesn't pay a coupon, unlike bonds or stocks that pay dividends. Gold always has to compete with other financial assets but if financial assets are costing you money in a negative interest rate environment, we see no reason not to own gold. We think that's one of the reasons why gold has been rallying this year.

China's Consumer-Driven "New" Economy: Exciting, Yet "Lumpy"

BUTCHER: What are your views on China?

VAN ECK: China is the second largest economy in the world and we think that every investment committee needs to have a view on China. Our view has been that, while there are some growing pains, and the devaluation of the renminbi was a major event last year, there are no systemic risks [i.e., risks inherent to China's entire economy, rather than a single segment of the economy].

One of the things that we love to talk about is new China versus old China. New China is characterized by the consumer-driven and healthcare sectors; old China is steel, coal, and heavy manufacturing. Old China is continuing to face profitability issues. Another matter that we've recently been discussing is the growth of China's overall debt levels, which are particularly concentrated in old China. There is between $1 to $2 trillion of bad debt in China right now. China's economy amounts to $10 trillion and its overall debt level is approximately $20 trillion. These are large numbers. However, not every bad debt goes to zero, but the bad debt is very concentrated in the old economy sectors.1  

We don't think that causes a systemic risk but it may cause lumpiness in the performance of some of China's financial assets. Because various regions will be badly affected, people who have fixed income exposure to those regions will likely be badly impacted. There are likely to be some defaults. Still, we think it's a good thing because it's a healthy process.

What's Changed in our Outlook Since January

BUTCHER: Jan, you described your outlook at the beginning of 2016. How has it changed since January?

VAN ECK: Several important things happened in the first quarter. First of all, we thought that credit was very cheap, meaning interest rates had risen on MLPs [master limited partnerships] and on high yield bonds, which were almost showing signs of distress. We also said that this represented a great investment opportunity. In fact, high yield has outperformed the U.S. equity market2. Right now, I think that high risk bonds are a little less appealing today than they were when we first started the year.

Commodities Q1 Rally Creates Positive Inflection Point

Additionally, I think the equity markets still have a lot of struggling to do because price-to-earnings ratios are very high. Earnings fell last year in the U.S. They should be recovering now, looking forward over the next 12 months. Part of the reason is the strong U.S. dollar. Overall, we think equities are so-so and the U.S. economy, as well as the global economy, will muddle along.

Commodities were the big story in the first quarter. They dragged up other asset classes. For example, they helped emerging markets debt; they've helped Latin America. A good amount of high yield U.S. debt was energy-related, and it has rallied tremendously. It is interesting that what can be characterized as a bottom-up phenomenon of supply cuts kicking in within the commodities sector has helped other asset classes from a macro perspective.

Overall, we believe that commodities are the standout from a multi-year view. This is a great time for investors to look at them, given that we believe this is an inflection point.

BUTCHER: Thank you very much.

 
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China’s “New” Economy is Official http://www.vaneck.com/blogs/etfs/china-new-economy-is-official-april-2016/ The idea that China is redefining the nature of its economy has become a familiar economic theme. Recent developments strengthen our conviction that the emergence of China's "new" economy is more than a mere concept or official policy; it's a reality.

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Van Eck Blogs 4/26/2016 12:00:00 AM

Authored by James Duffy, Product Manager, ETFs

While the idea that China is redefining the nature of its economy has become a familiar economic theme, it may not be unanimous among market participants that the transformation is indeed imminent. Recent developments, however, strengthen my conviction in the "new" economy future of China and the role of the SME (Small and Medium Enterprise) and ChiNext Boards in facilitating the growth at hand.

Only last month on March 16, China's National People's Congress approved the 13th Five-Year Plan that the Communist Party presented back in October 2015. The remarks of the Chinese Premier Li Keqiang in announcing the new plan further inspire my enthusiasm: "China has initiated the concept of 'new economy' to foster new growth drivers for overall economy transformation." His subsequent statement is even more auspicious: "The campaign of mass entrepreneurship and innovation provides a platform for large, medium and small businesses and research institutions to have a broad space for crowd innovation, crowdfunding and crowdsourcing."

New Government Policies are Extremely Supportive

Though this news may not sound entirely new, given a similar announcement made in early February by top economic planner Shen Zhulin, we believe the premier's imprimatur will effectively underscore and publicize the seriousness of the administration's intent to transition from its "old" economy to the "new" one. There are more than "2,000 supportive policies for new businesses from central and local authorities" supporting our view that China means business.

Providing access to 1,282 of China's 2,828 A-share listed companies, the SME and ChiNext Boards of the Shenzhen Stock Exchange are crucial players in China's economic evolution, though the number of new enterprise registrations in China (4.4 million in 2015 or a whopping 12,000 a day) far exceeds the breadth of these two platforms. The SME Board, which now serves 782 listed companies, was inaugurated on May 27, 2011 with the objective of "supporting innovation" with "many high quality innovative issuers."1 Alongside it in Shenzhen, the ChiNext Board (totally independent from the main board) aims to provide "solid support for the development of independently innovative enterprises." We see the two boards as delivering on their promises; they represent big steps in China's establishment of "a multi-tiered capital market system" and offer exposure to the businesses that have driven the majority of recent technological innovation and "new" economy growth in China. Arguably these companies provide some of the most convenient access to the drivers of China's new economy.

The Transition from "Old" to "New" is Well Underway

While the transition from an "old," production-driven model to the "new," consumer and service-led economy will certainly not occur overnight, there are some notable indications that it is well underway. During the first two months of the year, state-owned enterprises saw profits fall 14.5% year-over-year while privately owned enterprises grew profits 5.4% during the same period. Furthermore, companies listed on the SME and ChiNext Boards experienced bottom line growth of 32% and 46% year-over-year, respectively. The IT, consumer discretionary, and healthcare sectors that characterize the "new economy" all saw double digit percentage increases in profit growth as compared to 2015 performance. The emergence of the "new" economy is more than a mere concept or official policy; it is, in my opinion, already coming to fruition.2

CNXT Gives Investors Access

Participating in China's potential growth is possible via several VanEck ETFs that provide differentiated access to the Chinese capital markets. In particular, Market Vectors® ChinaAMC SME-ChiNext ETF (NYSE Arca: CNXT) seeks to track an index that is designed to hold the 100 largest and most liquid China A-share stocks listed and trading on the SME and ChiNext Boards of the Shenzhen Stock Exchange.

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Munis: Muni Market is Generally Healthy Despite Some Headlines http://www.vaneck.com/blogs/muni-nation/muni-market-is-generally-healthy-despite-some-headlines-april-2016/ Van Eck Blogs 4/25/2016 12:00:00 AM Regardless of the headlines you may read about municipalities such as Flint, Michigan, Chicago, Illinois, Atlantic City, New Jersey, or Puerto Rico, I believe the municipal market is in good shape.

Yes, there are some cities, states, and territories facing a number of issues. And, yes, current low oil prices are having an impact. Still, according to data from Moody's Investors Service, the rate of defaults in the municipal market has been slower in 2016 than it was in the last three years.1

The rate of impairments has also declined. As Tom Doe, President of Municipal Market Analytics, informed us in a webcast recently: "While we have these headlines, it is also good to know that these issues are not manifesting broadly throughout the market."

The unfortunate thing about negative headlines, however, is that they can unnerve municipal investors as a whole, as they did in 2013. Such credit headlines, combined with interest rate concerns, can drive individual investors out of the asset class, sometimes unnecessarily.

Please note that municipal investments usually don't default or encounter serious problems in paying interest overnight. In many instances, the trouble of a particular municipal issuer or issue will raise its ugly head early on, long before it has a direct impact on investors.

This doesn't mean that the municipal bond market is simple or easy to navigate. It is complex and requires in-depth knowledge and analysis. These are two of the many reasons why I believe muni ETFs have become popular. They provide investors with an easy way to buy and sell — intraday just like a stock — products that are managed by professionals and that offer broad diversification with low fees.2

For many investors, muni ETFs may make sense as a way to access the tax-exempt income in an asset class that has historically been uncorrelated to the stock market.

Post Disclosure

1 Through 3/31/2016.

2 According to Morningstar as of 3/31/2016, VanEck's municipal ETFs had an average expense ratio of 0.44% versus an average net expense ratio of 0.92% for mutual funds in the Morningstar Municipal Bond U.S. Category Group. Diversification does not assure profit nor protect against loss.

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Munis: Muni ETFs in a Portfolio http://www.vaneck.com/blogs/muni-nation/muni-etfs-portfolio-april-2016/ Van Eck Blogs 4/20/2016 12:00:00 AM Using ETFs to access the muni market can make it easier to maintain an appropriate and more comfortable level of risk in one's "core" allocation than using individual muni bonds. Muni ETFs may also open up possibilities to take on incremental risk in a more liquid and broadly diversified way. Most portfolio strategists recommend that the majority of a fixed income allocation consist of exposure to investment grade bonds, with exposure to high yield (non-investment grade bonds) limited to a subset of one's fixed income allocation.

Investors may find using duration a more helpful guide to interest rate risk than maturity date. The tables below illustrate the durations of VanEck muni ETFs, as well as correlations, as a reminder that the benefits of diversification can vary, depending on the objectives and characteristics of each ETF.

The five ETFs in this first table may be a good way to start or replace some core fixed income exposure.

VanEck Muni ETFs for the Core

ETF Name Ticker Duration to Worst 30-Day SEC Yield 12-Month Yield Yield to Maturity Correlation to S&P 500® (based on market price, calendar year 2015)
Market Vectors Pre-Refunded Municipal Index ETF PRB 2.45 0.75% 0.82% 0.88% -0.25
Market Vectors AMT-Free Short Municipal Index ETF SMB 2.76 0.94% 1.13% 1.04% 0.13
Market Vectors AMT-Free Intermediate Municipal Index ETF ITM 6.11 1.78% 2.24% 2.55% -0.44
Market Vectors AMT-Free Long Municipal Index ETF MLN 6.41 2.69% 3.25% 3.85% -0.17
Market Vectors CEF Municipal Income ETF XMPT 12.88 4.88%1 4.93% -- -0.13

Click for standardized performance.
Characteristics source: VanEck as of 4/8/16. Correlation source: FactSet as of 12/31/15.
1In the absence of temporary expense waivers or reimbursements, the 30-Day SEC Yield for Market Vectors CEF Municipal Income ETF would have been 4.64% on 4/8/2016.

Investors seeking incremental income or those who are comfortable with lower credit quality may wish to consider supplementing their core holdings by using SHYD, HYD, or XMPT. Using an ETF for the higher risk portion of one's fixed income allocation provides very broad diversification as well as intra-day liquidity. However, it’s important to remember that diversification alone does not necessarily assure a profit or a loss.

VanEck Muni ETFs for Incremental Income

ETF Name Ticker Duration to Worst 30-Day SEC Yield 12-Month Yield Yield to Maturity Correlation to S&P 500 (based on market price, calendar year 2015)
Market Vectors Short High-Yield Municipal Index ETF SHYD 3.61 3.42% 3.23% 4.23% 0.04
Market Vectors High-Yield Municipal Index ETF HYD 6.47 4.18% 4.59% 5.22% 0.05
Market Vectors CEF Municipal Income ETF XMPT 6.47 4.88%1 4.93% -- -0.13

Click for standardized performance.
Characteristics source: VanEck as of 4/8/16. Correlation source: FactSet as of 12/31/15.
1In the absence of temporary expense waivers or reimbursements, the 30-Day SEC Yield for Market Vectors CEF Municipal Income ETF would have been 4.64% on 4/8/2016.

XMPT is included in both tables due to its unusual characteristics; because the leveraged closed-end funds in which it invests are generally over-collateralized, exposure to credit risk may be greatly reduced. However, because of the leverage employed by the underlying funds, there is greater interest rate risk. Prudent investors might use it for a portion of the long duration part of the core of their portfolios or to supplement or supplant their high yield allocation.

Conclusion

Because of the changes and challenges in the municipal bond market and the exchange-traded liquidity available via ETFs, even experienced investors may find that they can more easily tailor a diversified portfolio with a mix of muni ETFs than with individual bonds.

Patrick Luby is a Fixed Income Portfolio Strategy Specialist and the author of www.IncomeInvestorPerspectives.com. He has been helping many of the industry's best advisors and their investor clients understand and navigate the municipal bond market since the weekly Bond Buyer Municipal Bond Index was at 9.48%. (That's a long time ago, as most bond buyers know!)

This is not a recommendation to buy, sell, or hold any of the securities or strategies mentioned. The author does not provide investment, tax, legal, or accounting advice. Investors should consult with their own advisor and fully understand their own situation when considering changes to their strategy, tactics, or individual investments.

Post Disclosure

If your financial plan provides a recommended asset allocation mix, compare the duration of the fixed income benchmark used to determine your mix against your proposed ETF. Using a lower duration ETF than the benchmark could be a less effective diversifier. Conversely, an ETF with a higher duration should bring greater non-correlating performance than modeled in your plan. Duration is the estimated percentage change of the price of a security for an immediate 1% change in rates. An ETF with a duration of 5.0 would be expected to decline in market value by 5% if rates immediately moved higher by 1%. The reverse would also be true—if rates decline by 1%, then that security would be expected to move higher in value by 5%. Duration to Worst measures the duration of a bond computed using the bond's nearest call date or maturity, whichever comes first. This measure ignores future cash flow fluctuations due to embedded optionality. 30-Day SEC Yield is a standard yield calculation developed by the Securities and Exchange Commission that allows for fairer comparisons primarily among bond funds. It is based on the most recent 30-day period. This yield figure reflects the interest earned during the period after deducting the Fund's expenses for the period. It does not reflect the yield an investor would have received if they had held the Fund over the last twelve months assuming the most recent net asset value (NAV). 12-Month Yield is the yield an investor would have received if they had held the fund over the last 12 months assuming the most recent NAV. The 12-month yield is calculated by summing any income distributions over the past 12 months and dividing by the sum of the most recent NAV and any capital gain distributions made over the past 12 months. Yield information reflects temporary waivers of expenses and/or fees. Yields would have been reduced had these fees/expenses been included. Yield to Maturity is the annualized return on a bond held to maturity. 

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Fundamentals Return to Emerging Markets http://www.vaneck.com/blogs/emerging-markets-equity/fundamentals-return-to-emerging-markets-april-2016/ Experience informs us that this type of environment will rarely persist for long before rational fundamentals reassert themselves and investments in quality companies with genuinely sustainable operating profitability and attractive valuations reassert their leadership.

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Van Eck Blogs 4/18/2016 11:47:15 AM This past quarter has been one of more twists and turns in macro factors than we can, perhaps, remember. Commodities went from being some of the worst performing and under-held assets in January to the complete opposite in February and March. The Federal Reserve has "walked back" from its previous more hawkish interest rate projections and, as a result, the U.S. dollar declined dramatically. This has taken the pressure off some of the weaker emerging markets currencies, which have seen impressive rallies. It appears that many emerging markets investors have rushed to sell popular investments in India and China to return to more globally cyclical driven markets, companies that have benefited from the rebound in commodities, and higher beta currencies. This caused significant performance idiosyncrasies among countries in the emerging markets complex in the first quarter.

1Q 2016 EM Equity Strategy Review and Positioning

We believe long-term followers of our strategy will understand that panic followed by euphoria rarely provides a favorable backdrop for outperformance by our highly disciplined all-cap strategy, as both size and growth characteristics tend to be penalized in short periods of panic. Poor quality and cyclical factors, which our strategy generally avoids, tend to outperform everything in the first innings of euphoria. It is important to point out that the cause of our potential underperformance during these short periods is often due to what we do not own (i.e., what we deem to be very large, poor quality cyclical companies) as much as it is indicative of what we do own — you might think of it as partial giveback of our previous outperformance.

Financials and Consumer Staples Provide Boost; Industrials and Tech Detract

During the first quarter of 2016, stock selection in financials and consumer staples aided performance relative to the MSCI Emerging Markets Index1 benchmark, while selection in industrials and information technology detracted. The absence of allocations to the energy and materials sectors also hurt the strategy's relative performance.

On a country level, China was the main detractor from performance followed by Russia and India. Peru, the Philippines, and Colombia gave the strategy's relative performance a boost.

1Q Top Performers

The top five performing companies in the strategy came from around the globe. BB Seguridade Participacoes SA2, the insurance arm of Banco do Brasil, the largest Latin America-based bank, as a Brazilian real holding, was helped significantly by the rebound in the Brazilian market during the quarter. It's a structural growth story. The company continues to display strong execution, in line with our growth thesis. In addition to its improving asset quality, consistent performance, and asset growth, Peruvian financial holding company Credicorp3 benefited from the turnaround in the Peruvian market. This followed the second half of 2015 when uncertainty as to whether the country would be reclassified by MSCI indexers weighed heavily on its stocks. Yes Bank4, a high-quality, private sector Indian bank, benefited from both improving loan growth and widening lending spreads. These have resulted in significant results, as has the bank's focus on retail, as opposed to commercial, business opportunities. The stock price of Robinsons Retail Holdings5, the Philippines' second largest multi-format retailer, made up most of its decline from the last quarter after full-year 2015 results came in largely in line with consensus, backing up our growth thesis. Although a global leader and structural growth story in its own right, Taiwan Semiconductor Manufacturing Company6, the undisputed global leader in integrated circuit (IC) manufacturing, also benefitted from cyclical factors in the first quarter. There were earnings upgrades driven by greater short-term visibility and asset utilization from improved traction with key customers. Additionally, there was a multiple lift as investors also favored businesses that benefited from global cyclical tailwinds.

Chinese Stocks Suffer in 2016

Given that Chinese stocks suffered during the quarter, it is perhaps not surprising that four of the five biggest detractors from our strategy's performance were Chinese. Following a slight change in its business model, Chinese company Boer Power Holdings7, which provides electrical distribution solutions, is facing, in our opinion, increased business risk. The company's leverage increased as it took on higher levels of accounts receivable. We continue to believe, however, that the company will continue to be a beneficiary of the development of a smarter grid in China. Luxoft Holding8 is a high-end information technology services provider, primarily to the financial services industry, with its programmers largely situated in the ex-Soviet Union countries, which are referred to as Commonwealth of Independent States (CIS). During the quarter, the company reported lower than expected numbers, largely related to the pulling of a key contract by a client. Chinese company Wasion Group Holdings9, like Boer Power Holdings, is in the business of improving the efficiency of power use, an area of activity we still believe displays convincing fundamentals. The company is setting the standard for "smart" electrical grid meters in the country. During the quarter, however, it suffered from the fallout created by the adjustment and lengthening of payment timelines on certain government contracts. Along with a number of others, JD.com10, one of the Fund's internet holdings, suffered from the widespread exit from the Chinese market during the quarter, giving back some of its outperformance of the previous year. However, the company continues to reflect, in our opinion, the considerable strength of the growth opportunities in the e-commerce sector in China. CAR Inc11 is the largest auto rental company in China and provides vehicles to U-Car, a partner providing "Uber-like" chauffeured car services in China. The issues around this company, and its recent poor performance, center on uncertainty surrounding the regulatory environment that has led U-Car to scale back its investment, and thus use fewer CAR Inc vehicles. We are monitoring this situation closely.

We Don’t Respond to Short-Term Macro Events

As we always strive to emphasize, we are fundamentally a bottom-up strategy, first and foremost. However, we do like to give a sense of where the strategy is positioned in terms of country and sector. Please bear in mind that a higher weighting in a country may not necessarily mean extra exposure to that country's risk, as certain holdings may be negatively correlated to the local currency or positively correlated to local rates.

Because we don't respond to shorter-term macro events such as oil and Brazilian politics, our weightings do not tend to move as materially as those of many of our peers. We simply don't speculate on short-term movements or cyclical factors — we invest in well-researched, long-term structural growth businesses at attractive valuations. We maintain that this process and philosophy have historically returned and, we hope, may continue to return, what we consider pleasing long-term performance. However, our long-term performance may be punctuated by short periods when the asset class underperforms for mostly technical reasons.

We continue to be overweight in China, India, and Brazil, while still significantly underweight in South Korea. Taiwan still has a relatively light weighting, although it is home to a couple of our larger positions. South Africa is still also underweight, but less so than in prior years, as weakness in the rand has encouraged us to make further investment in domestically-oriented companies, while outperformance of Naspers12 has also increased our weighting in the country.

Healthcare and Financials Offer Structural Growth Opportunities

By sector, we have maintained the persistent biases that you can expect from our philosophy of structural growth at a reasonable price. Energy and materials are very difficult places for us to find good, persistent growth, while much of the telecommunication and utility sectors are not showing us much growth at all. Consumer staples, a natural area to look for structural growth, has largely proven to be too expensive for our taste in the last few years, and this remains the case.

We remain overweight in healthcare, clearly a long run structural growth industry as consumers in emerging markets dedicate a higher percentage of their increasing disposable income to healthcare spending. Financials remain a large weighting for the strategy, but the investments we choose in this sector are very specific, usually by country, and focus on persistent structural trends such as microfinance, "banking the unbanked" and specialty insurance.

Emerging Markets Outlook

Experience informs us that this kind of environment rarely persists for more than a quarter or two before rational fundamentals reassert themselves and investments in quality companies with genuinely sustainable operating profitability and attractive valuations reassert their leadership. In a more "normal" environment, our strategy has historically tended to do quite well in our estimation.

Eyeing Brazil with Interest

We are watching Brazil with great interest. The political situation there remains extremely fluid. The incumbent socialist administration looks increasingly likely to be replaced by a more market friendly, reformist coalition. This expectation has resulted in a sharp recovery in current share prices and the country's currency. We steadily increased positions throughout last year because valuations became more and more attractive and have been somewhat rewarded for this — only somewhat, because the rebound has been led, so far, by large-cap commodity names such as Petrobras and Vale14, which do not align with our structural growth at a reasonable price (SGARP) philosophy and process.

Lower But Better Growth in China

China began the year with very negative headlines centering on the likelihood of a sharp depreciation of its currency and fears of an imminent debt-fueled crisis. We, on the other hand, continue to expect lower but better growth, monetary and fiscal easing, and a gradually weakening renminbi, but no crisis. Our base case is for modest cyclical recovery in China's economy in the first half of 2016 that could allow more room for further significant structural reforms, with more emphasis on the supply-side of the economy, rather than attempts simply to "juice up" demand. We do believe, however, that more credit "issues" are likely as the tidying up of highly indebted, state owned entities continues. As we regularly remind emerging markets investors, our strategy has very little exposure to the old, smokestack/state-owned enterprise (SOE) complex13, and we continue to favor long-term, structural growth opportunities in environmental services, internet, healthcare, tourism, and insurance.

Performance Led by Technicals in India

India was the other market where we experienced some negative performance over the quarter. Again, we would make the case that this was partly for technical reasons related to positioning. We remain optimistic about the Indian companies in which the strategy is currently invested, despite the country falling out of favor in relative terms.

Accelerating Growth in Peru

After several months facing a challenging scenario with lower commodity prices, the outlook for Peru started to improve. Growth in the country has been accelerating, driven by the mining and infrastructure sector. There is uncertainty regarding the outcome of the presidential election. It seems that the most likely scenario is that Keiko Fujimori will win in the second round. Finally, there seems to be a consensus view that Peru has a big chance of avoiding MSCI reclassification to Frontier Market which could act as an additional driver to Peruvian equities.

Can Colombia Tough Out Low Oil Prices?

Colombia continues to be negatively affected by the low level of oil prices, the uncertain fiscal adjustment, and expectations for the peace process. In our view, the government needs to approve a fiscal reform in order to address some important topics that will allow the country to achieve its fiscal target amid lower prices and low level of reserves. The government is waiting for the completion of the peace process to have the necessary political capital to proceed with an honest fiscal reform (this will be decisive to preserve the sovereign rating). There will likely be some slowdown in activity in 2016 with GDP growth expectations of around 2.7% versus 3.1% in 2015. There are some factors such as the beginning of the 4G mobile technology infrastructure program and the positive reaction of some tradeable sectors to a higher exchange rate that should partially offset the tough scenario for the economy given currently low oil prices.

We Believe Structural Growth is Reliable and Sustainable

In general, we see valuations for our focus list companies, after the recent rally, as fair, without being materially cheap. As we noted at the end of 2015, we are now seeing, as expected, some better economic numbers out of China, which is a notable bright spot. In addition, we would also point out that the growth of our strategy has been structural in nature and, arguably, quite reliable; as such, we expect it to compound over the course of time, with little cyclical risk associated with the world and market volatility we live with today.

 

Download Commentary PDF with Fund specific information and performance»  

Post Disclosure  

1 The Morgan Stanley Capital International (MSCI) Emerging Markets Index captures large and mid cap representation across 23 Emerging Markets (EM) countries. With 836 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. This index is unmanaged and does not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in specific investment Fund. An index's performance is not illustrative of a Fund's performance. Indices are not securities in which investments can be made.  

For a complete listing of the holdings in Van Eck Emerging Markets Fund (the "Fund") as of 3/31/16, please click on this PDF. Please note that these are not recommendations to buy or sell any security.  

2 BB Seguridade Participacoes SA represented 3.2% of the Fund's net assets as of 3/31/16.  

3 Credicorp represented 2.4% of the Fund's net assets as of 3/31/16.  

4 Yes Bank represented 2.4% of the Fund's net assets as of 3/31/16.  

5 Robinsons Retail Holdings represented 2.2% of the Fund's net assets as of 3/31/16.  

6 Taiwan Semiconductor Manufacturing Company represented 2.5% of the Fund's net assets as of 3/31/16.  

7 Boer Power Holdings represented 0.6% of the Fund's net assets as of 3/31/16.     

8 Luxoft Holdings represented 1.6% of the Fund's net assets as of 3/31/16.  

9 Wasion Group Holdings represented 0.7% of the Fund's net assets as of 3/31/16.  

10 JD.com represented 3.1% of the Fund's net assets as of 3/31/16.  

11 CAR Inc represented 1.5% of the Fund's net assets as of 3/31/16.  

12 Naspers represented 3.4% of the Fund's net assets as of 3/31/16.  

13 State-Owned Enterprise (SOE) is a legal entity created by a government with the purpose to partake in commercial activities on the government's behalf.  

14Petrobras and Vale were not held by the Fund as of 3/31/16.  

 

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Marketplace Lending: LendIt 2016 Learnings http://www.vaneck.com/blogs/market-insights/marketplace-lending-lendit-2016-learnings-april-2016/ ]]> Van Eck Blogs 4/18/2016 10:04:13 AM

Last week representatives from VanEck attended the LendIt USA Conference in San Francisco, the largest gathering of industry thought leaders in the online lending community, including leading platforms, investors, and service providers. We heard from many participants a mix of good and challenging news, and came away from the event feeling that fundamentals remain solid. As evidenced by the event's strong turnout, the industry continues to grow and attract capital and interest.

I have just returned to NYC from San Francisco, where I attended the LendIt USA 2016 Conference. Having been lucky enough to see the Broadway hit "Hamilton" recently, I thought on the plane flight back east that our "$10 founding father" would have been mesmerized by, proud of, and likely taking some credit for the whirlwind of financial services innovation on display at LendIt.

As an investor in and advisor to several FinTech companies operating in the online lending ecosystem, I thought it might be useful to share a few of my "learnings" from this annual FinTech confab. I not only had the opportunity to speak on the Fund Manager Insights panel (thank you, Peter Renton and Jason Jones for the opportunity), but I also had the chance to listen to and meet with many industry experts, FinTech CEOs and executives, venture capitalists (VCs), investment bankers, and investors in marketplace loans.

While this blog post is assuredly not a data-driven synopsis of the event, it is important to start with one of the most salient event factoids: over 4,000 participants from over 20 countries attended #LenditUSA 2016, an increase of over 60% from the prior year. I believe that fact tells us much about this industry, which I believe continues to grow and evolve. 

LendIt Learning #1

I believe this bit of pith from one lending platform CEO summed up the general tone of the conference: "The hype-to-reality ratio is lower this year and more in line with where it should be."

Certainly, industry growth trends remain: new companies, new lending niches, internationalization of the business, and more origination by the established players. However, there is also a sense that this industry has serious issues with which to contend. Many of these were eloquently raised and discussed in Ron Suber's outstanding keynote address: troubled securitizations, rating agency downgrades, regulatory and legal (Madden v. Midland Funding) uncertainty, fraud headlines, lower public and private valuations, and meaningful competition from other alternative and high yield investments that seemingly and suddenly became more compelling relative to marketplace loans in the recent volatile markets. These issues have contributed to a sense that even though the industry trend is still clearly positive, it will not be a straight line. To most industry insiders, this seems healthy in the long run, provided the uncertainties noted above can be addressed.

LendIt Learning #2

Broader, deeper, more stable, and more diversified sources of funding are needed for the industry to scale and continue to grow at the rates of the last two years. Opening investor access to the category is one solution. Lending funds, transitional capital, and VC are all potential parts of the equation. Ultimately, I believe, pension funds, endowments, foundations, insurance companies, and other deep pools of long-term capital need to be tapped. 

But to win over these large, sophisticated investors, a major amount of Suber's "EAU" (Education, Awareness and Understanding) needs to take place. This will take time and, most importantly, solid loan performance through this current environment as well as through a truly weak credit cycle. The point is that the marketplace lending industry has to begin the long, often arduous process of talking to and creating funding partnerships with these institutions. Securitizations can certainly also be a part of the solution but as a recent securitization of loans shows, poorly executed deals can actually damage investor demand for loans and raise questions about pricing and credit quality. The best financial institutions have typically diversified their funding sources and the same is proving true with respect to online loan originators.

LendIt Learning #3

Borrower niches continue to be exploited. At LendIt I learned about real estate (commercial, residential, and "fix and flip"), automobile (prime and sub-prime), purchase finance at the point of sale (and online point of sale), and many different approaches to and types of small business loans. I think we will continue to see more and more niches attacked by entrepreneurs seeking to use the efficiencies gained from originating and underwriting loans using technology to undercut more traditional methods of credit extension. Whether these niche online lenders will be able to stand on their own as independent companies or will be consolidated into larger players remains to be seen. But these differentiated types of loans — some secured and some unsecured — offer investors a range of choices and I think this will be increasingly important to investors over time.

So congratulations to the organizers of LendIt 2016. Judging from the fact that it was announced that LendIt 2017 will be at the Javits Center in New York City (not what I would call an intimate venue!), a general optimism still pervades the industry. And given that optimism, I just want to know if the conference organizers are offering next year's LendIt participants tickets to Hamilton.

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Central Bank Policy Concerns Support Gold in March http://www.vaneck.com/blogs/gold-and-precious-metals/central-bank-policy-concerns-support-gold-in-march-march-2016/ ]]> Van Eck Blogs 4/14/2016 12:00:00 AM

For the month ended March 31, 2016

Gold reached a new high for the year of $1,285 per ounce on March 11 when the European Central Bank (ECB) announced its upcoming plans, which include reducing rates on overnight bank deposits by 10 basis points to -0.4%, expanding quantitative easing to include corporate bonds in addition to sovereign bonds, and adding a new series of bank loans. Gold's gain reflects investors' worries over the financial risk and currency debasement that may come with negative rates, more printing of money, and relatively easy credit. Bloomberg reports that in February sovereign bonds issued primarily in Japan and Europe worth more than $7 trillion in U.S. dollars had negative yields. Meanwhile, Gluskin Sheff1 calculates the average yield on $23 trillion of global sovereign bonds outstanding has dropped below 0.7% for the first time in history.

The Potential Risks of Negative Interest Rates

Some of the potential risks of negative rates include: 1) the fundamental framework of the financial system is simply not designed to operate with negative rates; 2) providers of long-term services, like pension funds and insurance companies, have trouble meeting goals and expectations; 3) currency relationships and valuations become impaired; and 4) investors may disengage from the financial system. Comments from central bank officials seem oblivious to the dangers that gold investors see in the radical policies that are being promulgated. For example, ECB President Mario Draghi has said that he will do whatever is necessary to revive inflation. International Monetary Fund (IMF) Managing Director Christine Lagarde claims that the world economy would be worse off without negative rates and, additionally, that the finance sector may need to implement new business models. Following the March 29 speech to the New York Financial Club by Federal Reserve (Fed) Chair Janet Yellen during which she stated that the Federal Open Market Committee (FOMC) would still have considerable scope to ease policy if rates in the U.S. hit 0% again, the market lowered its expectation for further Fed rate increases.

Gold Bullion Posted A Small Loss for March, While Gold Shares Were Strong

Overall for the month, gold trended lower from its March highs, ending the month at $1,232.71 per ounce for a small loss of $6.03 (0.5%). Gold shares reached their highs for the year on March 17 and the NYSE Arca Gold Miners Index2 (GDMNTR) gained 4.0% for the month. The junior gold stocks had been trailing the benchmark, however, but the Market Vectors Junior Gold Miners Index3 (MVGDXJTR) caught up with the GDMNTR for the year by outperforming in March with an 8.6% gain.

Gold ETPs Enjoy Record Flows in 1Q

The 300 tonne flow of gold into bullion exchange-traded products (ETPs) in the first quarter (1Q) was the largest quarterly inflow since 2009, a period of heightened demand due to the credit crisis. Despite these record ETP flows, other demand drivers have been lacking. Jewelers in India were on strike for three weeks in March to protest a tax increase. Bloomberg reports Chinese purchases of gold for the first two months of 2016 were down 56% from a year ago. The People's Bank of China (PBOC) raised its gold reserves by 10 tonnes in February, its smallest monthly increase since it began reporting gold holdings last year. Producer hedging, which involves selling, increased as we count seven companies that announced new hedge positions in the first quarter. This was entirely short-term tactical hedging to lock in profits for new start-ups, high-cost short-life mines, or mines in weak currency countries. The weak physical demand from Asia and increased hedging suggest that overwhelming investment demand, mainly from the West, has been a primary driver of the strong gold market this year.

Gold Enjoyed its Best Quarter Since 1986

This was the best quarter for gold performance since 1986 and gold stock gains were of a similar magnitude. In the first quarter, gold advanced 16.1%, while the GDMNTR was up 46.3% and the MVGDXJTR climbed 45.4%. These are the types of early gains we expected to see in a sector that has been radically oversold. Since gold crashed in 2013, short sellers have dominated the market with many banks calling for lower prices, making the bear market one of the worst ever. Now it looks like we will see how vulnerable the new market is. Inflows to bullion ETPs have slowed and Comex4 net speculative long positions are the highest since 2012. As of April 5, gold has declined $56 per ounce from its March 11 high and looks to be into its first significant consolidation of the year. Holding above $1,200 per ounce would be a very bullish sign. However, a more plausible expectation based on trends in the early stage of past bull markets would be a correction to around the $1,150 per ounce level. A fall below $1,100 per ounce would suggest the bears have regained the upper hand, although we see this as the least likely outcome.

Core Inflation in U.S. is Worth Watching

Although we haven't paid much attention to consumer price inflation5 (CPI) for decades, we believe it now merits watching. The era of disinflation that was punctuated by the deflation of the great recession may be coming to a close. Normally we prefer to include food and energy when evaluating inflation trends. However, because of the recent crash in oil prices, we believe it is important to strip out energy volatility to see what is happening with underlying core inflation. The chart below (Figure 1) highlights the rise in core inflation over the past 14 months that has the potential to form a new trend. The Fed has a dual mandate: full employment and consumer price stability. At 5% unemployment, it's generally considered that the labor market is at full employment. Except for the extraordinary crisis-driven deflation in 2009, the core CPI chart looks reasonably stable. Yet for some reason the Fed and other central banks are trying extremely hard to escalate inflation. They do not appear worried by the asset price inflation that easy money policies have brought to stocks, bonds, and real estate. In past cycles the Fed remained too easy for too long. This is looking like a cycle in which the central banks remain way too easy for way too long, in our opinion. Perhaps this cycle will be different from the ones that brought about the tech bust and subprime crash. In addition to the usual asset bubbles that inevitably burst, we might be adding an inflationary cycle in goods and services. There is a distantly familiar name for that in a low-growth world: stagflation.

Figure 1: Core Inflation Trending Upwards?

 

Source: Bloomberg. Data as of February 29, 2016.

A Welcome Sojourn to Gold Mines in the Australian Outback

Getting far away from a macroeconomic scene that might become quite depressing for those investors without investments in gold or gold shares, we spent time in the Australian outback looking at a number of gold properties. Australia is the second largest gold producer behind China, and ranks ahead of both Russia and the U.S. We haven't been to Australia in many years because much of the gold there has been produced by North American or South African majors who acquired many of the Australian producers 10 to 15 years ago. The Australian operations formed a smallish component of the global majors, which made it difficult to justify a 22-hour flight combined with 105°F heat on arrival. But recently, there has been a remarkable renaissance in mid-tier and junior producers in Australia made possible by: 1) the 28% fall in the Australian dollar (AUD) since 2013 that has reduced costs in U.S. dollar terms, 2) North American companies divesting non-core mines to help pay down debt, and 3) operational improvements and discoveries. Companies that a few years ago did not exist or were avoided, such as Saracen, Northern Star, and Newmarket Gold, are now in our portfolio.

One of the drawbacks of investing in Australian companies is their short mine lives. Reserve lives are typically five years or less. However, we have gained an understanding of the resource base and exploration potential of these properties that indicate true mine lives are closer to the 10-year time frame that is common internationally. Good management teams have mitigated the operating risks, which, we believe, leaves currency as the dominant risk facing these Australian companies. However, we view the rise of the Aussie dollar to parity with the U.S. dollar in 2011/2012 as the exception, brought on by a China-driven commodities boom that is not likely to repeat in our lifetimes. The currency collapse brings it closer to historic norms. From 1985 to 2005 the AUD averaged US$0.70, close to its current value of US$0.75.

Download Commentary PDF with Fund specific information and performance»

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Munis: Using Muni ETFs to Complement a Portfolio of Bonds http://www.vaneck.com/blogs/muni-nation/using-muni-etfs-complement-portfolio-muni-bonds-april-2016/ ]]> Van Eck Blogs 4/13/2016 12:00:00 AM For municipal bond investors, life has gotten more difficult — not less:

  • Persistent low rates have driven some investors to take on more concentrated duration or credit risk than they may be comfortable with (or should be comfortable with) or hold fewer bonds.
  • Lingering concerns about creditworthiness have been compounded in some cases by an increase in political risk and as a result, an issuer may have the ability to pay its debt but may be less willing to do so.
  • Drastically reduced secondary market liquidity has made it more difficult (and expensive) to be nimble. In order to protect themselves should the need arise to sell bonds prior to maturity, some investors have restricted themselves to only the largest and most liquid bonds available, thereby limiting their ability to pursue incremental yield opportunities.
  • The dynamics of muni bond supply and demand are subject to seasonal imbalances, and this year the supply of new issue bonds is down over 8% versus 2015, while the upcoming "Summer Redemption Season" is expected to add over $100 billion in redeemed municipal bond principal to reinvestment demand, according to Bloomberg data.

Given these challenges, investors may wish to consider whether using muni bond ETFs as a complement to an existing portfolio may be easier and more efficient than using individual bonds as a way of maintaining an appropriate asset allocation mix and risk profile.

Because muni ETFs are managed to maintain a constant duration, the decision to reinvest can be made when it makes the most sense for each investor's goals—not just because bonds are maturing. For example, many investors have used a laddered portfolio strategy (in which equal amounts of principal are divided across sequential maturities) as an interest rate neutral way to manage their portfolio. (Interest rate neutral refers to the fact that a laddered portfolio favors neither a rise nor a fall in rates, as opposed to other strategies that may favor one interest rate environment over another.) Because a laddered portfolio has principal maturing on a regular basis, the investor is tasked with the need to reinvest the matured principal in order to keep the money working. If an investor's bonds are maturing in June, July, or August of this year, he may find himself competing against other investors for the limited supply of good quality and liquid bonds available in the market. A muni ETF may make sense as a short-term holding to maintain asset class exposure until a suitable replacement bond is found, or the ETF can be used as a longer term holding, replacing the matured "rung" on the portfolio ladder.

The easy to access intra-day liquidity for muni ETFs has attracted a variety of market participants who are not active in the underlying over-the-counter market for individual bonds. As a result, fluctuations in investor demand may not have as much of an effect on the volume of ETF trading as it may in the cash market. (Read more about muni ETFs and liquidity here.)

Patrick Luby is a Fixed Income Portfolio Strategy Specialist and the author of www.IncomeInvestorPerspectives.com. He has been helping many of the industry's best advisors and their investor clients understand and navigate the municipal bond market since the weekly Bond Buyer Municipal Bond Index was at 9.48%. (That's a long time ago, as most bond buyers know!)

This is not a recommendation to buy, sell or hold any of the securities or strategies mentioned. The author does not provide investment, tax, legal or accounting advice. Investors should consult with their own advisor and fully understand their own situation when considering changes to their strategy, tactics or individual investments.

Post Disclosure

The Bond Buyer Municipal Bond Index is based on prices for 40 long-term municipal bonds. The index is calculated by taking price estimates from Standard & Poor's Securities Evaluations for the 40 bonds, converting them to fit a standard 6% coupon, averaging the converted prices, and multiplying the result by a smoothing coefficient that compensates for the changes made twice a month in the index's composition.

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Russia: Land of Education and a Growing Tech Industry http://www.vaneck.com/blogs/efts/russia-the-land-of-education-growing-tech-industry-april-2016/ The Russian stock market, as measured by the Market Vectors® Russia Index (MVRSXTR), performed particularly well over the first quarter of 2016.

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Van Eck Blogs 4/13/2016 12:00:00 AM

Authored by David Feygenson, Senior Analyst, Emerging Markets Equity Strategy, and James Duffy, Product Manager, ETFs

Given Russia's need to diversify its economy away from both energy and basic materials, the country's technology and telecommunications industries — increasingly fueled by entrepreneurship among the country's well educated — offer considerable potential.

The Russian stock market, as measured by the Market Vectors® Russia Index (MVRSXTR), performed particularly well over the first quarter of 2016. Starting the year at 417.9, the Index ended the first three months of the year at 471.1 on March 31, an increase of 12.7%.

Much of this growth can be attributed to technology stocks. Of the 29 stocks that currently make up MVRSXTR, seven are involved in tech or telecom. In terms of market capitalization, these seven stocks make up approximately 17.5% of the overall market as defined by the Market Vectors® Russia Index.

Russia's Tech Growth is Fueled by a New Generation of Highly Educated Workers

Russia has one of the highest proportions of university graduates in the world, eclipsing levels in Asia, Europe, and North America. Partly due to the Soviet legacy of a focus on education, Russia is still endowed with an excellent education system that produces thousands of university graduates each year.

Source: Organization for Economic Cooperation and Development (OECD), "Education at a Glance 2015: OECD Indicators", for the year 2014, except for Russia, Chile, Saudi Arabia, and Brazil, which are for the year 2013.

Of young men aged 25-34, about half have completed tertiary education, much higher than the 35% average among OECD countries, and, after Korea, the second highest proportion. Of young women in the same age bracket, about 65% have completed tertiary education, much more than the 46% average for most OECD member and partner countries where data is available.

While some of Russia's best educated have left the country for greener pastures, many have remained and contributed to a growing tech industry. In recent years, a number of Russian technology companies have gone public, including Yandex (YNDX), the leading search engine in Russia, and Mail.Ru Group (MAIL), the leading portal, social networking, and gaming site in Russia.

Perhaps Russia's young and educated demographic will continue to foster a growing number of startups that will help to stake its claim as a global player in technology. The Russian market can be accessed through Market Vectors® Russia ETF (RSX®) and Russian small-cap companies through the Market Vectors® Russia Small-Cap ETF (RSXJ®). As of March 31, 2016, Yandex and Mail.Ru comprised 4.04% and 2.41% of RSX, respectively.

Source: FactSet, VanEck, and Market Vectors Index Solutions (MVIS).


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High Yield Recovers, Fallen Angels Soar http://www.vaneck.com/blogs/etfs/high-yield-recovers-fallen-angels-soar-april-2016/ Living up to their history of outperformance, fallen angel bonds (+6.54%) ended the first quarter having outperformed the broad high yield bond market (+3.25%) by 3.30%.

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Van Eck Blogs 4/11/2016 12:00:00 AM

Authored by Meredith Larson, Product Manager, ETFs

Fallen Angel Bonds Outperformed Broad High Yield in the First Quarter

Living up to their history of outperformance, fallen angel bonds (+6.54%) ended the first quarter having outperformed the broad high yield bond market (+3.25%) by 3.30%, as measured by the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA) and BofA Merrill Lynch US High Yield Index (H0A0).1 Fallen angels are high yield corporate bonds that are originally issued with investment grade credit ratings.

Heavier Allocations to Basic Industry and Energy Drove Positive Results

Relative to the broad high yield bond market, fallen angels' recent outperformance was primarily due to their higher average allocations to the basic industry and energy sectors. Both of these sectors' bonds appreciated in the first quarter, as oil prices recovered approximately 46% since mid-February.2


Chart 1. Year-to-Date Top/Bottom Three Sector Attribution
BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA) vs. BofA Merrill Lynch US High Yield Index (H0A0)

 

 

Source: FactSet. Data as of March 31, 2016. Past performance is no guarantee of future performance. Top and bottom three sector attribution of the BofA Merrill Lynch US Fallen Angel High Yield Index for fallen angels versus the BofA Merrill Lynch US High Yield Index for the broad high yield bond market. Figures are gross of fees, non-transaction based and therefore estimates only. Past performance is not indicative of future results. Attribution represents the opportunity cost of investment positions in a group relative to the overall benchmark.  

2016 Energy Sector Bias

Over the first quarter, fallen angels' energy allocation grew from about 13% to 25%, while the broad high yield bond market's went from approximately 11% to 13%.3 The overweight bias occurred as a result of the energy sector’s struggles in 2015, which led to investment grade energy companies suffering credit deterioration being downgraded to high yield. Allocating to bonds that are under ratings pressure may be considered a contrarian investment approach, which has tended to work for fallen angels in the past. Fallen angels tend to price in a substantial amount of this risk ahead of the ratings downgrades and, in general, become oversold from institutional forced selling upon entering the (H0FA) index, creating a potential value proposition.

Higher Quality High Yield

Fallen angels are generally characterized by higher average credit quality than the broad high yield bond market. While fallen angel bonds currently have a higher allocation to the energy sector than the broad high yield bond market, energy fallen angels are diversified across industries and concentrated in bonds with BB-credit (below investment grade) ratings.

ANGL Ranks at Top of High Yield Bond Category

Market Vectors® Fallen Angel High Yield Bond ETF (ANGL), which seeks to track the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA), ranked at the top of the actively managed high yield bond category year to date and over multiple time horizons since its April 2012 inception.4


Chart 2. Performance Relative to Peer Group
Market Vectors Fallen Angel High Yield Bond ETF (ANGL) vs. Morningstar Active High Yield Bond Universe
Market Vectors Fallen Angel High Yield Bond ETF (ANGL)
Source: Morningstar. Data as of March 31, 2016.
This chart is for illustrative purposes only. Index performance is not illustrative of fund performance. Fund performance current to the most recent month end is available by visiting vaneckvectors.com/etfs. Historical information is not indicative of future results. Current data may differ from data quoted. Past performance is no guarantee of future results; Market Vectors Fallen Angel High Yield Bond ETF commenced on April 10, 2012. An investor cannot invest directly in an index. The results assume that no cash was added to or assets withdrawn from the Index. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown. The actively managed high yield bond category is represented by the Morningstar Open End Funds – U.S. – High Yield Bond category. See index descriptions below.
 

 

Market Vectors® Fallen Angel High Yield Bond ETF received a five-star rating from Morningstar, as of March 31, 2016. ANGL was rated against 646 funds in Morningstar's high yield bond category over the last three years. Past performance is no guarantee of future results.5 Additional resources and information on Market Vectors Fallen Angel High Yield Bond ETF (ANGL) »   

 

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Sun Pharma Makes Acquisition in Japan http://www.vaneck.com/blogs/etfs/sun-pharma-makes-acquisition-in-japan-april-2016/ Generic drugs are gaining in prominence across the globe and manufacturers are capitalizing on potential opportunities to gain market share. This week SUNPHARMA announced a deal to acquire 14 prescriptions from Novartis (NVS) in Japan for $293 million.

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Van Eck Blogs 4/7/2016 12:00:00 AM

Authored by James Duffy, Product Manager, ETFs

The case for considering the investment merit of the generic drugs industry extends well beyond the borders of the United States and the jurisdiction of the U.S. Food and Drug Administration.

The Global Importance of Generics

Generic drugs are gaining in prominence across the globe and manufacturers are capitalizing on potential opportunities to gain market share. This week Sun Pharmaceutical (SUNPHARMA), one of the world's largest generic drug companies, announced a deal to acquire 14 prescriptions from Novartis (NVS) in Japan for $293 million. The acquisition will give Sun Pharmaceutical a foothold in Japan's $73 billion pharmaceutical market, which is currently ranked third largest in the world.1  

Governments Drive to Cut Costs

The deal positions Sun Pharmaceutical to take advantage of the Japanese government's health care cost reduction agenda, which includes plans to increase the percentage of prescriptions that are filled with generic drugs from 50% today to 80% by 2020.

Sun Pharmaceutical itself represents the global nature of the industry. Based in Mumbai, it is helping India's burgeoning pharmaceutical sector to augment its standing worldwide. Currently, SUNPHARMA comprises 4.75% of Market Vectors® Generic Drugs ETF (GNRX) as of 3/31/16.

 

 

 

View Current GNRX Holdings »   


 
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Munis: Utility and Sensibility http://www.vaneck.com/blogs/muni-nation/utility-and-sensibility-april-2016/ ]]> Van Eck Blogs 4/7/2016 12:00:00 AM I believe it is important for investors to step back from time to time, away from "the maddening crowd," and judge what is happening and how one is reacting to the markets from day to day. Why? Because it is human nature to get swept up by the volatility and excitement that the modern information age can offer, and in those instances we might lose sight of the pathways to the goals we set.

As we've moved into the second quarter of the year and nearer to the April 15 tax filing deadline, I want to make some simple points about the municipal bond asset class and the way it may behave going forward.

Although it is tempting to think of municipal bonds as a trading vehicle similar to corporate bonds, I suggest that it is better to view municipals as part of a long-term approach to portfolio construction that is geared to capture the potential benefits of tax exemption and relative value. Munis have remained resilient despite the impact of various headlines (Detroit, Puerto Rico) and their taxable equivalent returns have often rivaled — if not trumped — those of other asset classes.

Secondly, it is important to understand that seasonal shifts in supply and changes in the yield curve can impact a municipal bond's total return and present investors with tactical opportunities. For the first quarter, according to Barclay's, their Municipal Bond Index returned a positive 1.67%. Taking into consideration the seasonal supply/demand trends that have prevailed during the second quarter for the last 15 years suggest that favorable entry points may potentially become available. It may make sense for investors to consider remaining in tactical allocations to certain ETFs, for example, that are designed to capture pricing opportunities.

I recently discussed these factors in a webcast entitled, "Muni ETFs: the Potential Solution for Today's Wild Markets." For a more in-depth analysis of the current landscape for municipal bonds and municipal bond ETFs in particular, please listen to the replay.

Post Disclosure

The Barclays Capital Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt bonds with a maturity of at least one year.

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EM Growth Spots: LatAm and Turkey http://www.vaneck.com/blogs/emerging-markets-equity/growth-spots-in-latam-and-turkey-april-2016/ Patricia Gonzalez and David Feygenson, Analysts, Emerging Markets Equity, identify current growth spots in emerging markets:  Latin American credit and Turkish pension funds.

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Van Eck Blogs 4/5/2016 12:00:00 AM  

In this new video, Patricia Gonzalez and David Feygenson, Analysts for the Emerging Markets Equity strategy, identify two current growth spots in emerging markets: credit markets in Latin America (Mexico) and pension funds in Turkey.

Wednesday, April 5, 2016

Watch Video EM Growth Spots: LatAm and Turkey  

Gonzalez: "We see structural growth opportunities resulting from governmental reforms or policy changes that can allow new businesses and sectors to flourish. We're currently seeing this in Turkey, where several years ago the government announced private pension funds similar to 401(k)s in the U.S."

Watch Now  

Growth Spot: Funding SMEs in LatAm/Mexico

TOM BUTCHER: I'm here today with Patricia and David of VanEck's Emerging Markets Equity team to discuss exciting growth spots in today's emerging markets.

Patricia, can you tell me about one of your favorite growth spots?

PATRICIA GONZALEZ: I think we'll continue to see very good opportunities arise from the low level of credit penetration in the SME (small- and medium-sized enterprise) segment of Latin America (LatAm), particularly Mexico. We have seen that the lack of alternatives for this segment has left SMEs with very few options to rely on.

When we look at Mexico we see that the SME segment is extremely important. The majority of companies in the country fall within the SME segment. These businesses generate more than 50% of Mexico's GDP and also provide a majority of the country's employment. In our strategy, we try to take advantage of these opportunities through a company called Unifin.1 Unifin is the largest listed company in Mexico focusing specifically on SMEs. In our experience, the kind of lending that banks provide to SMEs is mostly lines of working capital. They are very short term and consequently we see a significant need and opportunity for the funding of fixed assets.

We believe that Unifin is very well-positioned to take advantage of that potential growth. With first-mover advantage, it has been in business for over 20 years and has developed a number of products and services for its clients. We feel it has a very good distribution network that has supported its growth and the company has been profitable. Its strict risk controls and leasing guarantees have allowed it to maintain good asset quality. When we look at management, we find the team has been in the business for a long time and has developed very strong know-how in the leasing market. Management has been able to meet clients' needs, which has contributed to increase market share. Finally, we think Unifin's valuation is attractive in terms of the company's growth and the returns it delivers.

Growth Spot: Private Pension Funds in Turkey

BUTCHER: David, what is your favorite growth spot in the emerging markets?

DAVID FEYGENSON: We see structural growth opportunities resulting from governmental reforms or policy changes that can allow new businesses and sectors to flourish. We're currently seeing this in Turkey, where several years ago the government announced private pension funds similar to 401(k)s in the U.S., which permit individuals to contribute tax-deferred money towards retirement with the government matching contributions up to a certain point.

We are invested with Turkey's largest pension fund provider, which currently comprises about 20% of the market: AvivaSA.2 AvivaSA is a joint venture between Sabanci Group, a large Turkish conglomerate, and Aviva, a large U.K.-based insurance company. Since the implementation of this private pension system, we've seen the number of participants increase. Additionally, assets under management have been increasing at roughly 35% per annum over the last five years. There is approximately $17 billion in assets under management in the pension fund industry, so we think there is plenty of scope for this to grow further over the next several years. AvivaSA may allow us to capture this growth and to benefit from potential additional changes the government may implement, such as auto-enrollment requiring people to opt-out of the system rather than opt-in, or requiring that companies offer their employees pension funds. AvivaSA has a large and robust distribution network and is well-positioned, in our opinion, to help capture growth in the space. We're very excited about this opportunity.

BUTCHER: Thank you very much.

Post Disclosure  

1 Unifin represented 0.90% of Van Eck Emerging Markets Fund net assets, as of 3/31/16. See holdings for more details.
2 AvivaSA represented 0.48% of Van Eck Emerging Markets Fund net assets, as of 3/31/16.  See holdings for more details.

 

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A Strong March for Moats http://www.vaneck.com/blogs/moat-investing/a-strong-march-for-moats-april-2016/ Strong performance continued in March for global moat-rated companies. Both the U.S.-focused Morningstar® Wide Moat Focus IndexSM and the internationally focused Morningstar® Global ex-US Moat Focus IndexSM maintained their strong relative performance versus their respective broad markets.

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Van Eck Blogs 4/5/2016 12:00:00 AM

For the Month Ending March 31, 2016

Performance Overview

March was another strong month for global moat-rated companies. Although the U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR) slightly underperformed the S&P 500® Index (6.44% vs. 6.78%) for the month, it maintained its strong outperformance for the first three months of the year (6.51% vs. 1.35%). For international moats, Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN) bested the MSCI All Country World Index ex USA for the month (8.89% vs. 8.13%), adding to its strong relative performance year-to-date (2.62% vs. -0.38%).

U.S. Domestic Moats: Bounce Back in Discretionary

Consumer staples firms were strong contributors to MWMFTR's returns for the month. Firms such as Harley-Davidson (HOG US), Polaris Industries (PII US), and Time Warner Inc. (TWX US) recovered from challenges earlier in the year to post strong gains. By contrast, several U.S. moat-rated banks struggled in March relative to other financials companies in the Index. Express Scripts (ESRX US) also faltered in March amid continued negotiation turmoil with health insurance company Anthem.

International Moats: Stock Picking is Key

MGEUMFUN's exposure to financials companies and its selection of companies within the sector contributed significantly to positive performance for the month. Financial firms from Australia, Hong Kong, and Canada performed well in March. One exception was the Swiss firm UBS Group (UBSG VX), which struggled after being added to MGEUMFUN in late March. Overall, Index companies from Australia, Hong Kong, and Canada drove performance, while Belgian, Israeli, and Swiss firms detracted most from returns.

Record Rebalance

Strong performance paired with several lowered fair value estimates by Morningstar analysts contributed to the highest turnover rate in the history of the MWMFTR Index. Sixteen of the Index's 20 companies were replaced as a result of its March review. Two firms, International Business Machines (IBM US) and Qualcomm Inc. (QCOM US), were removed from the Index as a result of an economic moat rating downgrade.

MGEUMFUN once again experienced significant turnover in March due to valuation changes and share price momentum. Twenty-four of the Index's 50 constituents were replaced as a result of its March review. See below for a full list of the review results for both indices.



 

(%) Month Ending 3/31/16

Domestic Equity Markets

 

International Equity Markets

 

(%) Month Ending 3/31/16

Morningstar
Wide Moat Focus Index (MWMFTR)

 
Top 5 Index Performers
Constituent Ticker Total Return
Harley-Davidson, Inc.
HOG US
14.89
Polaris Industries Inc.
PII US
13.43
International Business Machines Corporation
IBM US
12.26
Emerson Electric Co.
EMR US
11.90
Time Warner Inc.
TWX US 9.31

Bottom 5 Index Performers
Constituent Ticker Total Return
Norfolk Southern Corporation
NSC US
-0.92
Express Scripts Holding Company
ESRX US
-1.12
U.S. Bancorp
USB US
-1.15
Monsanto Company
MON US
-2.50
Bank of New York Mellon Corporation
BK US
-3.46

View MOAT's current constituents

 

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

 
Top 5 Index Performers
Constituent Ticker Total Return
National Australia Bank Limited NAB AU 25.04
Ambuja Cements Limited ACEM IN 21.42
Kingfisher Plc KGF LN 16.22
Oversea-Chinese Banking Corporation Limited OCBC SP 14.42
Banco Santander-Chile BSAN CI 14.23

Bottom 5 Index Performers
Constituent Ticker Total Return
Teva Pharmaceutical Industries Limited TEVA IT -2.52
Lloyds Banking Group plc LLOY LN -3.10
Cameco Corporation CCO CN -3.27
UBS Group AG UBSG VX -3.32
Elekta AB Class B EKTAB SS -15.39

View MOTI's current constituents

 
 
 

As of 3/18/16

Morningstar
Wide Moat Focus Index (MWMFTR)

 
Index Additions  
Added Constituent Ticker
Jones Lang Lasalle Inc JLL US
Allergan plc AGN US
State Street Corp STT US
Visa Inc A V US
Gilead Sciences Inc GILD US
CBRE Group Inc. CBG US
Express Scripts Holding Co. ESRX US
Amgen Inc AMGN US
Mastercard Inc A MA US
Walt Disney Co DIS US
McKesson Corp MCK US
The Bank of New York Mellon Corp BK US
LinkedIn Corp LNKD US
US Bancorp USB US
St Jude Medical Inc STJ US
Norfolk Southern Corp NSC US

Index Deletions  
Deleted Constituent Ticker
Polaris Industries, Inc PII US
Twenty-First Century Fox Inc A FOXA US
Harley-Davidson, Inc HOG US
Vf Corp VFC US
Time Warner, Inc TWX US
Berkshire Hathaway Inc B BRK/B US
Western Union Co WU US
American Express Company AXP US
Kansas City Southern, Inc KSU US
Union Pacific Corp UNP US
Emerson Electric Company EMR US
United Technologies Corp UTX US
Spectra Energy Corp SE US
Wal-Mart Stores, Inc WMT US
Intl Business Machines Corp IBM US
Qualcomm, Inc QCOM US

View Latest MOAT Reconstitution Report
View MOAT's list of current constituents
 

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

 
Index Additions  
Added Constituent Country
Cameco Corp Canada
National Bank of Canada Canada
Swatch Group AG Switzerland
Genting Singapore Plc Singapore
KBC Group NV Belgium
Embraer S.A. Brazil
BNP Paribas France
UBS Group AG Switzerland
Centrica United Kingdom
Novartis AG Switzerland
Richemont, Cie Financiere Switzerland
CapitaLand Commercial Trust Singapore
Roche Hldgs AG Ptg Genus Switzerland
Swire Properties Ltd Hong Kong
Bank of Nova Scotia Halifax Canada
Julius Baer Group Switzerland
Ioof Hldgs Ltd Australia
Grifols SA Spain
Contact Energy Ltd New Zealand
Mobile TeleSystems PJSC Russian Federation
China State Construction International Holdings Ltd. China
Henderson Group Plc United Kingdom
Teva Pharmaceutical Industries Israel
Sands China Ltd. Hong Kong

Index Deletions  
Deleted Constituent Country
National Australia Bank Ltd Australia
Goodman Group Australia
Spotless Group Holdings Ltd Australia
Qube Holdings Ltd Australia
Banco Santander Chile Chile
Empresa Nacional De Electricidad Sa Chile
Agricultural Bank Of China Ltd China
Bank Of China Ltd China
Industrial And Commercial Bank Of China Ltd China
Beijing Enterprises Holdings Ltd. China
Banco Bilbao Vizcaya Argentaria Sa Spain
Svenska Handelsbanken Sweden
Nordea Ab Sweden
Power Financial Corp Canada
Power Corp Of Canada Canada
Enbridge Inc Canada
Capitaland Mall Trust Reit Singapore
Wharf (Holdings) Ltd. Hong Kong
Ambuja Cements Ltd India
Itc Ltd India
Sun Pharma Industries Ltd India
Linde Ag Germany
Numericable Group France
Kering France

View Latest MOTI Reconstitution Report
View MOTI's list of current constituents

 
 


 
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Commodities Show Signs of Recovery http://www.vaneck.com/blogs/market-insights/commodities-show-signs-of-recovery-march-2016/ "We have seen commodities prices stabilize and some very encouraging signs.... We believe this is the kind of action that could set the stage for a long-term positive cycle."

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Van Eck Blogs 3/30/2016 12:00:00 AM

Wednesday, March 30, 2016

Watch Video Commodities Show Signs of Recovery  

Morris: "We have seen commodities prices stabilize and some very encouraging signs.... We believe this is the kind of action that could set the stage for a longer term positive cycle."

  Watch Now  

 

Morris follows up on his November 2015 video on commodities, with this fresh look at the commodities landscape.  

Prices Stabilize in First Quarter

TOM BUTCHER: The last three to four years have been challenging for commodities but it appears that prices have stabilized. Is that right?

ROLAND MORRIS: It is certainly starting to look like that. In the first quarter of 2016, we have seen prices stabilize and some very encouraging signs. We have also seen some recovery in commodity currencies. Gold bottomed in December 2015 and it is now up about 20% off that low [period from 12/17/15 to 3/22/16]. We had copper bottom in January and it is now about 17% off its low [period from 01/15/16 to 3/22/16]. Crude oil bottomed in February and it is up about 16% for the year [YTD as of 3/22/16]. We have seen what appears to be a base-building over the past two quarters. This is very encouraging. We believe it is the kind of action that could set the stage for a longer term positive cycle. Last year in 2015 we experienced what was a false start, but this year it feels more like this could be the real thing.  

Confidence Improves as China Fears Lessen

BUTCHER: Going into 2016 there was major concern about the outlook for China. Has that been ongoing?

MORRIS: I think that is one of the factors that contributed to what appears to be improving price trends in commodities. When you look back to the beginning of this year to January, we experienced a major decline in China’s stock market and its currency. This caused tremendous fear among investors that the worst case scenario was about to play out in China and that would have been a hard landing and possibly a forced currency devaluation because of capital flight. Since then things have calmed down a great deal. In February, capital outflows from China slowed markedly. I believe this is one of the key reasons we are seeing some restored confidence in commodities right now.

Fed's Softening on Rates Helps Commodities

BUTCHER: Are there any other factors that have helped improve the outlook for commodities?

MORRIS: I believe another important factor in commodities’ recent strength has been the shift by the U.S. Federal Reserve (Fed). The Fed indicated at its March meeting that it viewed current global financial developments as negative and it felt it needed to defer its proposed tightening program. That set the stage for some weakness in the U.S. dollar. The strengthening dollar trend had been one of the major headwinds facing commodities over the past three years. I think investors are starting to believe that the Fed will not be aggressive in raising rates and this has put a cap on the U.S. dollar’s appreciation, which has been very helpful for commodities.

BUTCHER: Can you provide me additional details about stabilization across the commodity spectrum?

MORRIS: We started making the following argument late last summer. We have felt that because of the reduction in capex (capital expenditure) across a number of commodities sectors and curtailment of investment, particularly in energy and industrial metals, investors have underappreciated the supply response. This is what we consider the fundamental story. Combined with improvements in some of these macro factors, this is what supports our point of view that this is the beginning of a new, positive cycle for commodities. It is against this backdrop, i.e., the reduction in supply, that we consider when looking out over the next two to five years.

Why this Period is Different from a Year Ago

BUTCHER: Do you think this is one of the distinguishing features between now and the situation back at the beginning of 2015?

MORRIS: Last year we certainly had some encouraging signs at the beginning of the second quarter, including appreciating price trends when crude oil went from $40 per barrel to $60 per barrel. Unfortunately that just petered out as the year progressed. I think the difference this time is the duration. We like to talk about fixing low prices, which requires a period of time to take hold. I think what is different now is we are a whole year further into the cycle and those capex cancellations from reduced investment may bring down supply significantly. From my perspective, the reason this may not be a false start is that we’ve had a longer period of low prices and it is both low prices and their duration that I believe help form a base.

BUTCHER: Have you had any interesting questions crop up in recent meetings with investment clients?

Interest in Commodities is on the Upswing

MORRIS: Yes. Just recently a client asked me what I think about our investments at VanEck in natural resources, including gold, etc. The client inquired how those investments might work in the event of a major negative geopolitical event. I had not been asked that question before. When you think about it, gold investments have the potential to provide protection in an unsafe environment. Additionally, natural resources by themselves can be considered a safety in a volatile investment climate because they are hard assets. The client’s question was interesting and I do think natural resources and gold in particular can do well in a tough environment.

BUTCHER: Have you been seeing any change in investor sentiment?

MORRIS: Overall I think clients have been more receptive. We have spent considerable time over the past few months meeting with institutional clients as well as other types of investors. My sense is that investors are starting to believe that now might be the time to consider either increasing natural resource investments or looking at them for the first time. I think this is partially because price trends have obviously improved in the first quarter. I also think most investors believe the Fed is unlikely to become aggressive with monetary tightening. We feel the Fed is more worried about the global growth environment and consequently it will probably keep the U.S. dollar contained. I think investors are starting to recognize that without the headwind of an appreciating U.S. dollar, natural resources may appear more attractive.

 
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Munis: Tune into My Webcast http://www.vaneck.com/blogs/muni-nation/tune-into-my-webcast-march-2016/ In a time of market uncertainty and volatility in many asset classes, municipal bond ETFs may provide investors with sensible solutions for their portfolios.

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Van Eck Blogs 3/22/2016 12:00:00 AM In a time of market uncertainty and volatility in many asset classes, municipal bond ETFs may provide investors with sensible solutions for their portfolios. My colleague, Tom Doe, President of Municipal Market Analytics, and I will engage in a practical discussion that addresses: Where Muni Bond ETFs May Fit in Today's Portfolios. The webcast is scheduled for Tuesday, March 29 at 4 PM ET.

Learn more and register here» 1 CFP Board CE credit available.

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Are Things Looking Up For Macau? http://www.vaneck.com/blogs/etfs/are-things-looking-up-for-macau-march-2016/ Macau is the world's largest gambling jurisdiction, seven times the size of Las Vegas.  For bullish gaming investors, Market Vectors® Gaming ETF (BJK) has a notable weighting in Macau-based casino and gaming companies.

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Van Eck Blogs 3/22/2016 12:00:00 AM

Authored by Michael Cohick, Product Manager, ETFs

For investors bullish on the future fortunes of the gaming industry, as of March 18, 2016, Market Vectors® Gaming ETF (BJK) had a 21.29% weighting in Macau-based companies focused on the casino, gaming, leisure and entertainment segments (based on country of domicile).  

At the end of 2015, there were 36 casinos in Macau: 23 situated on the Macau peninsula and the other 13 on Taipa Island. For an excess of places in which to lose your money, Macau is unparalleled. The trouble was that by the end of the year, monthly revenues from "Games of Fortune" had, year-over-year (Y-o-Y), been on the decline since end-May 2014. That's some 19 consecutive months of decline.

The steady stream of gamblers, especially rich ones, from mainland China may not have exactly dried up, but the Macau Patacas were no longer dropping so readily into the casino owners' pockets. It appeared that, at least vis-à-vis gambling, China’s Premier Li Keqiang attempts at “cleaning house” and fighting corruption were having some effect. Hope of some respite from constantly falling revenues seemed distant.

January's gambling revenues figures came in. Down again: 21.4% on January 2015. However, tourist arrivals from the mainland did increase during the month. And, by the end of February, tourist arrivals were up for the first two months of the year. But were they rich gamblers?

February Gambling Revenues Show Promise?

Then came February's gambling figures. OK, down again, but rather than the 2%-10% expected by analysts, the decline was only 0.1%. While this may make it the 21st consecutive monthly decline, it was, by far, the smallest of all the previous 20!

Is this the start of a recovery? At this stage it is, of course, impossible really to tell. But with VIP gamblers now fewer and farther between, the casinos are becoming increasingly dependent upon "mass market" players of "Games of Fortune". Any signs that arrivals to Macau are on the up-and-up will only bring hope to the casino owners.

Macau – Monthly Gross Revenues from Games of Fortune (MOP Million)  

 

Sources: Gaming Inspection and Coordination Bureau, Macau; MOP=Macau Pataca. As of February 29, 2016.  


 
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Generic Drugs: Life in the Fast Lane http://www.vaneck.com/blogs/etfs/generic-drugs-life-in-the-fast-lane-march-2016/ The FDA's focus has been on the approval process of Abbreviated New Drug Applications (ANDA), which may allow generic drug companies to benefit from expedited drug approvals.

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Van Eck Blogs 3/18/2016 12:00:00 AM

Authored by James Duffy, Product Manager, ETFs

With the 2016 U.S. presidential election in full swing, the candidates will surely continue to debate how best to rein in healthcare costs. Recent headlines, like those covering the huge price increases proposed by Turing Pharmaceuticals, have only ratcheted up the temperature in an already heated campaign season.

But what may be getting lost amid the election noise is the actions regulators, particularly the Food and Drug Administration (FDA), are already taking to help create cost savings through competition. The FDA's focus has been on the approval process of Abbreviated New Drug Applications (ANDA), which may allow generic drug companies to benefit from expedited drug approvals.

On Friday (3/11/16) the FDA's Office of Generic Drugs (OGD) announced a prioritization of the review of ANDA submissions. At the top of the list of priorities are potential first generic products, whose reference listed drugs do not have any blocking patents or exclusivities.1 Many view this as the FDA's response to Turing Pharmaceuticals, which proposed raising the current price of its drug Daraprim from $13.50 per pill to $750 per pill. Other companies may consequently think twice before pursuing price hikes of their own.

First Generics Seen as Public Health Priority

The FDA's action also comes less than two months after Dr. Janet Woodcock, Director at the FDA's Center for Drug Evaluation and Research, gave testimony to the Senate Committee on Health, Education, Labor and Pensions on the implementation of the Generic Drug User Fee Amendments of 2012. During her testimony, Dr. Woodcock cited the importance of "first generics," stating that "We consider 'first generics' to be public health priorities as they can lead to increased patient access." The announcement by the FDA officially transformed into an agency policy, the process of expediting first generic applications, which Dr. Woodcock compared to "an express lane at the supermarket."

Dr. Woodcock also cited some of the significant first generic approvals of 2015, including some drugs that are manufactured by companies held by Market Vectors® Generic Drugs ETF (GNRX).

 

Brand Name Generic Name Indication Generic Company % of GNRX
As of 3/16/16
Abilify Aripiprazole Bipolar Disorder Teva 8.15%
Zyvox Linezolid Pneumonia Mylan 4.88%
Integrilin Eptifibatide Heart Attack Aurobindo 1.33%

 

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Munis: An Easy Way to Compare Muni Funds http://www.vaneck.com/blogs/muni-nation/an-easy-way-to-compare-muni-funds-march-2016/ Introducing the Municipal Fund Monitor.

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Van Eck Blogs 3/15/2016 12:00:00 AM spacer

Munis: Debt Monitor Icon I am pleased to introduce the Municipal Fund Monitor. We hope this monthly report will help investors compare select muni ETFs and muni mutual funds in various categories according to key data, including assets, expense ratios and fees, yields, and performance.

Monthly Municipal Fund Monitor »

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Gold's Breakout Continues in February http://www.vaneck.com/blogs/gold-and-precious-metals/golds-breakout-continues-in-february-march-2016/ We are willing to declare the gold bear market over. Is this the beginning of a new bull? Time will tell.

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Van Eck Blogs 3/14/2016 9:30:10 AM

For the month ended February 29, 2016

Gold's Bear Market is Over

We are willing to declare the gold bear market over. Is this the beginning of a new bull? Time will tell.

Since the Federal Reserve (the "Fed") raised the targeted federal funds rate on December 16, a number of changes have occurred in the markets that lead us to believe that one of the longest and deepest bear markets in the history of gold and gold equities may be over.

These changes include:

  • Waning conviction in the market regarding further Fed rate increases.
  • The U.S. dollar's rise appears to have stalled.
  • Volatility and weakness in U.S. stock markets.
  • Strong gold prices despite seasonal weakness in Chinese demand.
  • Strong gold prices as oil and commodities have sunk to new lows.
  • Tremendous inflows to gold bullion exchange traded products (ETPs) and gold futures.
  • Technical breakout from an established downtrend.

Gold advanced $120.57 (10.8%) to $1,238.74 per ounce in February and is up $177.32 (16.7%) for the year [as of 2/29/16].

Growing Concerns About Global Financial Risks

Economic headwinds have escalated, from local occurrences in Asia and Europe to global concerns that now include the United States. The Institute for Supply Management's ("ISM") Non-Manufacturing Index fell more than expected in January and was weak in February as well. The U.S. has been in a manufacturing recession and the ISM reports suggest that the services sector, which makes up the bulk of the economy, is beginning to weaken.

Negative Interest Rates May Increase Gold's Appeal

Worries about systemic financial risk have also escalated due to many European countries and the Bank of Japan employing negative interest rates on certain reserves. There are now trillions of dollars' worth of sovereign bonds that trade at negative yields. Fed Chair Janet Yellen said recently that the Fed is evaluating whether negative rates are an option for monetary policy in the U.S. Meanwhile the president of the European Central Bank ("ECB") has said the ECB is looking at expanding its stimulus. The Governor of the Bank of Japan ("BOJ") stated last summer, "If we judge that existing measures in the tool kit are not enough to achieve the goal, what we have to do is to devise new tools, rather than give up the goal." If negative rates work their way into commercial deposits, it might undermine money market funds, pension funds, and the insurance and banking industries.

Negative rates may also increase gold's appeal, as gold effectively has a better yield at 0% than negative rate accounts. The Wall Street Journal reports that in the month after the BOJ's negative rate announcement, sales of personal safes rose as much as 250% in some stores. What we believe markets are telling central bankers in 2016 is that radical monetary policies have not produced positive results and that further financial engineering risks bringing down the financial system. So far this year, because of these concerns, gold has supplanted the U.S. dollar as the preferred safe haven investment.

South Africa Stands Out Among Gold Shares

Gold stocks are showing the leverage we expect in a positive gold market. The NYSE Gold Miners Index (GDMNTR) gained 36.1% in February while the Market Vectors Junior Gold Miners Index (MVGDXJTR) advanced 35.0%. While nearly all gold stocks have seen handsome returns this year, the South Africans have seen additional gains as a currency play, with some more than doubling this year in the wake of the collapse of the rand. We continue to see the geopolitical, operating, and other risks in South Africa as impediments to prudent investing. In addition, many of the highly levered (high cost and/or high debt) but lower quality companies have outperformed. It is not uncommon for short covering and momentum investing to propel low quality stocks in the early phase of a strong market.

What to Expect from Gold Miners in 2016

The junior gold stocks have lagged the larger producers, as evidenced by the 6.6% year-to-date underperformance of the MVGDXJTR relative to the GDMNTR. The performances of some of the mid-tier stocks have lagged as well. This lag is typical in the early phase of a newly rising market as investment flows start with the large companies. We expect the mid-tiers and smaller companies to outperform if gold continues higher.

By analyzing companies' fourth quarter reporting, 2016 guidance, and our meetings at the Bank of Montreal (BMO) Global Metals and Mining Conference, we have a better idea of what to expect in 2016 from gold mining companies. We have commented frequently about efforts to help reduce costs across the industry. It looks like the cost cycle is nearing its low point, as some companies are expecting further declines in 2016 and others are guiding to slightly increase. It is now common for companies to carry all-in mining costs of less than $1,000 per ounce. Large companies that were the perennial leaders 20 years ago are reasserting their roles. Newmont, Barrick, AngloGold, and Newcrest are the super majors that fell out of favor as they became bloated bureaucratic behemoths in the bull market. After several years under new managements, they are in the process of downsizing to become leaner, more efficient and more profitable companies. Barrick is targeting all-in mining costs below $700 per ounce by 2020. At the same time, company reports indicate that Barrick expects production to decline from 6.1 million ounces (before asset sales) in 2015 to 4.5 million ounces in 2020. Barrick also intends to reduce its net debt to zero. We think these are lofty goals, but if successful, they would solidify Barrick's leadership and potentially reset the bar for the industry.

Gold Strategy Review: A Focus on Value Creation

Historically our investment strategy has tended to underperform during downturns in the gold price and outperform in positive gold markets, generating strong performance over the long term. However, based on our years of experience following the gold industry, we find our performance, and that of most actively managed funds in general, to be surprising so far this year given the rising gold price environment.

The overriding theme of our investment criteria, which has not changed, is value creation. Companies create value by taking an essentially worthless piece of property and turning it into a gold mine. This is what motivated me as a geologist in the '80s and '90s and it drives me now as a fund manager. So why is this investment style performing differently in 2016?

To answer that question we have undertaken a portfolio review and here are our conclusions:

  • As we mentioned earlier, South African mining stocks are on fire despite the risk mentioned earlier, with some gaining more than 100% this year. In the past, we have avoided South African stocks due to geopolitical risk, union strife, difficult deep mining conditions, and an unreliable power grid.
  • Highly indebted supermajors have outperformed. The market no longer seems concerned with excessive debt. We have been avoiding these stocks.
  • Beaten down companies with high costs and/or no growth have outperformed. We have avoided these fundamentally flawed names.
  • Mid-tiers and juniors that are creating value through growth have underperformed due to market concerns over project financing or acquisitions. These concerns began early in 2015 and gained momentum at the beginning of 2016. Some of these companies may need additional capital if gold prices average around $1,100 or less. We have been overweight in these stocks.
  • We believe most of the companies that fall into the first three categories are unable to create value outside of their ongoing operations. However, until we see the market again rewarding companies that fit our investment style, we must adapt. We are not abandoning our quest for companies that create value, just toning it down. Here are the key portfolio developments that have been made as of the end of February.

Investment considerations:

  • We continue to avoid South Africa due to risks. The outperformance is largely a function of a collapse in the rand, which we now believe is priced into the stocks.
  • We have said that the supermajors have done a good job of paring down debt. We initiated a position in Newmont last year and we continue to view the large caps in a more positive light. With the operating improvements and financial discipline evident throughout the bear market, these large caps are again able to attract the big funds.
  • We will consider more operationally levered companies if the relative valuation is compelling. However, some of these companies are in need of an acquisition to maintain production. We will continue to underweight or avoid potential acquirers until they make a transformative acquisition.
  • We have adjusted our exposure to mid-tier growth names until we see the market take a more positive view. We are not avoiding these companies, as we believe they are now acquisition targets for the majors. We have increased exposure to Australian mid-tiers and juniors. There is a reemerging gold sector in Australia that doesn't carry the same financing stigma of its global peers.

Our overall top-down allocations have not changed much. However, the strategy has more names, fewer overweights, and a few new names in the top 10. As we had indicated at yearend, we have reduced royalty companies to rotate into producing companies. The portfolio will remain more diversified until we gain the conviction to make larger bets. Also, our investment universe will expand if gold stays above the $1,200 per ounce threshold.

Finally, despite these challenges, we find all this market action very compelling. Seeing the movement in South African and other stocks reminds me of the early phase of the bull market that started in 2001.

Fed's Rate Hike: The Straw Breaking the Camel's Back?

To appreciate what is going on in the markets this year, we believe investors must use a perspective that takes into account the post-credit crisis economy. We believe that the post-crisis monetary tightening cycle did not begin with the first rate increase, as it did in past cycles. Tightening began when the Fed began "tapering" its purchase of government bonds in late 2013. Once the Fed stopped buying bonds, it talked about raising rates. Then on December 16, 2015 it finally increased rates by 25 basis points. We see this as the modern tightening cycle and it has been going on for two years. The Atlanta Fed's Wu-Xia Shadow Federal Funds Rate model measures an overall tightening in financial conditions that occurred while rates were artificially held around the zero-bound by central banks. The Wu-Xia calculation estimates there has been a tightening that is equivalent to a 3.19% rate rise over the last two years. An economy that, in our opinion, is overburdened with regulations, taxes, uncertainties, and misallocations of capital is unable to grow without monetary stimulus. The December 16 rate increase was the straw that is seemingly breaking the camel's back.

Three areas that we believe have underpinned the stock market have diminished as this tightening cycle has progressed:

  • Companies that took on debt when corporate rates were lower to buy back stock.
  • Risk averse investors who moved out of treasuries and CDs into higher risk stocks and junk bonds to generate yield.
  • The sovereign wealth funds of energy producing countries who must sell stock to help support their economies.

Flows in to Gold Stock Reverse Course

As markets seem to have passed a potentially historic inflection point, it looks like the money that flowed out of gold and into stocks and corporate debt over the last five years is beginning to reverse course. When a little of this money flows into gold stocks, it can have a big impact. The market cap of the global gold industry is only $205 billion, which is roughly one third (36%) of the value of Apple. While gold stocks have performed well this year, when factoring in the higher gold price, Scotiabank figures stock valuations of the senior producers are lower now than they were a month ago. We find that the valuations of many mid-tier and junior stocks are even more compelling.

Gold Breaks Out of Technical Downtrend

Gold has broken a technical downtrend that was well established. Following gold's crash in 2013, it traded in a declining $150 range that in December stood at $1,050 to $1,200 (see chart below). Gold has clearly broken out of this range and until we see a new technical pattern emerge, it will be difficult to discern a trend. The next major technical resistance is at $1,600, which was the support level before the crash in 2013. However, we believe reaching this level is unrealistic in 2016, barring some sort of black swan event. At some point during the first half of 2016, we expect gold to pull back and consolidate. At that point, the depth and duration of the correction will help determine whether this is a new positive trend. We believe gold will be driven by a heightened undercurrent of financial risk as a result of growing distrust of central bank policies, global economic malaise, and overall market turbulence. Layered onto this is additional uncertainty brought on by Middle Eastern turmoil and widespread discontent with political leadership as evidenced by the U.S. presidential race and the British referendum on EU membership.

Breaking the Technical Downtrend - Gold Price Per Ounce (USD)

Breaking the Technical Downtrend - Gold Price Per Ounce (USD)

Source: Bloomberg.

Download Commentary PDF with Fund specific information and performance»

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Moat Investing: A Month For Moats http://www.vaneck.com/blogs/moat-investing/a-month-for-moats-march-2016/ February was a strong month for global moat-rated companies, particularly in the U.S.

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Van Eck Blogs 3/10/2016 12:00:00 AM

For the Month Ending February 29, 2016

Performance Overview

February was a strong month for global moat-rated companies, particularly in the U.S. The U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR) far outperformed the S&P 500® Index (5.22% vs. -0.13%). For international moats, Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN) posted positive returns while the MSCI All Country World Index ex USA was negative for the month (0.88% vs. -1.14%).

U.S. Domestic Moats: Success in Tech and Industrials

The strong performance of several industrial companies, including rail operators Kansas City Southern (KSU US) and Union Pacific Corporation (UNP US), drove performance in February. Although the overall U.S. information technology sector struggled, all three information technology firms in MWMFTR posted positive performance in February: Qualcomm (QUAL US), International Business Machines (IBM US), and Western Union (WU US). The leading company for the month was Polaris Industries (PII US), as it rebounded from poor results released at the end of January.

Several U.S. moat-rated firms, including media titan Time Warner Inc. (TWX US) and biotech firm Biogen, Inc. (BIIB US), struggled alongside the broad market.

International Moats: Financials Bounce Back

Financials reversed their January trend by leading the way for MGEUMFUN in February. Industrials also posted strong returns. Swedish firms provided the strongest boost to MGEUMFUN's performance, particularly Elekta AB (EKTAB SS), which develops and sells clinical solutions for the treatment of cancer and neurological disorders.

Several bank stocks out of Australia, Hong Kong, and the UK struggled in February, as did the few consumer staples stocks represented in MGEUMFUN.



 

(%) Month Ending 2/29/16

Domestic Equity Markets

 

International Equity Markets

 

(%) Month Ending 2/29/16

Morningstar
Wide Moat Focus Index (MWMFTR)

 
Top 5 Index Performers
Constituent Ticker Total Return
Polaris Industries Inc.
 
PII US
 
19.77
Kansas City Southern
 
KSU US
 
15.28
QUALCOMM Incorporated
 
QCOM US
 
13.08
United Technologies Corporation
 
UTX US
 
10.98
Union Pacific Corporation
 
UNP US 10.29

Bottom 5 Index Performers
Constituent Ticker Total Return
Twenty-First Century Fox, Inc. Class A
 
FOXA US
 
0.19
Wal-Mart Stores, Inc.
 
WMT US
 
-0.03
Monsanto Company
 
MON US
 
-0.67
Biogen Inc.
 
BIIB US
 
-5.00
Time Warner Inc.
 
TWX US
 
-5.45

View MOAT’s current constituents

 

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

 
Top 5 Index Performers
Constituent Ticker Total Return
Elekta AB Class B   EKTAB SS 18.94  
Spotless Group Holdings Ltd SPO AU   17.56  
Schneider Electric SE SU FP   11.99  
CapitaLand Mall Trust CT SP   11.36  
Goodman Group GMG AU   7.78  

Bottom 5 Index Performers
Constituent Ticker Total Return
Agricultural Bank of China Limited Class H 1288 HK -6.83
Numericable-SFR SA NUM FP -7.46
ITC Limited ITC IN -8.16
HSBC Holdings plc HSBA LN -8.27
National Australia Bank Limited NAB AU -8.55

View MOTI’s current constituents

 
 
 

As of 12/18/15

Morningstar
Wide Moat Focus Index (MWMFTR)

 
Index Additions  
Added Constituent Ticker
Spectra Energy Corp SE US
Biogen Inc BIIB US
VF Corp VFC US
Harley-Davidson Inc HOG US
Kansas City Southern Inc KSU US
International Business Machines Corp IBM US
American Express Co AXP US
Wal-Mart Stores Inc WMT US
Varian Medical Systems Inc VAR US

Index Deletions  
Deleted Constituent Ticker
Applied Materials Inc AMAT US
Autodesk Inc ADSK US
Discovery Communications Inc DISCA US
Walt Disney Co DIS US
ITC Holdings Corp ITC US
Franklin Resources Inc BEN US
Merck & Co Inc MRK US
Procter & Gamble Co PG US
Norfolk Southern Corp NSC US

View Latest MOAT Reconstitution Report
View MOAT’s list of current constituents
 

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

 
Index Additions  
Added Constituent Country
Dongfeng Motor Group China
Ainsworth Game Technology Ltd Australia
Beijing Enterprises Hldgs Ltd China
Technip Sa France
Spotless Group Holdings Ltd Australia
Numericable Sfr Sa France
Enbridge Inc Com Canada
Sun Pharmaceutical Industries India
China Telecom Corp Ltd China
Kingfisher Plc United Kingdom
Elekta Ab Sweden
Ci Financial Corp Com Canada
Sanofi (Sanofi Aventis) France
China Merchants Bank Co China
National Australia Bank Ltd Australia
Qube Holdings (Qube Logist) Ltd Australia
China Mobile Ltd China
Symrise Ag Germany
Linde Ag Germany
Nordea Bank Ab Sweden

Index Deletions  
Deleted Constituent Country
Brambles Industries Ltd Australia
Ioof Hldgs Ltd Australia
Platinum Asset Management Limited Australia
Commonwealth Bank Australia Australia
Sigma Pharmaceuticals Limited Australia
China State Construction International Holdings Ltd. China
Grupo Televisa Sab Cpo Mexico
Burberry Group United Kingdom
Centrica United Kingdom
Johnson, Matthey United Kingdom
Edenred France
United Overseas Bank Singapore
Capitaland Commercial Trust Singapore
Icici Bank Ltd India
State Bank Of India India
Unilever Nv Netherlands
Lafargeholcim Ltd Switzerland
Potash Corp Of Saskatchewan Canada
Cameco Corp Canada
Millicom Intl Cellular S.A. Sweden

View Latest MOTI Reconstitution Report
View MOTI’s list of current constituents

 
 


 
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Look to Healthcare for Emerging Markets Growth http://www.vaneck.com/blogs/emerging-markets-equity/look-to-healthcare-march-2016/ The topic of healthcare is increasingly important for emerging markets countries as the middle class grows and begins to face many of the health-related issues that the West has wrestled with for decades.

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Van Eck Blogs 3/10/2016 12:00:00 AM In the emerging markets, the topic of healthcare has become increasingly important as the middle class continues to grow and begins to face many of the health-related issues that the West has wrestled with over the last several decades. Government leaders in many emerging countries have become ever more focused on healthcare. Whether it’s Russian President Vladimir Putin engaging in well-publicized sporting activities to promote health, Indian Prime Minister Narendra Modi advocating for sanitation, or China expanding efforts to improve its air quality, emerging markets are shining the spotlight on healthcare more and more. 

Countries such as Mexico, Egypt, and the United Arab Emirates (UAE) have astonishingly high obesity rates (Fig.1). Mexicans drink the most sparkling beverages (including soda) per capita in the world1, and people in the Gulf States suffer from high levels of cardiovascular diseases largely due to the wealth and lifestyle created by petrodollars.2 Although India has relatively low obesity levels, it has experienced an explosion in the number of people diagnosed with diabetes (Fig. 2).

Figure 1: Prevalence of Obesity (%) Ages 18+

 
Source: World Health Organization, Global Health Observatory data. As of 12/31/15.

Figure 2: Population of India with Diabetes (millions)

 
Source: International Diabetes Federation, U.S. National Institutes of Health. As of 12/31/15.

Meanwhile, HIV prevalence in sub-Saharan Africa persists at alarmingly high levels. Nearly 20% of the 18-49 age group in South Africa is HIV positive. While the number of patients receiving antiretroviral (ARV) therapy to battle HIV has increased, there is still a long way to go and the costs associated with direct treatment and the related complications remain extremely high.

Demographics also play a key role in why healthcare is taking center stage in emerging countries. Populations are aging rapidly in East Asia, particularly in South Korea and China, and Eastern Europe (Fig. 3). We expect these regions to require greater healthcare spending, and with fewer working-age adults, the private sector will likely need to take on even more responsibility. 

Figure 3: Percentage of Population Over Age 60

 
Source: United Nations Population Fund (UNFPA). As of 12/31/15.

Will healthcare be the antidote to emerging market stasis? While emerging market countries are quite disparate across socioeconomic factors, there appears to be a growing demand for healthcare services from most countries. In our opinion, the public sector is ill-equipped to accommodate a huge growth in demand and the private sector is likely to be called upon, whether it is hospital operators, health insurers, or pharmaceutical companies that are needed. We believe there is potential for healthcare to experience tremendous growth.

Post Disclosure  

1 Coca Cola Icecek, Merrill Lynch Turkish Equity 1-1 Conference, January 19, 2015
2 World Health Organization, Gulf Cooperation Council (GCC)
3 Joint United Nations Programme on HIV and AIDS (UNAIDS)
 

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Munis: Investment Opportunities in the Current Environment http://www.vaneck.com/blogs/muni-nation/muni-investment-opportunities-current-environment-march-2016/ This week I share my latest video on why I think municipal bonds may offer investors various advantages at this point in time.

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Van Eck Blogs 3/8/2016 12:00:00 AM

This week I share my latest video on why I think municipal bonds may offer investors various advantages at this point in time. I also explain a couple of actionable strategies to help capture the potential opportunities available.

Watch Video Muni Investment Opportunities in the Current Environment

"...the municipal bond market, which, given its historically strong credit quality and low volatility, will hopefully continue to deliver strong after-tax returns to investors."

Watch Now | Video Transcript

VIDEO TRANSCRIPT: MUNI INVESTMENT OPPORTUNITIES IN THE CURRENT ENVIRONMENT

TOM BUTCHER: What are the advantages of investing in municipal bonds in the current environment?

JAMES COLBY: There's a great deal of uncertainty and volatility in the overall marketplace right now. Equities are up one day, down the next. Corporations have been impacted significantly by the drop in energy and current oil prices. Alongside all of this is the municipal bond market, which, given its historically strong credit quality and low volatility, will hopefully continue to deliver strong after-tax returns to investors.

The municipal marketplace is one that offers a variety of potential opportunities for investors, whether investors are looking to manage their interest rate risk or achieve higher returns in terms of yield. It may even be overlooked by investors who are departing from other traditional asset classes and looking for a place to put their money. I think the municipal marketplace serves as an asset class that will likely please investors once they have an opportunity to look at it and its potential benefits.

BUTCHER: Thank you. Do you see any specific opportunities today?

COLBY: I think there are two fairly distinct opportunities for investors to consider. One is based on interest rates and interest rate outlooks. The other is based on risk that investors might be willing to assume on a credit basis.

From an interest rate perspective, the history of the municipal yield curve, particularly the intermediate part of it, suggests that over time the steepness of the curve offers an opportunity to gain incremental returns as an investment moves from longer maturities to shorter maturities. We have a product with ticker symbol ITM (Market Vectors AMT-Free Intermediate Municipal Index ETF) that captures that steepness and investment opportunity without taking on a great deal of interest rate risk, which one would normally see and expect from the 30-year part of the yield curve.

The other opportunity is in high yield. Municipal high yield, because it is broadly diversified, doesn't have the distinct and deep exposure to energy that other asset classes may have, particularly in the corporate high yield marketplace. Municipal high yield's broader diversification still delivers high yield and the taxable equivalent is favorable relative to the corporate market and other asset classes.

Intermediate investment grade and municipal high yield are the two opportunities that I would suggest investors take a look at.

BUTCHER: Wonderful. Thank you very much.


jim_Colby_signature

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Munis: March Madness? http://www.vaneck.com/muni-nation-blog/march-madness-03-03-16/ Whether one is wary of the "Ides of March" or worried about the effect of college basketball’s "March Madness" on the psyche of investors, recent history shows that munis have mostly demonstrated negative returns in the month of March.

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Van Eck Blogs 3/3/2016 12:00:00 AM It is very tempting to look backward in an attempt to be forward looking, especially as we enter the month of the year that has historically been anything but robust for the muni market. Whether one is wary of the "Ides of March" or worried about the effect of college basketball’s "March Madness" on the psyche of investors, recent history shows that munis have mostly posted negative returns in the month.

Muni Mutual Fund Average Returns for the Month of March  

Muni-Mutual-Fund-Average-Return.jpgSource: Morningstar, as of 3/1/16.  

But let’s not jump to conclusions about what that might mean for investors. As strong as the historical data may be, there are important factors in play that might lead one to conclude that a "stay the course" approach to munis may be prudent.

The rationale I consider the most reasonable is as follows. For the past 24 months, year-over-year performance has been positive, supported by a lingering imbalance between supply and demand. Despite the continuance of low interest rates, there has not been the anticipated spike in issuance from municipalities or the anticipated series of rate hikes by the Federal Reserve ("Fed"). Thus reinvested cash and new dollars looking for a place to wait out current market volatility have seemingly been making their way to munis, creating positive returns so far this year.

Issuance for this month is forecast by Municipal Market Analytics to be stronger than what we have witnessed so far in 2016, and that is fundamental in the equation of supply outstripping demand, which may lead to higher yields, lower prices, and negative returns. Whenever there is a "whiff" of negative sentiment, traders generally like to move their bids lower in hopes of taking on inventory at more attractive prices. Those lower prices will lead to better entry points for investors who believe, as I maintain, that there is little inherent risk in this historically negative month.

Why? Because the Fed is not seeing a compelling U.S. economic recovery that otherwise would argue for a hike of the federal funds rate. The characteristics of the muni asset class — low volatility, strong credit quality, attractive taxable equivalent yields — will continue to form the cornerstone of an allocation policy that highly regards municipals. Even if other asset classes were to rally, the value of the tax exemption may continue to deliver returns that are difficult to find elsewhere.

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Big Biotech in the Bargain Bin http://www.vaneck.com/blogs/big-biotech-in-the-bargain-bin-february-2016/ The sell-off in biotech stocks that began last summer has resulted in valuations that are on par with and in some cases lower than those seen in the broad equity market. For investors with an appetite for biotech, this may provide a bargain-priced opportunity.

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Van Eck Blogs 2/26/2016 12:00:00 AM

Authored by Gabor Gurbacs, ETF Data Analyst

The sell-off in biotech stocks that began last summer has resulted in valuations that are on par with and in some cases lower than those seen in the broad equity market (at this writing, 2/17/16). Biotech valuations have not dipped this low since the aftermath of the 2007-2008 financial crisis. For investors with an appetite for biotech, this may provide a bargain-priced opportunity.

Since 2005 U.S. biotech stocks have traded at higher earnings multiples than the broader S&P 500® Index. Over the last 10 years biotech stocks have had an average price-earnings (P/E) ratio of 23.3 versus 16.2 for the S&P 500 Index. Today those metrics are nearly equivalent in the 16 P/E range. A number of large-cap biotech companies have traded below general market valuations, e.g., Amgen (AMGN), which traded at 16.2x earnings and Gilead Sciences (GILD) at 7.7x earnings, as of 2/17/16. By comparison, Market Vectors® Biotech ETF ( BBH) has a P/E ratio of 18.6 as of 2/17/16. BBH seeks to track the Market Vectors U.S. Listed Biotech 25 Index, which is comprised of the 25 largest and most liquid U.S.-listed biotech stocks.

P/Es of Biotech Stocks Fall Below P/E of Broader U.S. Equities
Historical Averages 12/31/2005 - 2/17/2016

02-26-2016 Biotech
Past performance is no guarantee of future results. Index performance is not illustrative of fund performance.  

While pricing concerns, weakness in emerging markets currencies, and the strength of the U.S. dollar may have contributed to weakness in biotech, there may be better news down the road. The expected total number of upcoming clinical trials, new drug applications, and new biologics up for approval is 32% higher now than five years ago.1 As the global population ages, demand for drugs is growing. Additionally, the current price environment may compel large biotech companies with healthy cash balances to grow their businesses through acquisitions or engage in share buyback programs; such activity could support share prices.

Amidst these trends, investors may consider targeting large biotech companies via an exchange-traded fund such as Market Vectors Biotech ETF (BBH) to potentially capture value in the biotech industry.

Sources: VanEck, FactSet and Bloomberg. Data as of 2/17/2016.  


 
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Special Gold Market Update 02/23/16 http://www.vaneck.com/blogs/gold-special-market-update-february-23-2016/ Gold bullion prices climbed from $1,061 an ounce on January 1, 2016, to $1,263 on February 11, a 19% increase in just six weeks. And although they have retreated to the $1,200 range since then, we remain optimistic.

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Van Eck Blogs 2/23/2016 12:00:00 AM

Is Gold's Slumber Over?

Intro: "Golden slumbers fill your eyes. Smiles awake you when you rise."  

Gold prices climbed from $1,061 an ounce on January 1, 2016 to $1,263 an ounce (an intraday high) on February 11, a 19% increase in just six weeks. As Paul McCartney sang on Abbey Road’s "Golden Slumbers," gold bullion and its devoted investors appeared to be waking from a nearly five-year bear market slumber with well-deserved grins. Since February 11 gold prices have retreated slightly, and have been trading within a range of $1,200 to $1,240 an ounce (at this writing).  

The question remains: Is Gold’s Slumber Over?   

We think so, although we expect price volatility to continue. Joe Foster explains why.  

Renewed Enthusiasm for Gold 

It’s pretty clear that financial markets in January helped to remind investors around the globe why perhaps virtually every portfolio should have an allocation to gold, both as a diversifier and a hedge against financial risk. Escalating geopolitical turmoil, currency issues, and slow growth are all potential risks that threaten economic development globally.

Importantly, markets are beginning to take action. Gold shares have been in one of their worst bear markets, but are the best performers this year thus far. As long-term gold investors, we have had a watchful eye out for the first glimmer of a turn in sentiment. Technical trends and fundamental drivers have shown significant improvement. It may be time to polish off the case for gold mining stocks as 2016 might be the year prices reverse course.

Despite our renewed enthusiasm for gold, we believe that bullion prices must not only break through $1,225 an ounce, but also remain above the $1,200 threshold in order to support a definitive breakout. It looks as if the markets will continue to embrace gold in the current environment and perhaps we can look back at the December $1,046 price as the bottom of the gold bear market. We might also look back on the December 16 Federal Reserve ("Fed") rate increase as the straw that broke the camel’s back, triggering unforeseen risks to the global financial system.

Negative Rates, Loss of Confidence Good for Gold

Most of us don’t need reminding that low and/or negative real interest rates are generally good for gold. That said, it will become increasingly important to watch the global trend toward low, and even negative, interest rates. Negative rates have become more common in the Eurozone and Japan, and there is currently around $600 trillion of government debt around the world with a negative yield. And, while it may seem far-fetched for the U.S., the Fed is telling banks to prepare for the possibility of negative rates. Undeniably, the U.S. economy continues to appear vulnerable and consequently, the market and now the Fed are increasingly adopting a cautious view for 2016.

Gold Bullion Prices versus Real Interest Rates: 1970 to 2015  

Gold-Lower-Interest-Rates  

Source: Bloomberg, data as of 02/02/16.  

Is this the beginning of a loss of confidence in central banks? The banks’ inability to generate normal economic growth or inflation is certainly cause for concern for many investors. As stated by John Mauldin in his popular blog, Thoughts from the Frontline, "Clearly, QE [quantitative easing] has not worked …. if out-of-control borrowing was the original problem, then QE as a solution is kind of like drinking more whiskey in order to sober up. And if you reduce the earnings of those who are savers so that they are no longer able to spend, the whole purpose of the original project—to foster economic growth—is defeated." Historically, gold and gold shares have acted as a safe haven during periods of low confidence in the world’s financial systems (a “safe haven” is an investment that is expected to retain its value or even increase its value in times of market turbulence).

Mining Shares Regain Their Mojo

Operating costs at mining companies rose drastically during the recent bull market, seriously impacting profitability. Since the start of this current market downturn, however, some positive changes have taken place in the gold mining industry. We believe that the industry is in the best shape it's been in for a long time.

The most elementary fundamental support for a positive outlook for gold stocks is the impact of deflation on the cost of labor, material, and services. Costs have been falling since 2012. Global producers have reported that total cash costs for the first nine months of 2015 fell by 7% year-on-year, from a total of $733 an ounce to $680 per ounce.1 Average all-in mining costs are now below $1,000 per ounce. Gold miners have historically benefited in deflationary periods from declining costs of labor and materials. In the 1930s, shares of Homestake Mines (the major gold equity of the time) rose significantly as the company was able to expand profits during this period due to its falling cost structure. Shares of Homestake Mines increased from $65 in 1929 to $544 in 1936.2  

These reductions in costs, improvements in efficiency, as well as deep declines in the currencies of commodity-producing countries, have all helped gold companies generate cash flow and maximize profit—restoring the viability of the sector.

Technicals and Leverage

Gold share valuations are at multi-decade lows and currently have technical support. The current bear market that began in late 2011 has eclipsed the duration of the average bear market since 1970 by five months, and prices are nearly 75% off their five-year highs.3 However, price levels have begun to turn and gold shares have outpaced gold thus far in 2016.

Many investors use gold stocks to gain leveraged exposure to gold in a rising gold price environment. It’s all about potential earnings leverage; as the gold price increases, the change in a company’s profitability can outpace the change in the gold price. We’ve just come off a one-month period during which the expected outperformance of gold stocks relative to gold did not materialize, but we do not expect this trend to continue. Gold shares should offer their highest leverage to gold when the price is close to the cost of production, as is now the case. So, unless costs increase at the same time as the price of gold (as in 2011 and 2012), it makes sense that equities should outperform gold during rising gold prices as has been the case over the last several years.

Gold Equities: Leveraged Exposure to Gold  

Gold-Equities-Leveraged-Exposure-to-Gold Source: Bloomberg data as of 2/9/16.  

For a deeper analysis, please take a look at our presentation, The Case for Gold in 2016

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Marketplace Lending: Block the Noise http://www.vaneck.com/blogs/van-eck-views-february-18-2016/ The online lending sector has been the target of a few unfavorable media reports as of late....We recommend that investors block the noise and stay vigilant for potential investment opportunities.

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Van Eck Blogs 2/18/2016 12:00:00 AM

Intro: The online lending sector has been the target of a few unfavorable media reports as of late. Our opinion is that some of the headline risks highlighted by the media are overblown and overhyped. We do agree, however, that investors should be vigilant in the current environment, especially regarding economic growth. The potential of a downturn in the U.S. economy offers considerably high risks that warrant caution in many asset classes. It also underscores the importance of identifying alternative sources of return and income. That said, we continue to hold a high level of interest in the marketplace lending sector. For additional thoughts, please read our previous post from January.

Volatile Markets Bring Hyped Headlines

There’s no question that this has been a difficult market for most asset classes. Not unexpectedly, media reports predicting Armageddon have become commonplace. Many of them have highlighted valid points to be analyzed but, in many cases, the wild predictions have not panned out and the risks have proven to be exaggerated.

Recently, questions have been raised about the models used by Lending Club (LC) to measure the risk on its online loans. Some have opined that the LC models are flawed and that the loans are underpriced. We do not agree with this view. LC has since issued a performance update which confirmed that credit performance for most fragments was as expected, as well as provided "the correct interpretation" of its modeling.

The issue of charge-offs is central to virtually all investors in online loans. Like risk, it fluctuates over time. It's not only natural, but necessary, for platforms to continuously adjust their pricing. Our concern is more macro in nature. After a period of positive economic news that led the U.S. Federal Reserve ("Fed") to raise rates, we may be at an inflection point.

How Could a Downturn of the Economy Affect Charge-Off Rates?

Bloomberg Consensus Forecast for U.S. Real GDP calls for 2.4% growth in 2016, but some banks have recently lowered expectations significantly. For example, Standard Chartered lowered its 2016 GDP forecast from 1.6% to 1%, UBS lowered its forecast from 2.8% to 1.5%, and Commerzbank lowered its forecast from 2.5% to 2%. The transmission mechanism is straightforward. Less growth leads to fewer jobs. As borrowers lose jobs, their ability to pay back loans gets compromised. The silver lining here is that the chances of further hikes by the Fed have decreased considerably (which typically helps valuations of fixed income portfolios). As shown in the chart below, charge-off rates increased slightly in October and November 2015. It will be interesting to see if this trend persists or if charge-off rates return to previous levels.

Chart 1: Monthly Coincidental Charge-Off Rates

PP - Monthly Coincidental Charge-off Rates
Source: Orchard.

Ezubao Casts a Shadow on China's Online Finance Industry

The arrest of 21 people involved with Chinese peer-to-peer lender Ezubao, which was accused of running a Ponzi scheme, also gained much of attention recently. Many have raised the question as to whether this could happen to a U.S. lending platform. While possible, the chances are considerably smaller in our opinion. Local regulation (on a country-by-country basis) is at very different stages. In China, initial regulatory proposals were issued by the People’s Bank of China only in July 2015 and subsequently by the China Banking Regulatory Commission in December 2015. Last year alone, about 700 online lenders went bust in China (there remain an estimated 2,000 online lenders in the country).

U.S. online lenders, in contrast, are at a different inflection point. They are currently required to comply with federal consumer financial protection laws and some are subject to securities regulation.1 Many of the largest players (including LC and Prosper) have registered with the U.S. Securities and Exchange Commission (SEC).2 In addition, a recent report by the U.S. Government Accountability Office has explored the potential for additional regulatory oversight by the Consumer Financial Protection Bureau (CFPB) or the Federal Deposit Insurance Corporation (FDIC). On the legal front, the U.S. Supreme Court was asked in November to accept for review the U.S. Court of Appeals for the Second Circuit's opinion in Madden versus Midland. In December, the Supreme Court requested Madden to file a response. A decision regarding whether the petition warrants review by the Court is expected by the end of March.

Positive Fundamentals for Online Lending Continue

Despite a few unsavory headlines and turbulence in financial markets, the fundamentals for online lending loans continue to be positive.

The Orchard US Consumer Marketplace Lending Index3 has shown steady growth with very low volatility since its inception in 2011. While the concern that the asset class has not gone through an economic downturn is valid, the low volatility and steady returns shown over the past five years is certainly worth noting (and watching).

Chart 2: ORCHLEND Index Shows Steady Growth Since 2011

PP - Orchard U.S. Consumer Marketplace Lending IndexSource: Orchard Indexes, as of 12/31/15.

U.S. unemployment continues to decline and is currently below 5%, with the latest JOLTS (Job Openings and Labor Turnover Survey) data showing that job openings have almost tripled since the financial crisis.

Chart 3: U.S. Job Openings and Employment

PP - Job Openings Employment
Source: Bureau of Labor Statistics.
Note: Shaded area represents recession as determined by the National Bureau of Economic Research (NBER).

U.S. Economic Data is Key Going Forward

As is true for any asset class, there are numerous risk factors that can affect investments in marketplace loans: regulation, platform fraud, cyber security, and rate hikes, to name a few. Thus far, fundamentals continue to be strong. Going forward, data indicating where the U.S. economy is heading will be paramount to credit rating and duration choices that optimize the risk/reward ratio in a loan portfolio. We recommend that investors block the noise and stay vigilant for potential investment opportunities.

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Munis: Once Upon a Time http://www.vaneck.com/muni-nation-blog/once-upon-a-time-02-16-16/ Once upon a time...there was a shining city at the foot of Lake Michigan.

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Van Eck Blogs 2/16/2016 12:00:00 AM Munis: Once Upon a Time...there was a shining city at the foot of Lake Michigan. Described as a “Gateway” for trade and transportation, connecting the upper Midwest and Canada with the Gulf of Mexico via the Mississippi, Chicago is notable for having “played a central role in American economic, social, cultural, and political history and since the 1850s has been the dominant Midwestern metropolis.” Further, “the city grew exponentially, becoming the nation's rail center and the dominant Midwestern center for manufacturing, commerce, finance, higher education, religion, broadcasting, sports, jazz, and high culture.”1

Known for its rough and tumble politics, the luster ascribed to Chicago has been tarnished of late as the city, the City Board of Education (BOE), and the state have found their once highly regarded credit ratings tumbling under the weight of indebtedness and political stalemate. Moody’s Investors Service has treated the issuers most harshly, sending the ratings of the city’s $9.3 billion general obligations and $6.8 billion Board of Education bonds well below the investment grade threshold of Baa.2 The “cost” has been significant, as reflected in the most recent issue for the BOE, where the interest cost for a recent $725 million issue was over 8.5%, compared to 6.32% for an older issue of BOE trading in the secondary market most recently at year-end.3

Yes, this is an election year and officials seem loath to enact measures, even to resolve such dire fiscal events as have occurred in this state and city. But the view from on high sees danger in the form of impaired services lurking on the doorsteps of the citizenry. When politicians fail to find a path towards resolution, especially in a community such as Chicago where there is imbedded wealth and tradition, the rest of the country is put on notice.

1Wikipedia as of 2/9/16.
2Mesirow Financial as of 2/5/16. Gradations of creditworthiness are indicated by rating symbols, with each symbol representing a group in which the credit characteristics are broadly the same. The symbols that are used by Moody’s to designate least credit risk to that denoting greatest credit risk: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, and C. Ratings from Ba to Caa are below investment grade (non-investment grade) or speculative grade.
3Bloomberg as of 2/9/16.
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Gold Shines as a Safe Haven in January http://www.vaneck.com/blogs/gold-commentary-january-2016/ It has been a very eventful start to the year. The price of gold bullion rose during the month as concerns of global financial risk intensified. 

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Van Eck Blogs 2/11/2016 12:00:00 AM

 

For the month ended January 31, 2016

It has been a very eventful start to the year. On January 4, the first trading day of 2016, the Chinese equity market fell drastically, with the Shanghai Composite Stock Index1 down 6.9% during the session. The equity slide continued, repeatedly triggering the recently instituted circuit breakers, which have subsequently been suspended. The Shanghai Composite Stock Index ended the month of January down 22.6%. The Chinese selloff spread to global equity markets with the S&P 500® Index2 having one of its worst starts to any year, falling almost 9% three weeks into January. By month end, however, the Index had recouped some losses to end January down 5%. The MSCI All-Country World Index,3 which includes both emerging and developed world equity markets, fell 8% during the month. Commodities also took a hit, with oil and copper down 9% and 3%, respectively. Even the Japanese yen ended the month weaker, down 0.8% relative to the U.S. dollar, after the Bank of Japan (BOJ) surprisingly announced on January 29 its adoption of negative interest rates, which drove the yen down 2% that day.

Disappointing U.S. Economic Data  

Except for a stronger than expected employment report, most major U.S. economic data released during the month was disappointing, including the Empire State Manufacturing Index4, retail sales ex-autos, industrial output growth, capacity utilization, durable goods orders, pending December home sales, and Q4 2015 real GDP growth. It was no surprise that the Federal Reserve (Fed) left rates unchanged on January 27, but revised messaging in the Fed’s statement raised many questions in the market. The Fed softened its assessment of its growth and inflation outlooks, and indicated that it is "closely monitoring" global economic and financial developments, signaling that it is uncertain about their potential impact on the U.S. economy. Consequently market expectations for the Fed's next rate hike have been pushed to November, with less than one full 25 bps hike priced in for 2016. In my opinion, there is a good possibility that the Fed will not be as aggressive as previous guidance suggests, and that the U.S. economy is vulnerable, making rising rates a significant impediment in 2016. It appears that the market and even the Fed are increasingly adopting a similar view for 2016.

Gold Bullion Was the True Winner in January

The U.S. dollar held up during January, with the U.S. Dollar Index5 (DXY) down slightly before the BOJ’s announcement on January 29, but rising later in the day to finish the month with a 1% gain. Gold bullion was, however, the true winner in January.  The gold price not only managed to gain in a month when the U.S. dollar also finished higher, but it outperformed significantly, benefiting from its safe haven6 status to close at $1,118.17 per ounce, a gain of $56.75 per ounce or 5.35%. Notably, holdings of global gold bullion exchange-traded products (ETPs) rose by 1.8 million ounces or 3.8% during January.

China and Russia Big Buyers of Gold in 2015

The World Gold Council published its latest World Official Gold Reserves for 2015. The figures rank China (1,762 tonnes, representing 1.7% of total foreign reserves) and Russia (1,393 tonnes, 13%), respectively, as the sixth and seventh largest holders of gold reserves in the world, behind the U.S., Germany, the International Monetary Fund (IMF), Italy, and France. The central banks of China and Russia were both significant buyers of gold in 2015. After announcing its updated gold holdings in June 2015, the People’s Bank of China (PBOC) purchased an additional 104 tonnes of gold in the six months from July to December. This equates to an annualized rate of purchase exceeding 200 tonnes of gold, which is double the average annual rate estimated from the PBOC’s June 2015 update. This suggests China may be stepping up its gold reserves purchases. Russia’s net purchases were estimated at about 185 tonnes of gold in 2015 (not including data for December), representing an increase of about 15% from 2014.

In its latest report Thomson Reuters GFMS Gold Survey estimates that in Q4 2015 total gold physical demand increased by 2.2% year over year, driven primarily by strong growth (23.2%) in official sector net purchases (dominated by Russia and China as explained above) and a 7.0% increase in retail investment in gold bars (driven by strong demand from China and India). While jewelry demand in China dropped by 4%, demand out of India continued to recover, increasing 3% in Q4. The world’s total supply of gold dropped by 7.3% with mine production declining 3.8%.

Gold Stocks Uncharacteristically Underperform 

The performance of gold stocks was mixed in January. The NYSE Arca Gold Miners Index7 (GDMNTR) gained 3.35%, while Market Vectors Junior Gold Miners Index8 (MVGDXJTR) dropped 0.79%. While the underperformance of gold stocks relative to gold is atypical when the price of gold is on the rise, the end-of-year performance of gold stocks was also somewhat out of character. In December, while gold fell to a new cycle low, gold stocks did not follow to new long-term lows and the GDMNTR Index and the MVGDXJTR Index advanced 0.9% and 2.8%, respectively. Perhaps the reversal of that uncharacteristic December outperformance helps explain some of the underperformance in January, along with general weakness in the broader equity market that can also drag down gold equities.

Additional factors affected gold stocks and likely contributed to negative sentiment towards equities during the month. Some companies reported preliminary operating results for 2015 and provided guidance for 2016. While 2015 results were broadly in-line and costs continued to trend down, 2016 production guidance seems slightly below current expectations. Furthermore, base metals and silver underperformed gold in January, affecting valuations of companies with exposure to those metals. Finally, there was company-specific news that had significant negative impact on share prices, which we didn’t always deem as justified. This news included: Eldorado’s planned suspension of its projects in Greece; a material mineral resource revision of Rubicon’s Phoenix project and its impact on Royal Gold’s stream on that project; and the potential fundraising B2Gold may require, given current gold prices, to finance its Fekola project.

The performance gap between gold bullion and gold equities was widest on January 19. Since then the stocks have materially outperformed, closing the gap. As of February 1, the GDMNTR Index and gold were both up 6.3% year-to-date.

Outlook for Gold is Positive

Financial markets in January helped to remind investors around the globe why perhaps every portfolio should have an allocation to gold. It is our opinion that gold should be used mainly as a portfolio diversifier and as a hedge against tail risk,9 i.e., a form of portfolio insurance that attempts to preserve value when tail risk becomes a reality. Gold has virtually little correlation to other financial assets. When most other investments are performing poorly, gold is expected to do well, and vice versa. Worsening financial conditions, escalating geopolitical turmoil in the Middle East, recurring issues with European sovereign debt, currency issues and slow growth in China, Russian aggression, and failure of Japan and the U.S. to reach their economic potential are all potential risks that threaten growth and economic development globally. Gold can act as a financial hedge against these risks.

Gold’s Correlation to Other Assets During Expansions and Contractions since 1987*

02-09-2016 gold-correlation-to-other-assets
 

*As of December 2015. Expansion and contractions as per the National Bureau of Economic Research (NBER).
Source: Bloomberg, NBER, World Gold Council. Historical information is not indicative of future results; current data may differ from data quoted.
 

Many investors use gold stocks to gain leveraged exposure to gold, however, we just finished a one-month period during which the expected outperformance of gold stocks relative to gold did not materialize. We do not expect this trend to continue. As we mentioned, a day after month-end, on February 1, the year-to-date gap between the GDMNTR Index and gold had already closed, and we expect stocks to continue to outperform if the gold price continues to rise. In fact, gold shares should offer their highest leverage to gold when the gold price is close to the cost of production, as is now the case. The leverage comes from earnings leverage; as the gold price increases, the change in a company’s profitability significantly outpaces the change in the gold price. For example, say a gold producer realizes a $200 per ounce margin at current gold prices. At $1,100 gold, a $100 increase in the gold price would increase the producer’s margin by 50%, while representing only about a 9% increase in the gold price. The higher the cost of production, the smaller the margin, and the more leverage companies have to increasing gold prices.

It therefore makes sense that equities should outperform gold during rising gold prices, and underperform if gold falls, unless of course costs are increasing at the same time the gold price is increasing and margins are flat or shrinking. This was the main reason why gold equities underperformed gold in 2011 and 2012, two years during which the gold price increased. Since then positive changes have taken place in the gold mining industry, returning profitability to the sector. We now see the industry in the best shape it has been in for a long time. Unfortunately, this positive transformation of the sector coincided with, and to some extent was intensified by, a period of falling gold prices. As the graph below indicates, however, equities have consistently demonstrated their effectiveness as leverage plays on rising gold during these past years.

Gold Equities: Leveraged Exposure to Gold

02-09-2016 gold-equities-leveraged-exposure-to-gold

Source: Bloomberg. Past performance is no guarantee of future results; current performance may be lower or higher than the performance data quoted. Gold equities are represented by NYSE Arca Gold Miners Index (GDMNTR).  

 

Download Commentary PDF with Fund specific information and performance»  

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Moat Investing: Moats Fortify Against Market Volatility http://www.vaneck.com/blogs/moat-investing-february-2016/ Despite a highly volatile start to the year, moat-rated companies in the U.S. and around the world outperformed their respective broad markets, although it was a negative month for equities overall.

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Van Eck Blogs 2/10/2016 12:00:00 AM

For the Month Ending January 31, 2016

Performance Overview

Despite a highly volatile start to the year, moat-rated companies in the U.S. and around the world outperformed their respective broad markets, although it was a negative month for equities overall. The U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR) led the S&P 500® Index (-4.90% vs. -4.96%) and the internationally focused Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN) beat the MSCI All Country World Index ex USA (-6.58% vs. -6.80%).

Domestic Moats: SE was an Unexpected Leader

Spectra Energy (SE US) was MWMFTR’s star constituent in January. As the general partner of Spectra Energy Partners (SEP US), a natural gas transportation master limited partnership (MLP), Spectra Energy benefited from the MLP’s strong quarterly results and posted gains. Spectra Energy’s robust performance included solid earnings, distributable cash flow, and an impressive distribution coverage ratio despite the current state of energy markets. The company benefits from an expansive network and efficient scale, which tend to increase customer switching costs.

Financial, industrial, and information technology holdings were largely to blame for MWMFTR’s negative monthly performance, and for the drop in the S&P 500 Index as well.

International Moats: Financials Fall

Financial firms out of Hong Kong and China were among MGEUMFUN’s worst performing constituents in January, and Australian financial institutions also had a rough month.

However, several bright spots helped to lift the Index (MGEUMFUN) above the broad international market. Numericable-SFR (NUM FP), a French fiber optics firm, and South American electric utility Empresa Nacional de Electricidad (ENDESA CI) provided welcome boosts to MGEUMFUN’s performance in January.



 

(%) Month Ending 1/31/16

Domestic Equity Markets

 

International Equity Markets

 

(%) Month Ending 1/31/16

Morningstar
Wide Moat Focus Index (MWMFTR)

 
Top 5 Index Performers
Constituent Ticker Total Return
Spectra Energy Corp
 
SE US
 
14.66
Time Warner Inc.
 
TWX US
 
8.92
Wal-Mart Stores, Inc.
 
WMT US
 
8.25
V.F. Corporation
 
VFC US
 
0.56
Western Union Company
 
WU US -0.39

Bottom 5 Index Performers
Constituent Ticker Total Return
Biogen Inc.
 
BIIB US
 
-10.87
CSX Corporation
 
CSX US
 
-11.29
Harley-Davidson, Inc.
 
HOG US
 
-11.87
Polaris Industries Inc.
 
PII US
 
-14.09
American Express Company
 
AXP US
 
-22.73

View MOAT’s current constituents

 

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

 
Top 5 Index Performers
Constituent Ticker Total Return
Numericable-SFR SA   NUM FP 8.68  
Empresa Nacional de Electricidad S.A. ENDESA CI   6.00  
Enbridge Inc ENB CN   4.42  
CapitaLand Mall Trust CT SP   4.27  
Sun Pharmaceutical Industries Limited SUNP IN   3.77  

Bottom 5 Index Performers
Constituent Ticker Total Return
Credit Agricole SA ACA FP -15.81
QBE Insurance Group Limited QBE AU -15.98
Wharf (Holdings) Ltd. 4 HK -16.63
Beijing Enterprises Holdings Limited 392 HK -18.13
China Merchants Bank Co., Ltd. Class H 3968 HK -18.81

View MOTI’s current constituents

 
 
 

As of 12/18/15

Morningstar
Wide Moat Focus Index (MWMFTR)

 
Index Additions  
Added Constituent Ticker
Spectra Energy Corp SE US
Biogen Inc BIIB US
VF Corp VFC US
Harley-Davidson Inc HOG US
Kansas City Southern Inc KSU US
International Business Machines Corp IBM US
American Express Co AXP US
Wal-Mart Stores Inc WMT US
Varian Medical Systems Inc VAR US

Index Deletions  
Deleted Constituent Ticker
Applied Materials Inc AMAT US
Autodesk Inc ADSK US
Discovery Communications Inc DISCA US
Walt Disney Co DIS US
ITC Holdings Corp ITC US
Franklin Resources Inc BEN US
Merck & Co Inc MRK US
Procter & Gamble Co PG US
Norfolk Southern Corp NSC US

View Latest MOAT Reconstitution Report
View MOAT’s list of current constituents
 

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

 
Index Additions  
Added Constituent Country
Dongfeng Motor Group China
Ainsworth Game Technology Ltd Australia
Beijing Enterprises Hldgs Ltd China
Technip Sa France
Spotless Group Holdings Ltd Australia
Numericable Sfr Sa France
Enbridge Inc Com Canada
Sun Pharmaceutical Industries India
China Telecom Corp Ltd China
Kingfisher Plc United Kingdom
Elekta Ab Sweden
Ci Financial Corp Com Canada
Sanofi (Sanofi Aventis) France
China Merchants Bank Co China
National Australia Bank Ltd Australia
Qube Holdings (Qube Logist) Ltd Australia
China Mobile Ltd China
Symrise Ag Germany
Linde Ag Germany
Nordea Bank Ab Sweden

Index Deletions  
Deleted Constituent Country
Brambles Industries Ltd Australia
Ioof Hldgs Ltd Australia
Platinum Asset Management Limited Australia
Commonwealth Bank Australia Australia
Sigma Pharmaceuticals Limited Australia
China State Construction International Holdings Ltd. China
Grupo Televisa Sab Cpo Mexico
Burberry Group United Kingdom
Centrica United Kingdom
Johnson, Matthey United Kingdom
Edenred France
United Overseas Bank Singapore
Capitaland Commercial Trust Singapore
Icici Bank Ltd India
State Bank Of India India
Unilever Nv Netherlands
Lafargeholcim Ltd Switzerland
Potash Corp Of Saskatchewan Canada
Cameco Corp Canada
Millicom Intl Cellular S.A. Sweden

View Latest MOTI Reconstitution Report
View MOTI’s list of current constituents

 
 


 
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Fallen Angels Retain Their Halos in 2015 http://www.vaneck.com/blogs/etfs-february-08-2016/ Fallen angels, corporate high yield bonds that were originally issued with investment grade credit ratings, proved more resilient than the broad high yield bond market in 2015. Fallen angels were helped by higher average credit quality and lower average exposure to the energy sector.

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Van Eck Blogs 2/8/2016 12:00:00 AM

Authored by Meredith Larson, Product Manager, ETFs  

Performance Helped by Higher Credit Quality and Lower Energy Exposure

Fallen angels, corporate high yield bonds that were originally issued with investment grade credit ratings, proved more resilient than the broad high yield bond market in 2015.

Generally characterized by higher average credit quality than the broad high yield bond market, fallen angels outperformed by approximately 1.40%, as measured by the BofA Merrill Lynch US Fallen Angel High Yield Index (-3.24%) versus the BofA Merrill Lynch US High Yield Index (-4.64%). Higher average credit quality, lower average exposure to the energy sector, and higher average credit quality within the energy sector were main factors that helped fallen angels end the year ahead of the broad high yield bond market.

Less Weight in Exploration & Production

While the energy sector allocation among fallen angels increased in 2015 (from 4.3% to 13.3%) as the broad high yield bond market’s decreased (from 13.3% to 10.9%), it was fallen angels’ significantly lower yearend industry weight in exploration and production (E&P) that primarily contributed to outperformance. At 0.48%, fallen angels were less exposed to E&P than the broad high yield bond market, which ended 2015 with 4.89% in E&P, arguably one of the energy sector’s more vulnerable industries to the oil price collapse.

Declining oil and commodity prices had a greater relative impact on fallen angels’ 4Q 2015 performance, as fallen angels underperformed the broad high yield bond market by 74 basis points. While the energy sector grew from fallen angel entrants throughout 2015, none were E&P bonds. Furthermore, the fallen angel universe maintained its higher average credit quality, ending 2015 with 81.6% in BB-rated (below investment grade) bonds versus the broad high yield bond market’s 48.4%.

Sector Biases Drove Fallen Angel Performance in 2015

The main drivers of fallen angels' performance relative to the broad high yield bond market remained consistent throughout 4Q and 2015. Based on average sector weights:

  • Positive Influences
    • Energy (underweight)
    • Banking (overweight)
    • Financial Services (overweight)
     
  • Negative Influences
    • Basic Industry (overweight)
    • Healthcare (underweight)
    • Media (underweight)  
     

 

Sector Return Attribution (%):
Fallen Angels Relative to the Broad High Yield Bond Market

 

02-10-2016 Sector Return Attribution
Source: FactSet. Data as of December 31, 2015. Past performance is no guarantee of future performance. Top and bottom five sector attribution of the BofA Merrill Lynch US Fallen Angel High Yield Index for fallen angels versus the BofA Merrill Lynch US High Yield Index for the broad high yield bond market. Figures are gross of fees, non-transaction based and therefore estimates only. Past performance is not indicative of future results. Attribution represents the opportunity cost of investment positions in a group relative to the overall benchmark.
 

While fallen angels had lower average energy exposure in 2015, fallen angel bonds from two energy sector issuers entered the index in January, increasing the allocation to 14.4% versus the broad high yield bond market’s 10.4%, as of January 31, 2016.

 

Learn More About ANGL

Additional resources and information on
Market Vectors® Fallen Angel High Yield Bond ETF (ANGL) »
 
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Munis: Municipals in 2016 http://www.vaneck.com/muni-nation-blog/municipals-in-2016-02-04-16/ The "new normal" is officially dead. You probably read or heard about the now obsolete term in the past year but it doesn’t apply to 2016, where we find ourselves propelled through the first quarter by change, uncertainty, and volatility.

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Van Eck Blogs 2/4/2016 12:00:00 AM The "new normal" is officially dead. You probably read or heard about the now obsolete term in the past year but it doesn’t apply to 2016, where we find ourselves propelled through the first quarter by change, uncertainty, and volatility. Given that we are in an election year when the world’s leading political economies are struggling to find a fertile environment to regenerate growth, it is impossible to overlook the benefits of a well-diversified municipal portfolio.

In December we addressed the question, "What to do?" if and when the Federal Reserve (Fed) began to aggressively move rates higher. Let’s not forget what the winning formula was then and during most of 2015. The factors in play told us to 1) remain calm, 2) continue to take advantage of the steepness of the intermediate part of the muni yield curve, and 3) play the taxable yield equivalent opportunity favoring high yield munis versus corporate high yield.

Despite a vicious selloff in oil precipitating a near free-fall in equities, the Fed continues to have designs on raising rates during 2016. Although global economic forces may ease the inflation scenario near term, the municipal market continues to maintain a rock solid position as the glue holding portfolio valuations stable. As of this moment, both investment grade and high yield indexes are positive so far this year. New issue supply, forecast to be higher in 2016 than last year, has yet to emerge to dampen trading behavior and consequently offers little incentive for portfolio managers to execute changes in strategies. And finally, the year-over-year characteristics of supply/demand that contributed to favorable returns during the past two years will likely again be an important theme in 2016.

It is almost assured that the fundamentals that underpin the broad investing universe will change meaningfully by yearend, leaving perhaps only municipals to retain some semblance of normal behavior. As we saw in the past two years, that result was more than satisfactory.

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China Dominates Emerging Markets Discussions http://www.vaneck.com/blogs/emerging-markets-equity-january-29-2016/ 2015 was a tough year for emerging markets (EM) and there is considerable uncertainty among investors about the asset class as we enter 2016. But we see promising opportunities for growth in China and other EM countries.

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Van Eck Blogs 1/29/2016 12:00:00 AM Fighting the Global Headwinds

2015 was a tough year for emerging markets and there is considerable uncertainty among investors about the asset class as 2016 begins. In 2015 China’s news dominated headlines for most of the year, along with the political and fiscal woes of Brazil and geopolitical events in the Middle East. Commodity prices continued to fall, which, while causing a positive terms-of-trade shock in most of the emerging markets, had a distinctly negative effect on the economies of a few. The Federal Reserve (Fed) finally raised rates after almost a decade and U.S. dollar strength in our view has not been helpful for EM.

With extensive experience in the asset class, we have lived and invested through quite a number of periods of similar angst. As always, we will stick to our philosophy of seeking structural growth at a reasonable price. In many cases, the "price" has become reasonable indeed. Given that we are a fundamental, bottom-up strategy, individual stock selection across the market cap spectrum remains a key contributor to strategy performance. With that said, we can give a sense of where our strategy is positioned in terms of sector and country, describing the context in which our investments operate and are valued.

Financials: We Favor Companies in Real Growth Niches

Generally, the Energy and Materials sectors in emerging markets are very difficult places to find good, non-cyclical growth. In addition, many of the companies in the Telecom and Utility sectors struggle to demonstrate interesting levels of growth. The Consumer Staples sector is a natural area in emerging markets to find structural growth, but it has tended to be very expensive in the last few years and this largely remains the case.

Financials are currently a large weighting for our strategy, but it’s important to dig down into the type of financials that we typically hold. We have a definitive bias towards companies in real growth niches; they are often those providing financial services to the "unbanked." Examples include payday lending in Central and Eastern Europe, pawn shops in Mexico, secondhand truck financing in India, and leasing to small- and medium-sized enterprises in Mexico.

Within the Information Technology sector, demand in terms of hardware, smartphones, tablets, PCs, etc., was sluggish in the fourth quarter of 2015 and the bright spot was the Internet space, as e-commerce and "online to offline" (o2o) grew practically everywhere. Finally, we continue to favor Healthcare, clearly a long-running structural growth story as EM consumers appear to dedicate a higher percentage of their increasingly disposable income to their healthcare spend.

China's Transitional Economy is Providing Opportunities

For any investor in emerging markets, China remains at the forefront of discussions. Likewise, it is a critically important country for our emerging markets equity strategy. Investors remain concerned about the depreciation of the currency, the renminbi (RMB), and a messy deleveraging as China’s economy transitions away from investment-led, state-controlled growth to expansion that is based more on consumption and services.

Watch VideoWatch Semple's latest video for more details on where we see growth opportunities in China . . .  
China Growth Spots in 2016

David Semple, Portfolio Manager

Watch Now  

Overall, we expect lower but better growth from China with continued monetary and fiscal easing. We expect the RMB to depreciate against the U.S. dollar in a modest and fairly controlled fashion, assuming that the U.S. dollar continues to be strong against other major currencies. (That the dollar will be strong is not necessarily our base view, but if it is strong we expect the RMB to weaken, as measured by the bilateral rate.)

We expect a modest cyclical recovery in China's economy, or at least stabilization, in the first half of 2016. This will allow some more breathing room for further significant structural reforms, with more emphasis on supply-side reforms rather than attempts simply to "juice up" demand. We believe more credit issues are likely, as the tidying up of highly indebted, state-owned enterprise (SOE)-related entities continues. In fact, credit growth has picked up nicely in China, but is obscured by the ongoing swap of debt held in local government finance vehicles for municipal bonds.

Our strategy has very little exposure to China’s old, smokestack/SOE complex and we continue to favor areas of China’s economy that are still attractive, such as the environment, internet, healthcare, tourism, and insurance.

India was an EM Bright Spot in 2015

India remains a country of very significant investment opportunity for us, despite some disappointments regarding the pace of reforms. In many ways, India is somewhat of an "island" in the turmoil that has afflicted global economies. We do expect rate cuts in the course of the year, which may help to energize the business cycle that disappointed in 2015.

We See No Easy Answer for Brazil

Brazil is still in a depressed state, with no easy solution to its current issues. To restore confidence will require a political change and/or time, in our view. Although we have a high degree of confidence in the positions we hold and their ability to grow even in the face of economic weakness, we are not inclined to add to risk in Brazil at this juncture.

Quality Growth Bubble

One of the buzz phrases that has been bandied about recently is the "quality growth bubble" in emerging markets, meaning that the valuations of companies that have quality characteristics appear to be at a significant premium to other companies in the emerging markets. We have two points to make about this. First, as far as we can see, this seems to be a problem that is really associated with large-cap companies in emerging markets. Our emerging markets equity strategy is truly an all-cap strategy and we do not see overvaluation among mid- and small-cap "quality growth" companies. Second, we do think that in a world that is relatively starved of growth, the higher relative certainty of growth that tends to come from companies with quality characteristics does deserve a premium.

Optimism for 2016 on the Back of Attractive Valuations

It seems the emerging markets asset class is a bit out of favor right now, and while it is hard to predict the timing of a change in investor sentiment, cheap valuations and negative positioning set the stage for better returns down the road. On a positive note, we anticipate more stability in China’s economic numbers (and less hysteria in the headlines) and we are encouraged that we have started down the road of Fed tightening. A combination of Fed tightening and attractive emerging markets valuations has historically set up good emerging markets performance and we certainly hope that this will be the case in 2016.

Post Disclosure

This blog supports our Emerging Markets Equity strategy which seeks to uncover opportunities that exhibit "structural growth at a reasonable price" ("S GARP") through investment in emerging market securities across all market capitalizations. This means we seek companies transitioning from value to growth that are fueled by a structural shift in country, sector, or stock fundamentals, with prolonged, inherent growth that is neither opportunistic nor event catalyst dependent. We aim to focus on companies with strong and innovative management, robust business models, proven track records, high barriers to entry, and a positive attitude toward minority shareholders.

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Spin-Off in the Spotlight: Madison Square Garden Co. (Ticker: MSG) http://www.vaneck.com/blogs/spin-offs/madison-square-garden-january-2016/ ]]> Van Eck Blogs 1/22/2016 9:24:54 AM

Written by Horizon Kinetics' Research Analysts and CFA Charterholders Ryan Casey and Salvator Tiano, who together bring more than 20 years of combined industry experience to their research roles focusing on domestic and international spin-offs.

Spin-Off Company: Madison Square Garden Co. (Ticker: MSG)
Parent Company:
MSG Networks Inc. (Ticker: MSGN)  

Spin-Off Date: October 1, 2015
GSPIN Index Inclusion Date: January 1, 2016

Madison Square Garden was first added to the GSPIN Index when the company was spun out from Cablevision Systems Corp. (NYSE: CVC) in 2010. At the time, the company was comprised of the New York Knicks (NBA), New York Rangers (NHL) and New York Liberty (WNBA) sports teams, as well as cable channels and an entertainment business that produces concerts and events for its various venues. Perhaps more interesting is the fact that the company also owns a significant amount of valuable real estate; namely, two whole blocks in Midtown Manhattan currently occupied by the Madison Square Garden Arena, which sits atop the busiest transportation facility in the U.S.: Pennsylvania Station.

At the time of the MSG spin-off, revenues from the cable channels were depressed, as the advertising market was still recovering from the recent recession. The entertainment business was also experiencing a cyclical lull due to weaker consumer spending. Still, it was our opinion that the earnings potential of these businesses in a normal economic environment could create a significant amount of share price appreciation.

Additionally, we believed that MSG’s market value did not fully reflect the value of its sports teams and real estate. Whether one viewed these assets as another source of potential value to be unlocked over time or simply as a margin of safety, it was our opinion that the company’s asset value was being significantly underpriced by the equity market. The Index’s methodology dictated MSG’s removal five years later, but not before its shares appreciated by nearly 300%.

This inefficiency persists even today; we believe it is the rationale behind the parent company’s (renamed MSG Networks Inc., NYSE: MSGN) decision to spin-off the Madison Square Garden Co., which contains the sports teams, real estate, and entertainment business. The cable channels will remain with the parent company. Today, Madison Square Garden Co. has a market capitalization of $4 billion, relative to $1.5 billion in cash and, according to Forbes, estimated valuations of $2.5 billion for the Knicks and $1.1 billion for the Rangers. The company currently has no debt and $1 billion in total liabilities. In other words, the company’s current share price implies that virtually no value is being given to its real estate, nor to its entertainment business. Management appears to be aware that its shares are undervalued, having recently announced an authorization to repurchase up to $525 million of Class A common stock, equal to 12.5% of the company at current prices.

As of December 31, 2015, Madison Square Garden Co. represented 1.11% of SPUN's total net assets.

View Current SPUN Fund Holdings  

View Current GSPIN Index Holdings  

 

Spin-Off in the Spotlight provides spin-off research insights from Horizon Kinetics, LLC. The firm has produced spin-off research since 1996, and began covering international spin-offs in 2010. Horizon Kinetics Global Spin-Off Index(GSPIN) is the underlying index of Market Vectors® Global Spin-Off ETF (SPUN), which was launched in June 2015. GSPIN tracks the performance of listed, publicly-held spin-offs that are domiciled and trade in the U.S. or developed markets of Western Europe and Asia.

SPUNMarket Vectors Global Spin-Off ETF

Capture the Full Potential of Spin-Offs Globally  

Key Features:

  • Spin-off investing is an established event-driven strategy
  • Global index coverage
  • Early, long-term stock positions allow index to capture full spin-off cycle

SPUN Details

Fund Ticker SPUN  
Commencement Date 6/09/2015
Gross Expense Ratio2   0.62%
Net Expense Ratio2   0.55%
Distribution Frequency Annually
Index Ticker GSPIN  
Index Rebalancing Quarterly
 
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Marketplace Lending Shows its Strength http://www.vaneck.com/blogs/van-eck-views-january-20-2016/ In my last post, I touched upon the attractiveness of the marketplace lending sector. With global markets experiencing continued volatility, we hope to provide a look into what is driving the relatively attractive returns from online loans.

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Van Eck Blogs 1/20/2016 12:00:00 AM

Jan van Eck: We are very excited about this new asset class. To give you a compelling top-down perspective, my colleagues Bill Ullman, Director, Van Eck Associates Corporation, and Carlos Nogueira, Member of Van Eck's Fixed Income Investment Team have co-authored this special post. Bill Ullman is also Senior Advisor to fintech and marketplace lending companies including: Orchard Platform, Mirador Financial, Drive Sally, and Vetr.  

Yearend Review: Marketplace Lending

2015, and in particular the fourth quarter of the year, was another period of robust growth for the marketplace lending industry. Industry estimates indicate that approximately $15 billion of online loans were originated during the year.1  While the majority of these were unsecured consumer loans, small business, student, real estate, and mortgage loans were also part of the mix. Capital continued to flow into new marketplace loan origination platforms to fund both the loans being originated and the businesses themselves. Strategic transactions — partnerships and mergers and acquisitions — also became part of this young industry as it began to mature and companies sought expanded distribution channels, new technology, and more diversified funding sources. Another key theme underscored in 2015 was that the marketplace lending industry is now a global one, with disruption patterns inherent to the online finance landscape occurring here in the U.S., in Europe, and in Asia.

Industry Performance

Over the course of 2015, the asset class continued to see positive performance with low volatility. The Orchard US Consumer Marketplace Lending Index, which aggregates the investment performance of loans originated by the two largest consumer lending platforms, Lending Club and Prosper, was up 6.24% year to date through November of 2015 and 6.84% over the trailing 12 months through November 2015. This Index was up 8.66% in 2014 and 7.80% in 2013. Over the last nearly three-year period, the Index was up approximately 24.4% in aggregate.2  

Let’s review the key trends one by one.

Continued Rapid Industry Growth

The industry overall has grown at rates sometimes approaching 100% annually (depending on the platform). Looking at Lending Club and Prosper, the two largest platforms in the U.S., we’ve seen nothing short of tremendous growth. In the third quarter of 2014, Lending Club issued approximately $1.17 billion of loans. A year later (3Q '15), the company originated over $2.24 billion of loans, nearly 100% growth.3 Loan origination growth at Prosper was just as impressive, if not more so. There was a total of $3.7 billion of originations on the platform in 2015, up from $1.6 billion in 2014, representing  over 100% year-on-year growth.4 Industry leaders weren’t the only ones to enjoy growth. Social Finance Inc. ("SoFi"), OnDeck, Kabbage, Avant, Funding Circle and many other smaller platforms experienced rapid growth.

Diversified and Institutional Capital Inflows

The continuation of "institutionalized" capital flows into online loans is a key trend to watch as we enter 2016. In the last year — and the last quarter — we have seen rated securitizations of Prosper loans by BlackRock and Citibank; we have seen successive capital raisings by four closed-end funds listed on the London Stock Exchange —all of which invest in marketplace loans; we have seen growing involvement in the industry by registered investment advisers, hedge/private funds, banks, diversified financial institutions, family offices and, of course, individuals. We believe this institutionalization and diversification of capital funding will likely support the marketplace lending industry’s continued growth.

Additionally, major amounts of venture capital and private equity funding have flowed into marketplace lending platforms, allowing them to hire talent, expand operations, and market aggressively to borrowers. SoFi raised over $1.25 billion from Softbank Group Corp. (of Japan) and Third Point Ventures (New York)5, among others. Several smaller platforms raised money from venture capitalists in Series A and Series B rounds, including RealtyMogul.com, AssetAvenue, Lon Operations (dba Bread and/or GetBread), Orchard Platform, and Mirador Financial. Indeed, 2015 was a record year for fintech investment (almost doubling from 2014)6, helping to create the next generation of online lending companies.

Strategic Transactions

Consistent with increased flows of capital into the industry, the frequency of strategic transactions has increased. An example is Prosper’s acquisition of Israel-based financial app company BillGuard. According to Prosper, this transaction has enabled the firm to expand its reach to many more potential borrowers in the U.S. and to do so in an efficient and cost-effective way. Customer (borrower) acquisition remains a major cost and burden for origination platforms and this acquisition appears to directly address that issue for Prosper. A second transaction worth noting is JPMorgan’s partnership with small business lender OnDeck, which was announced in December 2015. This partnership is particularly significant as it shows just how powerful and valuable the technology of these platforms can be, even to a major global financial institution with extensive internal capabilities.

Globalization

The industry is truly a global one, not unlike other internet-disrupted industries such as travel, stock trading, taxis or media. China’s marketplace lending business is larger than that of the U.S.7, and in the UK, consumer lender Zopa recently crossed the £1 billion in outstanding loans milestone.8  

For further information on the industry and more commentary in graphical form, we encourage you to take a look at an article from Crowdfund Insider: Orchard Shares "Most Interesting Charts" of 2015; it offers insights from Orchard about the loans being originated and this rapidly growing industry.

 

 
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Gold Markets Tormented by Rate Hike Intrigue in 2015 http://www.vaneck.com/blogs/gold-commentary-december-2015/ In December, selling pressure pushed gold to a new cycle low of $1,046 per ounce on December 3. Headwinds likely to ease in 2016.

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Van Eck Blogs 1/11/2016 12:00:00 AM

 

For the month ended December 31, 2015

Gold's Response Following Anticipated Rate Hike

During November gold came under pressure and the U.S. dollar strengthened as the market gained conviction for a December Federal Reserve (Fed) rate increase. This selling pressure continued into the early days of December and gold fell to a new cycle low of $1,046 per ounce on December 3. At that point, it appeared that the gold market had already priced in this anticipated rate hike. On December 4, gold gained $24 per ounce despite a strong U.S. payroll report that earlier in the year would have spelled trouble for gold. Gold gained $11 on December 16, the day the Fed announced its a 25 basis point increase in the targeted federal funds rate, the first rate increase in over nine years. Time will tell if this change in direction by the Fed also marks a turning point for gold, but it looks as if there are some prominent investors that might hold this view. As evidence, on December 18 gold bullion exchange traded products (ETPs) booked 18.7 tonnes ($641 million) of inflows, the largest one day increase in four years. Overall for the month, gold was little changed, finishing December down $3.35 at $1,061.42 per ounce.

Gold Shares Positive in December

By contrast, although gold stocks also felt the downward pressure leading up to the Fed’s rate decision, they did not make new lows in December. The low point of this cycle for the NYSE Arca Gold Miners Index (GDMNTR)1 was on September 11. This was the first time since the bear market began in 2011 that the GDMNTR has not followed gold bullion to new long-term lows. For the month, the GDMNTR advanced 0.9%, while the Market Vectors Junior Gold Miners Index (MVGDXJTR)2 gained 2.8%.

Gold funds had a difficult year – tormented by the Fed’s seemingly endless machinations around the timing of a rate increase. For the year 2015 the gold price declined $123 per ounce (10.4%). Gold miners exhibited their leverage to gold with a decline of 24.8% in the GDMNTR and a drop of 19.2% for the MVGDXJTR. The overall downward price trend was interrupted twice by concerns over financial risks. The first came in January when the Swiss broke the franc’s peg to the euro, the European Central Bank (ECB) started a massive quantitative easing (QE)3 program, and radical leadership came to power in Greece. Gold rose to its high for the year at $1,307 on January 22. The second risk driver started in August when China’s stock market collapse panicked markets globally. While these events each created $100 moves in the gold price and substantial increases across gold stocks, in the longer term they were not enough to overcome the negative sentiment brought on by persistent anticipation of rising rates in the U.S. This enabled the U.S. Dollar Index (DXY)4 to make new long-term highs in March and again in December, while bullion ETPs experienced heavy redemptions in July and November. Gold was also pressured by the bear market in the broader commodities complex, shown by the 32% decline in WTI crude and 25% fall in copper for 2015.

Outlook 2016: Worst of Times Beginning to Change?

As the positive moves in the gold price in January and again in August – October have shown, gold responds to heightened levels of financial stress. Gold is commonly used as a portfolio diversifier and a hedge against onerous levels of inflation or deflation, currency turmoil, insolvencies brought on by poor debt and/or risk management by governments and financial institutions, and difficulties caused by overall economic weakness, to name a few. For our investors and clients, we endeavor to identify the systemic risks that might drive the gold price. With the start of the New Year, we make several observations that may offer clues as to where the gold price might trend in 2016.

To begin, it is instructive to look at where the market has been. For gold fund managers, it has been the worst of times. When it seems the market can’t go lower, it finds new lows. In our view, gold and gold stocks are unloved and oversold. We have felt this sentiment before, in the crash of 2008, the grueling bear market from 1996 to 2001, and the epic collapse from 1980 to 1985. The current period of 2011 to 2015 ranks historically among the worst bear markets for gold and gold stocks, as measured by peak-to-trough performance in percentage terms. Given the depth and duration of this bear market, using past markets as guides suggests this market should begin to improve in 2016.

In order for the market to improve, there must be a fundamental driver or drivers. Because of radical monetary policies and unsustainable debt levels globally, the financial system remains quite vulnerable to another crisis event or crash like the tech bust or subprime crisis. However, 2016 may not be the year for such a calamity. Think of German economist Rudi Dornbusch’s famous quote: “The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”

Headwinds to Gold Price Likely to Ease in 2016

We see 2016 as a year when many of the headwinds to the gold price begin to ease. Such headwinds have included:

  • Fed tightening
  • Strong U.S. dollar
  • Weak commodities
  • Rising real rates
  • Rising gold production
  • Market positioning

 

Here is a brief look at each:

Fed Tightening

The Fed has guided towards roughly another one percent in rate increases in 2016, which would probably amount to four 25 basis point increases. Given the extreme caution the Fed has exhibited in getting to this point in the rate cycle, it is hard to imagine it being more aggressive. In fact, we believe there is a good possibility that the Fed will not be as aggressive as its current guidance suggests. In our view, the U.S. economy is no longer capable of generating more than 2% annual growth due to policy uncertainty, the debt burden, and a byzantine tax and regulatory structure that has reached economically stifling proportions. A low-growth economy is vulnerable to impediments and rising rates could become a significant impediment in 2016.

Easy Fed policies have supported growth in residential and commercial real estate as well as booming auto sales. Fed tightening usually increases rates on everything from mortgages and car loans, to the cost of financing fiscal deficits. It looks like the recent decline in the size of U.S. federal deficits will end as Congress has approved a rash of tax breaks and credits that are expected to add more than $800 billion to the debt load over the coming decade. While federal debt is now a staggering 100% of GDP, interest on that debt is at multi-decade lows of around 11% of GDP. Debt service would double if rates returned to the levels of 2007, which suggests that increasing rates could become unpopular politically.

Strong U.S. Dollar

The U.S. dollar had a tremendous run from July 2014 through March 2015 during which the DXY advanced 25% to new long-term highs. It has maintained those gains through December. A strengthening U.S. economy, weak global growth, and anticipation of rising rates drove the dollar’s rise. These drivers are currently already priced in, in our view, which limits the scope for further gains in the dollar.

Weak Commodities

Commodities prices have been hurt mainly by slack demand from China. China is transitioning from a commodities intensive industrial revolution to an economy led by consumerism and services. This transition is in full swing and as overproduction of commodities is being addressed by producers, we believe much of the bad news is already reflected in prices. While it is difficult to see a turnaround in things like oil, iron ore, or copper, we believe that downward price pressure is likely to ease in 2016.

Rising Real Rates

Negative real inflation-adjusted rates are a common characteristic of gold bull markets. In the 2001 to 2011 bull market, real one-year treasury rates bottomed at -3.75% in 2011, around the same time gold reached its all-time high. Since then, real rates have trended upwards, reaching a high of 0.40% in September. The increase in real rates was achieved through a combination of disinflation in the global economy, deflation in commodities, and tightening in Fed policies through QE tapering and guiding market expectations towards higher rates. We believe real rates could fall somewhat in 2016 if inflation picks up as commodities prices stabilize and if tighter U.S. labor markets put pressure on wages. In addition, economic weakness may cause the Fed to reduce its rate outlook.

Rising Gold Production

Gold production has been on the rise since 2009. We expect mine production to begin a slow, permanent decline in 2016, a trend that would increase should the gold price fall further. Credit Suisse calculates 15% of production in its coverage universe is free cash flow negative at $1,100 gold. These marginal mines are no doubt doing all they can to cut costs further, but at lower gold prices, some would likely be forced to shut down. While gold production is not a strong price driver due to large above-ground stocks, we believe evidence of a production decline would nonetheless have a positive influence on prices.

Market Positioning

Gold positioning indicates that bearish bets are at extreme levels that are typical of turning points in the market. Net speculative long positions on Comex5 are now lower than what occurred following the 2013 gold price collapse and are currently at levels last seen in 2002. Gross speculative shorts reached an all-time high in July, and remain at high levels. This points to the heavy exposure hedge funds, commodities traders, and other speculators already have to falling gold prices. Gold held in bullion ETPs is down to levels last seen in early 2009. This suggests that most of the extraordinary gold buying that occurred in ETPs after the financial crisis has been unwound.

We acknowledge that the gold market is on shaky ground and that there is little positive sentiment as the year begins. However, having been through a number of bear markets in our 47 years as gold fund managers, we also know historically that these markets always come to an end and that gold shares offer their highest leverage to gold when the price is close to the cost of production. Perhaps this leverage will be on display in 2016.

 

Download Commentary PDF »  

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Moat Investing: New Year, New Moat Companies http://www.vaneck.com/blogs/moat-investor-monthly-january-2016/ December proved challenging for moat-rated companies in the U.S. and globally. New additions to MWMFTR in mid-December were SE, KSU, and BIIB: all finished the year strong and were among the U.S. Index’s leading performers.

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Van Eck Blogs 1/8/2016 12:00:00 AM

For the Month Ending December 31, 2015

Performance Overview

December proved challenging for moat-rated companies in the U.S. and globally. The U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR) trailed the S&P 500® Index (-3.57% vs. -1.58%), and the internationally focused Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN) lagged the MSCI All Country World Index ex USA (-2.00% vs. -1.88%). With the December 18 quarterly review, both Indices experienced notable changes in company constituents. Nine U.S. firms were added to MWMFTR and 20 companies were added to MGEUMFUN.

Listen to Conference Call Replay: Moat Investor Update, January 6.  

Domestic Moats: Boost from New Constituents Overpowered by Media Drag

New additions to MWMFTR in mid-December were Spectra Energy (SE US), Kansas City Southern (KSU US), and Biogen, Inc. (BIIB US): all finished the year strong and were among the Index’s leading performers for the month. In terms of sectors, energy, consumer staples, and utilities companies were the strongest contributors to MWMFTR performance. By contrast, power sports firm Polaris Industries, Inc. (PII US) was the Index's weakest performer in December. Polaris' fair value estimate was reduced mid-month by Morningstar from $160 per share to $130 per share. Media firms Discovery Communications, Inc. (DISCA US), Twenty-First Century Fox, Inc. (FOXA US), and Time Warner, Inc. (TWX US) all posted poor returns for the month. DISCA US saw its moat rating downgraded in early December and was subsequently removed from the Index on December 18.

International Moats: Asian Influence

Several Singapore and Hong Kong firms led MGEUMFUN performance in December. Chilean and German companies also contributed positively to the Index for the month. China State Construction International Holdings Limited (3311 HK) was December’s top performer, but was removed from MGEUMFUN at the December 18 review because the Index’s price-to-fair-value screen was too rich. Canadian and French firms were the primary regional detractors from performance in December led by Canadian fertilizer and chemical firm, Potash Corporation of Saskatchewan, Inc. (POT CN) and French prepaid corporate services firm Edenred SA (EDEN FP).

 



 

(%) Month Ending 12/31/15

Domestic Equity Markets

 

International Equity Markets

 

(%) Month Ending 12/31/15

Morningstar
Wide Moat Focus Index (MWMFTR)

 
Top 5 Index Performers
Constituent Ticker Total Return
Spectra Energy Corp
 
SE US
 
8.97
Kansas City Southern
 
KSU US
 
7.13
ITC Holdings Corp.
 
ITC US
 
4.66
Biogen Inc.
 
BIIB US
 
4.42
Procter & Gamble Company
 
PG US 4.40

Bottom 5 Index Performers
Constituent Ticker Total Return
Autodesk, Inc.
 
ADSK US
 
-6.22
Norfolk Southern Corporation
 
NSC US
 
-11.35
Discovery Communications, Inc. Class A
 
DISCA US
 
-15.80
Franklin Resources, Inc.
 
BEN US
 
-16.51
Polaris Industries Inc.
 
PII US
 
-18.48

View MOAT’s current constituents

 

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

 
Top 5 Index Performers
Constituent Ticker Total Return
China State Construction International Holdings Limited   3311 HK 15.37  
CapitaLand Limited CAPL SP   10.17  
Agricultural Bank of China Limited Class H 1288 HK   6.76  
National Australia Bank Limited NAB AU   6.34  
Enbridge Inc. ENB CN   5.12  

Bottom 5 Index Performers
Constituent Ticker Total Return
Power Corporation of Canada POW CN -10.53
Canadian Imperial Bank of Commerce CM CN -11.74
Banco Bilbao Vizcaya Argentaria, S.A. BBVA SM -11.77
Edenred SA EDEN FP -12.19
Potash Corporation of Saskatchewan Inc. POT CN -14.17

View MOTI’s current constituents

 
 
 

As of 12/18/15

Morningstar
Wide Moat Focus Index (MWMFTR)

 
Index Additions  
Added Constituent Ticker
Spectra Energy Corp SE US
Biogen Inc BIIB US
VF Corp VFC US
Harley-Davidson Inc HOG US
Kansas City Southern Inc KSU US
International Business Machines Corp IBM US
American Express Co AXP US
Wal-Mart Stores Inc WMT US
Varian Medical Systems Inc VAR US

Index Deletions  
Deleted Constituent Ticker
Applied Materials Inc AMAT US
Autodesk Inc ADSK US
Discovery Communications Inc DISCA US
Walt Disney Co DIS US
ITC Holdings Corp ITC US
Franklin Resources Inc BEN US
Merck & Co Inc MRK US
Procter & Gamble Co PG US
Norfolk Southern Corp NSC US

View Latest MOAT Reconstitution Report
View MOAT’s list of current constituents
 

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

 
Index Additions  
Added Constituent Country
Dongfeng Motor Group China
Ainsworth Game Technology Ltd Australia
Beijing Enterprises Hldgs Ltd China
Technip Sa France
Spotless Group Holdings Ltd Australia
Numericable Sfr Sa France
Enbridge Inc Com Canada
Sun Pharmaceutical Industries India
China Telecom Corp Ltd China
Kingfisher Plc United Kingdom
Elekta Ab Sweden
Ci Financial Corp Com Canada
Sanofi (Sanofi Aventis) France
China Merchants Bank Co China
National Australia Bank Ltd Australia
Qube Holdings (Qube Logist) Ltd Australia
China Mobile Ltd China
Symrise Ag Germany
Linde Ag Germany
Nordea Bank Ab Sweden

Index Deletions  
Deleted Constituent Country
Brambles Industries Ltd Australia
Ioof Hldgs Ltd Australia
Platinum Asset Management Limited Australia
Commonwealth Bank Australia Australia
Sigma Pharmaceuticals Limited Australia
China State Construction International Holdings Ltd. China
Grupo Televisa Sab Cpo Mexico
Burberry Group United Kingdom
Centrica United Kingdom
Johnson, Matthey United Kingdom
Edenred France
United Overseas Bank Singapore
Capitaland Commercial Trust Singapore
Icici Bank Ltd India
State Bank Of India India
Unilever Nv Netherlands
Lafargeholcim Ltd Switzerland
Potash Corp Of Saskatchewan Canada
Cameco Corp Canada
Millicom Intl Cellular S.A. Sweden

View Latest MOTI Reconstitution Report
View MOTI’s list of current constituents

 
 


 
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2016 Investment Outlook http://www.vaneck.com/blogs/van-eck-views-january-8-2016/ "I think in 2016 that global growth is not going to accelerate....Globally there are several industries that are growing relatively aggressively and these are the growth spots that we are excited about in 2016."

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Van Eck Blogs 1/8/2016 12:00:00 AM

Friday, January 8, 2016

Watch Video 2016 Investment Outlook  

Jan van Eck, CEO, shares his 2016 investment outlook.

Watch Now  



 

Special Note on Recent Market Activity:  

Since the filming of this video at yearend 2015, we have seen some notable market moves. In the past week, we’ve experienced several “OMG days” as China’s stock market has taken a dramatic tumble. Although this has created a lot of negativity and confusion regarding China, particularly in the media, our long-term outlook for China remains positive.  

Long-Term Commodities Momentum Suggests a Bottom in Q1

TOM BUTCHER: Jan, let’s discuss your outlook for 2016. First: Commodities.

JAN VAN ECK: 2015 was an awful year for commodities. It was really the culmination of a decade-long bull market, and this has ended and brought commodity prices and the prices of commodity equities really to where they were before 2000-2001, before the commodities bull market started. I think the difficulty for markets -- and this has really affected psychology over the last few quarters-- is that the supply decreases that are inevitable with the slowdown have not yet hit where demand is. There will be a period when supply and demand will meet. Maybe it's in 2016 for some commodities; maybe early 2017 for other commodities. But investors just hate this current period of uncertainty. There has also been a big credit crunch that has impacted commodity producers, from Petrobras to Glencore, to the MLP [master limited partnership] sector.

It is really difficult right now to look at all the fundamentals and figure out what's going on. We know we're in a bear market, and we know there will be a turn. The typical commodity cycle does take about 18 months, and that would mean the current cycle should end in the first quarter of 2016. We believe that is a good a guide as to when we are likely to see the bottom of this commodity cycle.

Opportunities for 2016: Growth Spots in Emerging Markets

BUTCHER: If there's uncertainty in commodities, what about the emerging markets?

VAN ECK: Some countries are affected much more than others by commodities among the emerging markets. It's really funny because we've read so much this year about China and the stock market fall, but really, the country that had the most difficulty in 2015 was Brazil. Brazil was impacted by the fall in commodities, the over-leveraged commodities in its economy, political uncertainty, corruption, and a whole number of different factors that has led to a fall in not only Brazil’s financial markets, but also in its currency. We are likely to enter 2016 with a lot of uncertainty around Brazil.

Everyone knows now that China’s growth is slowing down. 2015 was a hugely pivotal year for China, in which it really entered the world's capital markets. What I like to say is that 2001 and 2015 were the most important years for China in the last 30 years. In 2001, China entered the world trading system and trade interaction with other countries exploded. Last year, 2015, it became clear that there was enough money moving in and out of China, that China couldn't separate its interest rate from its exchange rate. Given this, we know that China’s interest rate cycle is on a downward trajectory. That means China’s currency will probably weaken in 2016. We just don't think it'll be too chaotic. Perhaps something on the order of 10% to 15%, and it's already started depreciating now.

For emerging markets, we like to focus on where there are growth spots, and there are a number of sectors and countries that are doing quite well in the emerging markets in this slow-growth world.

BUTCHER: Can you give me two examples of such growth spots?

VAN ECK: I think in 2016 and looking forward, that global growth is not going to accelerate, as we have said before. Monetary and fiscal policies in the U.S. are on the margin contractionary and will likely stay generally the same in 2016, and the same structural issues that the developed world has will likely continue to exist. Growth in the emerging markets is not even. But there are several industries that are growing relatively aggressively. There are growth spots that we are excited about in 2016. I will identify a couple of examples that represent trends that are less mainstream. Everyone knows about the more mainstream trends, like the internet consumption in China through Alibaba and other internet players. First, Turkey created some tax incentives for savings plans, like a 401(k) savings plan we have here in the United States. And that growth has been 20% to 40% a year, because it's just taking off. Mobile payments in Africa are another trend. With several emerging markets, payment systems have leap frogged what we've done here in the United States, and people make most payments and transactions using mobile phones, and cell phone penetration in Africa is relatively high. A third example would be private banking in India, which is just another secular trend where the financial sector is reforming, and private players appear to be benefiting. Again, it has been a 20% growth industry. These are the types of emerging markets trends and sectors that investors can take advantage of, but are difficult to access. They are not always available through a mainstream index, so accessing them generally favors an active management approach.

Credit Markets are Historically Cheap and a New Asset Class Provides Opportunity

BUTCHER: Can you talk about fixed income investing?

VAN ECK: There are two points that we would make about fixed income investing. First, spreads have increased quite a bit over the last year. In fact, interest rate spreads for corporate debt are as high as they've really been over the last 15 years, putting aside the credit crunch of 2008-2009. This means you're getting paid a lot to invest in high-yield debt, in MLPs, and other types of fixed-income closed-end funds. Is this the time to buy? Over the next 12 months or so, we think it could be pretty interesting to buy fixed income. That's the first point. People talk about the rate increases, but really, spreads have been widening over the course of the year, and so we believe that makes fixed income more attractive.

Secondly, there is this new asset class that we're very interested in that accesses loans that are originated from online lending platforms like Lending Club and Prosper. They're called marketplace loans or online loans. And what this asset class does is allow investors, for the first time, to invest in consumer credit. If you think about it, there is bank lending, company bonds, and the bond market. Individual investors have always been able to invest in company bonds. But we've never been able to invest directly in the debt of individuals. It's always been through financial institutions. But now, consumer debt can be invested in through online platforms. To me, this represents a new asset class, and it's a trillion-dollar asset class, which is huge. We feel The American consumer is in pretty good shape, and currently that the asset class is relatively attractive.

BUTCHER: Wonderful, thank you.

 
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Munis: Potential Puerto Rico Defaults and Reserve Draws http://www.vaneck.com/muni-nation-blog/potential-puerto-rico-defaults-and-reserve-draws-01-07-16/ We have made the lead topic for our initial Muni Nation for 2016 the ongoing turbulence surrounding the Commonwealth of Puerto Rico.

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Van Eck Blogs 1/7/2016 12:00:00 AM Hello everyone, and Happy New Year.

We have made the lead topic for our initial Muni Nation for 2016 the ongoing turbulence surrounding the Commonwealth of Puerto Rico. We have invited Matt Fabian to give his views on the current status of Puerto Rico’s decisions to meet and not meet various obligations to pay bond interest due last Monday, January 4.

Puerto Rico DefaultsMatt Fabian is a partner at Municipal Market Analytics, Inc. (MMA), which is an independent research firm based in Concord, Massachusetts. MMA's core business is strategic market and credit research on the U.S. municipal market and industry.

I hope you’ll enjoy this read, and we at Van Eck look forward to bringing you further insight into current muni topics this coming year.

Potential Puerto Rico Defaults and Reserve Draws

Although the situation for bondholders might have been worse, new defaults and reserve draws by Puerto Rico do not (yet) extend to the Commonwealth’s general obligation (GO) or GO guaranteed debt or to the Puerto Rico Government Development Bank (GDB). We expect impaired bondholders to pursue legal and rhetorical remedies as available in each situation, potentially to the detriment of settlement negotiations elsewhere in the capital structure, for example, the Puerto Rico Electric Power Authority (PREPA).

More importantly, Puerto Rico’s defaults have broadened media coverage once again, shifting the center of gravity in word count away from the financial and PR-specific press and more towards national news publications that cannot convey the subtleties of the former. This is a blow for bondholder attempts to train the media narrative on government mismanagement and profligacy rather than vulture hedge funds and debt crises. Solutions in Puerto Rico, as they did in Detroit, will almost surely depend on political considerations; the withering tone with which bondholders are being discussed will likely diminish future recoveries.

And, finally, Monday’s rally in Puerto Rico GO bonds appeared to be yet another exit door for par-oriented investors. Defaults in non-GO securities imply nothing else but a gaping budget crisis, a systemic breakdown in both willingness and ability to pay, and thus a rapidly rising likelihood of GO defaults.

01-07-2016 Puerto Rico Defaults

Source: Barclays. Index returns are not indicative of fund returns.

Barclays Municipal High Yield Bond Index (ex-PR Capping) is considered representative of the broad market for below investment grade, tax-exempt municipal bonds with a maturity of at least one year. Barclays Municipal Custom High Yield Composite Index (PR Capped Below 8%) is the index which the Market Vectors High-Yield Municipal Index ETF seeks to track. It is considered representative of the investible universe of below investment grade, tax-exempt municipal bonds with a maturity of at least one year, and is customized from the Barclays Municipal High Yield Bond Index. Barclays Puerto Rico Municipal Bond Index is considered representative of the broad market for tax-exempt municipal bonds issued by the Commonwealth of Puerto Rico with a maturity of at least one year.

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Health, Happiness, and Higher Rates http://www.vaneck.com/blogs/van-eck-views-december-21-2015/ ]]> Van Eck Blogs 12/21/2015 12:00:00 AM

Monday, December 21, 2015

Watch Video CEO Jan van Eck: Health, Happiness, and Higher Rates  

Now that the Fed has raised rates, there is more to celebrate than the holidays. Not only is the U.S. economy stronger, but 2016 may bring unique opportunities.

Watch Now  


TOM BUTCHER: After much anticipation, the Federal Reserve (Fed) announced that it is raising short-term interest rates for the first time in nearly a decade. Jan, it looks as if we are wishing our clients health, happiness, and now higher rates this holiday season.

JAN VAN ECK: I think it is indeed a reason to celebrate because I think the Fed is saying that the U.S. economy is strong enough to withstand a normalization of monetary policy. It started a year ago with a roll-off of QE3, i.e., the third round of quantitative easing. Now it seems that the Fed is comfortable enough with U.S. labor statistics and the global economic situation, which had caused the Fed to delay this rate hike a couple of times in 2015. First, I think turbulence in Europe and the strengthening U.S. dollar against the euro concerned the Fed; then came [stock market] turbulence in China over the summer. Now there is reason to celebrate and things are relatively good.

The question is: What are the implications of the rate hike on our asset classes? I think there are few direct implications. With respect to commodities, there is still much consolidation that needs to wipe through the markets, and if a normal cycle is upon us, commodities should bottom in the first quarter of 2016 [ see 11/25 post]. We think that this process will continue largely unaffected by the Fed's rate hike.

Additionally, growth is slow in the developed markets and China is slowing; global growth has been weak for two years now. There are many headwinds, and we think these trends will persist as well.

What gets us excited for 2016 is what we call growth spots, meaning sectors in different countries that may grow 20% or more, regardless of whether global growth is only 2%. That’s how we are looking at 2016, and the Fed's interest rate hike doesn't really impact that outlook.

BUTCHER: Thank you very much.

 
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Munis: Go Long for Rising Rates: Just the Facts - Part 2 http://www.vaneck.com/muni-nation-blog/just-the-facts-part-2-12-17-15/ Many investors want to avoid erosion of their income due to inflation and protect the nominal value of their investments from a protracted period of rising rates.

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Van Eck Blogs 12/17/2015 12:00:00 AM My December 3 post introduced the notion that in our recent past, when the Federal Reserve (Fed) moved to push interest rates higher due to inflationary pressures, a curious and perhaps counterintuitive event occurred. Between 2003 and 2006 the yield curve shifted higher in short maturities but flattened out or remained nearly unchanged in longer maturities over the same timeframe. The conclusion was that the primary risk to valuations was borne in products with maturities of 1-16 years. Bonds with longer stated maturities were impacted far less than one might have anticipated.

The Fed knows it can affect the velocity of money moving through the financial system by adjusting the federal funds rate and thus changing the cost of borrowing for companies and financial intermediaries. Professional money managers realize this dynamic too and know that to earn a real return on their fixed income dollars means investing further out on the curve where yields generate positive results, even after adjustment for inflation.

U.S. Treasury Yield Minus CPI*

12-17-2015 Just the Facts - Part 2

*The Consumer Price Index (CPI) is a measure of changes, over time, in retail prices of a constant basket of goods and services representative of consumption expenditure by resident households.
Source: Bloomberg as of 12/14/15.

Since most fixed income markets price securities with some reference to the Treasury curve, one can expect similar adjustments in municipals, which is precisely what you see in the chart from my post from December 3.

It seems many investors want to avoid erosion of their income due to inflation and protect the nominal value of their investments from a protracted period of rising rates. Proper positioning in the intermediate and long end of the yield curve can potentially mitigate the impact of Fed policy.

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China GDP Rebalancing: Greater Stability in 2016? http://www.vaneck.com/blogs/van-eck-views-december-11-2015/ Van Eck Blogs 12/11/2015 12:00:00 AM

There is little doubt that China's gross domestic product (GDP) is rebalancing, and rebalancing fast. As the country attempts to shift to a more consumption-led growth model, the services sector is becoming the largest and fastest growing part of the economy. Financial intermediation growth is a big factor in this process. With Chinese society becoming more prosperous, this should provide a natural growth "stabilizer."

While this post focuses on rebalancing, we believe it is important to note the significance of the financial sector's health in terms of the overall economy, about which there are legitimate questions. In addition, given eventual leverage constraints, we believe China has to grow at a faster rate than it is creating debt; otherwise it will not deleverage.

Services Sector Takes the Lead

The services sector, often referred to as "tertiary" in China, now accounts for the largest part of the country’s nominal GDP (about 50%). This share has been steadily increasing in recent years (Fig. 1A). By way of contrast, manufacturing, the "secondary" sector, now accounts for only 40% of nominal GDP and is set to decline further.

The services sector is also the fastest growing part of Chinese GDP in real terms, in contrast to the sharp deceleration of manufacturing growth. In the third quarter of 2015, services sector growth accounted for over 4% year-over-year (YOY) real GDP growth (out of 7%), whereas the manufacturing/industrial sector’s contribution fell to just 2.5% YOY (Fig. 1B).


Fig. 1 Structure of China's Nominal GDP and Real GDP Growth  

China Nominal GDP Industry Structure  
Contribution To China Real GDP Growth  
Source: Bloomberg, data as of September 2015. This chart is for illustrative purposes only. Historical information is not indicative of future results; current data may differ from data quoted.  

 

Authorities Under Pressure to Support Manufacturing

Despite the country's overall real GDP growth rate remaining fairly strong, it is the extent of the drop in the manufacturing sector’s contribution to growth that is pressuring the authorities to implement additional stimulus measures.

While the manufacturing sector's real growth appears to be stabilizing at just over 6% YOY, following a multi-year drop that began as the effect of the post-2008 stimulus started to wear off, it comes hand-in-hand with the rapid decline in the manufacturing sector’s share in nominal GDP. Under the old growth model, however, the manufacturing sector's expansion exhibited high volatility, undergoing several significant shifts in its rate of growth. Therefore, in our view, returning to the old economic model is not going to be any sort of panacea and could actually result in more growth volatility.

Hope for Greater Stability?

Growth in the services sector appears to offer a more "palatable" growth/expansion pattern than that offered by the manufacturing sector. With just one major boom and bust in the run-up to and period following the 2008 crisis (the most likely culprits being the pre-crisis wholesale/retail trade "binge", as well as a massive surge in the banking sector’s nominal growth during the same period), the sector currently enjoys a high single-digit growth range with a gradual expansion as a share of nominal GDP.

The big question now, therefore, concerns the stability/sustainability of this shift in growth. Just how stable, or sustainable, are the current positive trends we are seeing in the services sector? A more detailed look at the contribution of specific sub-sectors to China's real GDP growth reveals a larger increase coming from financial intermediation, especially in the last three to four quarters (Fig. 2).

While there is little doubt that a part of this increase reflects the "organic" growth stemming from higher per capita income, we should be mindful that many resources are now being spent on re-leveraging and shifting loans from local government balance sheets to the banking sector. Still, although the financial sector’s expansion (either in real or nominal terms) is well below the pre-crisis levels, we should keep a close eye on it. We do note the significant reforms in the services sector, particularly financial services, as a driver for financial intermediation.

Interestingly, despite rising incomes, the wholesale/retail trade's contribution to real GDP growth declined slightly over the same period, in contrast to the retail "binge" that took place prior to the 2008 crisis.


Fig. 2 Contribution to China’s Real GDP Growth (% YOY)  

Contribution to China’s Real GDP Growth (% YOY)  

Source: Bloomberg, data as of September 2015. This chart is for illustrative purposes only. Historical information is not indicative of future results; current data may differ from data quoted.  

Where from Here?

Growing prosperity, i.e., higher per capita GDP, equates to a larger share of the services sector in China's nominal GDP (Fig. 3). If the expansion rate we are currently seeing can be sustained and per capita GDP grows as expected in the next five years, then the sector's share in nominal GDP should exceed 52% and should be able to contribute at least 4% to China’s real GDP per annum.

Having said that manufacturing's share of the economy is declining, unless the manufacturing sector's growth collapses and becomes negative, a "hard landing" scenario for the country should be avoided. We do, however, consider that such a harsh drop in manufacturing is unlikely, especially if the authorities continue to implement measured stimuli, not least because the range of policy instruments available to China is wider than that of many of its peers.

China does have many tools at its disposal to help stimulate growth in the manufacturing sector. It still has room to cut interest rates, which it has done six times this year, and also still has room to lower the banks' capital reserves ratio. Although those measures cannot be applied loosely, as they might trigger capital outflows, recent inflation data seem to be supportive of further easing.

We do still need to monitor the manufacturing sector — and especially industry — for the potential risks associated with the decline in nominal growth.

The manufacturing sector has a high level of indebtedness and a large part of this debt can be unproductive (many loans are “evergreened” loans that are continuously renewed to avoid recognition of a loss) and can therefore become an issue for the banking sector later on.

As discussed, the financial sector's health will likely remain key; this includes the continuation of structural reform and liberalization to encourage the use of financial intermediation and to help widen the range of financial services and products offered to the growing middle class.


Fig. 3 China – Per Capita GDP and Services Sector’s Share in Nominal GDP (2004 – 2020F)  

China – Per Capita GDP and Services Sector’s Share in Nominal GDP (2004 – 2020F)  

Source: Van Eck Research and Bloomberg, data as of September 2015. This chart is for illustrative purposes only. Historical information is not indicative of future results; current data may differ from data quoted.
 
Note: Symbols represent individual historical quarterly datum points  

 

Additional Considerations: Leverage

It is clear that the level and composition of Chinese growth is a key focus for markets. In this post we have discussed where we are in the process of shifting to a more consumption-led growth model. We should emphasize that this is one of many issues of relevance in China. In fact, we also focus on China's leverage, accumulated liabilities created over past decades to help generate growth, which potentially dilutes the importance of any view on the composition of growth. This leverage makes the fixed income team cautious about the Chinese currency and Chinese bonds, although we do note in the previous section the advantageous effects of liberalization, and that some of the more troubled areas of the economy have been reducing leverage for some time.

In particular, this leverage is a central risk to the points we make earlier on rebalancing. First, some inflation measures such as the Producer Price Index1 (PPI) point to deeper disinflationary pressures in parts of the economy associated with manufacturing. This underscores the risks of leverage, particularly via the banking system. Second, the ongoing deceleration of manufacturing growth should be considered in the context of concentrated debt accumulation in this part of the economy, and additional stimulus measures would make deleveraging an even more distant prospect. Third, any devaluation is not irrelevant; devaluation would diminish Chinese purchasing power, which goes against the rebalancing story.

One possible explanation for the tension between rebalancing and leverage is that some market participants focus on growth while others focus on acccumulated imbalances — the asset-price focus. Equity investors see economic rebalancing as generating a number of specific new corporate winners, which can generate substantial upside. Fixed income investors see rebalancing as being a bumpy process historically, and the upside in fixed income is generally lower than that in equities. Put differently, we can see why equity investors are more bullish than fixed income investors and we don’t necessarily view this as a contradiction.

Nonetheless, "growth" remains a focus to many market participants and that is the focus of this post. China’s GDP is rebalancing and doing so in an obvious way, with the services sector becoming the largest and the fastest growing part of the economy. Financial intermediation growth is a big factor in this process. This new source of growth means the country’s economy has a possible new "stabilizer" over time. However, we believe it emphasizes the importance of financial sector health to the economy. Healthy growth is good, but it can’t compensate for significant financial sector imbalances, and a financial sector in which loans are commonly evergreened shouldn’t be the basis of optimism.

 
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Gold Price and U.S. Dollar Head in Opposite Directions http://www.vaneck.com/blogs/gold-commentary-november-2015/ After falling to its cycle lows in July, the gold price had advanced nicely and last month we wondered whether the positive trend was sustainable. 

 

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Van Eck Blogs 12/9/2015 12:00:00 AM

 

For the month ended November 30, 2015

Gold's Positive Trend Was Not Sustainable

After falling to its cycle lows in July, the gold price had advanced nicely and last month we wondered whether the positive trend was sustainable. The short answer is: No, it wasn’t. In November, the gold price fell to new 5.5-year lows at $1,052 per ounce, as the U.S. Dollar Index1 (DXY) approached long-term highs. Gold ended the month at $1,064.77 per ounce for a loss of $77.39 (6.8%).

On November 4, Bloomberg News reported that Federal Reserve (the "Fed") Chair Janet Yellen said an improving economy would set the stage for a December interest rate increase if economic reports continue to assure policymakers that inflation will accelerate over time. This set the tone for both gold and the U.S. dollar, which fell and rose, respectively, for the remainder of the month. A strong jobs report on November 6, followed by generally positive economic releases throughout the month enabled market consensus to gain momentum for a rate increase at the upcoming December 16 Federal Open Market Committee (FOMC) meeting. Gold bullion exchange-traded products (ETPs) saw 1.59 million ounces (49.3 tonnes) of redemptions in November which drove gold ETPs’ combined holdings to a new cycle low of 47.92 million ounces (1,490.3 tonnes).

Investors Ignored Strong Q3 Earnings

During November gold equity indices fell with the gold price and nearly met the lows set in July. The NYSE Arca Gold Miners Index2 (GDMNTR) declined 8.5%, while the Market Vectors Junior Gold Miners Index3 (MVGDXJTR) fell 8.6%. Low gold prices caused investors to largely ignore the robust results of the third quarter earnings season. BMO Capital Markets reported free cash flow of $978 million from the North American senior miners, far surpassing expectations of $94 million. Scotiabank’s universe of senior and larger mid-caps had production that was 3% above expectations and all-in mining costs that were 8% lower than expected. The favorable results stemmed from operating efficiency, bear market pricing for materials and services, low local currency values, and low fuel prices. Many companies have indicated that there is still room to cut costs further. We now expect positive production results and cost-savings to continue in 2016.

Gold Has Unique Supply and Demand Drivers

Physical demand for gold bars, coins, and jewelry improved in the third quarter. The World Gold Council (WGC) reported that Q3 gold demand increased by 8% over Q2 and by 14% over last year. Year-to-date demand is up 3% versus the same period in 2014. The WGC reckons that there was a gold market deficit of 56.0 tonnes in Q3. The largest drivers of this strong demand were India and China, where demand increased 13% in each country which equates to a 58.0 tonne increase over Q2. Chinese demand continues as physical deliveries from the Shanghai Gold Exchange through November have now surpassed the record set in 2013.

Investors might wonder how gold can make new lows in July and again in November while the market has been in a deficit, which means demand is presumably outstripping supply. The gold market is unique among commodities and indeed unique in the financial world. Most gold is hoarded as a financial asset, like currencies, stocks, and bonds. It is not consumed like oil, copper, or soybeans. All of the gold ever produced is sitting in a vault, safe, jewelry box, place of worship, or museum, or is adorning a person’s body. This gold represents a huge reservoir of potential supply, some of which is available at a price. This is why the supply/demand drivers that apply to most commodities may not apply to gold. In addition, the gold market is not sufficiently transparent to account for all of the transactions that occur globally. All of the gold that the WGC can account for amounted to a 56.0 tonne deficit in Q3, however, there is gold the WGC cannot count that may make this deficit larger or perhaps nonexistent altogether.

Investment Demand vs. Physical Demand

For commodities other than gold, strong physical demand drives prices higher – prices follow demand. With gold, the current price drives physical demand – demand follows prices. Lower prices entice buyers in India and China. They also bring strong retail demand from the U.S. and Europe. This physical demand increases when prices drop, helping to stabilize prices. However, physical demand usually diminishes when prices increase.

Investment demand generates price strength in the gold market and a lack of investment demand characterizes bear markets. The motives that drive both physical and investment demand are the same – to utilize gold as a store of wealth and a hedge against currency weakness, tail risk4, or financial stress. However, investment demand manifests itself mainly in the futures market in New York and the over-the-counter market in London. These markets exert the largest influence on gold prices and they are driven more by macroeconomic, financial, and geopolitical events than by prices and supply/demand equations.

Gold ETPs are relatively transparent vehicles that we use as a proxy for broad investment demand. In Q3 global bullion ETPs had 63.0 tonnes of redemptions. This is probably a good indicator of weak investment demand in New York and London. It also lends better insight into price action than physical demand from China or elsewhere.

We believe that physical demand should play a larger role in price discovery, and maybe it eventually will as the Asian gold market grows and matures. In the meantime, the Chinese seem happy to accumulate all the gold the West cares to provide at low gold prices. Regardless of what we believe should happen, we make investment decisions based on what actually drives the market. This means investing in companies that can survive intact or gain an advantage if a lack of investment demand drives prices lower than expected.

Market Expectations and the Fed

Once again the markets are essentially convinced that the Fed will raise rates at the next FOMC meeting. Based on recent Fed comments, economic releases, and the level of expectations, we will be shocked if the Fed doesn’t raise rates. Rate rising cycles introduce risks to the economy and financial system and they often end badly. According to Gluskin Sheff5, a bull market in the S&P 500 Index6 has never ended after an initial rate hike. It’s a different story if the rate hikes keep coming. The stock market crashed in October 1987 after three rate hikes over five months. NASDAQ crashed in April 2000 after six rate hikes over 11 months. Rate increases are often a prelude to recessions, which become increasingly likely as the yield curve flattens or inverts (when short-term rates exceed long-term rates).

The Fed has never waited as long as five years into a bull market to begin to raise rates. A few reasons the Fed has been reluctant to pull the trigger:

  • In the last four decades, the Fed has never raised rates when the Institute of Supply Management (ISM) Manufacturing Index7 was below 50, which signifies a manufacturing recession. The ISM Index is currently 48.6.
  • How long can Fed policies diverge from the rest of the world where the central banks of Europe, China, Australia, and Japan are all easing to combat economic weakness?
  • Every country that started a rate-hiking course after the Great Recession that ended in 2009 was ultimately forced to reverse course.

Hard to Say How Gold Will Respond

On November 2 as we watched Fed Chair Yellen address the Economic Club of Washington D.C., the U.S. Dollar Index approached a 12.5-year high while gold made a new 5.5-year low at $1,052 per ounce. With the dollar and gold at extreme levels, it seems the market has already priced in forthcoming rate hikes. Credit Suisse reported in October that historically when the U.S. has raised rates the dollar has stopped appreciating. In some cases the dollar fell into a bear market and in others the dollar eventually recovered.

Gold has a similarly inconsistent reaction to rate increases, as shown in this excerpt from our March gold market update, written when the market was obsessed with the Fed’s rate decision, as it unfortunately still is:

Scotiabank has analyzed the last six tightening cycles since 1982 when a suitable gold index became available. They found that gold prices advanced in the year following the first rate increase in half of the cycles, whereas gold declined in the other half. Scotia points out that the only other point at which the Fed raised rates in a low-inflation environment was in 1986, when rates were increased in order to help defend a sharply depreciating U.S. dollar. It was also one of the rate-rising periods when gold performed well. The Scotia analysis leads to an uncertain outlook; it tells us that sometimes gold advances when rates rise and sometimes it does not. However, the economic and financial backdrop to the next rate cycle is unlike any other in history. The imbalances in asset markets, sovereign debt levels, and central bank finances create risks that may become overwhelming under the stress of rising rates. Perhaps the first rate increase will mark the beginning of the end of the gold bear market.

Download Commentary PDF »

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Munis: Why Duration Matters http://www.vaneck.com/muni-nation-blog/why-duration-matters-12-9-15/ ]]> Van Eck Blogs 12/9/2015 12:00:00 AM

For this week’s installment, I have invited my colleague Fran Rodilosso, Portfolio Manager of Van Eck’s taxable fixed income funds, to explain why duration matters right now. While it is only part of the fixed income equation, duration is something we feel investors should understand, particularly given that a December U.S. rate hike is likely. I’ve also included a link to a FINRA educational piece to help you deepen your understanding of this very important concept.

Watch Video Why Duration Matters

Watch Now | Video Transcript

FINRA on Duration »

Video Transcript - Why Duration Matters

TOM BUTCHER: Why should investors be concerned about duration?

FRAN RODILOSSO: Investors should always be concerned about duration in a bond or in a portfolio of bonds. Measuring duration is how one measures a bond or bond portfolio’s sensitivity to movements in yield and movements in interest rates.

In today's environment, we're at unprecedentedly low yield levels, particularly in the U.S., Europe, and Japan. The market is anticipating that the Federal Open Market Committee (FOMC) is going to make a change in policy. The FOMC has stated its intention to begin hiking rates for the first time since late 2008. In the meantime, we've been stuck at a zero interest rate policy in terms of the federal funds rate target.

There are, however, many other factors to consider, especially when it comes to five-year yields, ten-year yields, or thirty-year yields. Those bond yields may not move in lockstep with how the Federal Reserve (Fed) moves the federal funds rate. In fact, the market shows us that the yield curve should be flattening. It has been flattening, which means the difference, for instance, between ten-year yields and two-year yields has narrowed in recent weeks. Ten-year Treasury yields and thirty-year Treasury yields, however, are far closer to the bottom ends of their ranges over the last five years than they are to the high ends. Since the “taper tantrum” of 2013, they've been even closer to the bottom ends of their ranges than to the high ends of their ranges. I think the market has thus already priced in low inflation expectations, expectations that commodity prices are not going to turn sharply higher, and expectations that tightness in labor markets, particularly in the U.S., is not going to become more extreme than it is now.

BUTCHER: Can you give me an example of what might happen should interest rates start rising?

RODILOSSO: Let’s consider a ten-year U.S. Treasury bond. Today the modified duration of the bond is about 8.8, which means if interest rates rise by 1%, one would expect the bond's price to fall by more than 8%. A ten-year Treasury has a current yield of about 2%. Let’s say in one year the yield on ten-years goes from 2% to 3%. The bond will lose about 8% in price. Actually, it will lose less than 8% in price because duration changes as yield increases. There might then be a 7.5% change in price and a 2% current yield. Over that period, however, total return is -5.5%, which represents a fairly significant loss for a risk-free bond investment. That is the mark-to-market effect if you sell those bonds.

If you own two-year Treasuries, which have a duration of about 1.9, and they go up a full percent higher over the next year, the total return will still be negative, but closer to net -1.5% because the duration on those two-years is much lower. That’s what it means to move down the curve, i.e., shorten your duration and achieve lower sensitivity to interest rates.

Should rates remain low or move even lower from here, however, there are other risks that investors should consider, such as reinvestment risk. If you are all short duration and have no interest rate risk, you'll constantly need to be reinvesting. If rates stay where they are or move higher, it will be good news. But if they're moving lower, you'll be investing at lower interest rates and that's not good news.

The other thing to remember is that duration is not the only risk of your bonds or your bond portfolio. There's credit risk. There's also political risk in emerging markets bonds. There's liquidity risk. Many factors can impact the price of your bonds, your bond fund, or your bond portfolio.

I think in the current context, regardless of whether you believe the Federal Reserve (Fed) will proceed slowly or interest rates will rise rapidly, the potential risks are still skewed. There could be more damage done to your portfolio by higher rates. The market has priced in a less aggressive Fed and lower inflation expectations. Now is therefore a good time to consider your duration exposure and how you should manage it.

BUTCHER: Is the usefulness of duration measurements predicated on a parallel shift in the yield curve?

RODILOSSO: Duration does work as a measure when shifts are parallel, but it's still a fairly good relative risk measurement in any case. However, it has happened many times before in many different markets that short-term rates have risen as long-term rates have fallen. If that's the case now, looking at duration on your long-term bonds might cause you alarm if the Fed is hiking rates. It’s very important to think about where you are on the curve, i.e., where your exposure is, and how that part of the curve might be moving.

There are various scenarios that can play out over the next 12 months, regardless of whether the Fed starts hiking rates. Something to consider in terms of risks in the bond market is: the Fed has probably lost some credibility this year by not moving in September and by introducing the concept of, to use the Fed’s language, “concern about foreign markets.” A loss of credibility by the Fed could actually cause higher volatility and augment the risk of the U.S. Treasury market, which would ultimately lead to higher yields. If the market perceives that the Fed is behind the curve, i.e., not keeping up with inflationary expectations, the yield curve may steepen; five-year, ten-year, or thirty-year yields may rise much faster than the Fed moves short-term rates. That is not a scenario that anyone seems to be pricing in right now, which may be one small reason to consider it.

BUTCHER: Thank you very much.

Important Disclosure

The views and opinions expressed are those of the speaker and are current as of the video’s posting date. Video commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results. For more information about Van Eck Funds, Market Vectors ETFs or fund performance, visit vaneck.com. Any discussion of specific securities mentioned in the video commentaries is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com.

Please note that Van Eck Securities Corporation offers investment products that invest in the asset class(es) included in this video. Debt securities carry interest rate and credit risk. Bonds and bond funds will decrease in value as interest rates rise. Debt securities carry interest rate and credit risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer's financial health. High-yield and municipal securities have additional risks. The Funds' underlying securities may be subject to call risk, which may result in the Funds having to reinvest the proceeds at lower interest rates, resulting in a decline in the Funds' income.

Duration is a measure of the sensitivity of the price of a bond to a change in interest rates and is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices.

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Moat Investing: All Aboard the Moat Investing Train http://www.vaneck.com/blogs/moat-investor-monthly-december-2015/ November was a strong month for global moat companies relative to the broader equity markets. In the U.S., railroad operators and public utilities posted strong results, boosted by mergers and acquisitions discussions. Internationally, moat companies in Australia and France were in the spotlight.

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Van Eck Blogs 12/8/2015 12:00:00 AM

 

For the Month Ending November 30, 2015

Performance Overview  

November was a strong month on a relative basis for moat-rated companies in the U.S. and globally. Generally stock returns were flat in the U.S. and negative internationally. The U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR) outperformed the S&P 500® Index (1.75% vs. 0.30%), and the internationally focused Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN) topped the MSCI All Country World Index ex USA (-1.67% vs. -2.06%).


Domestic Moats: All Aboard  

Merger talks helped rail operator Norfolk Southern Corp. (NSC US) take the performance lead among MWMFTR’s constituents in November. Autodesk (ADSK US), a software design firm known for AutoCAD, continued its strong showing in November, following its top performance spot in October. Electric utility ITC Holdings Corp. (ITC US) also boosted the Index’s performance at the end of the month after rumors surfaced that it may be entertaining buyers. By contrast, Qualcomm Inc. (QCOM US) was the Index’s worst performer in November. Early in the month, QCOM US released poor quarterly results stemming from declining sales and concerns about the licensing of its products in China. 


International Moats: Success Down Under  

Several Australian firms helped boost MGEUMFUN’s performance in November, including Platinum Asset Management Ltd. (PTM AU) and supply chain logistics company Brambles Ltd. (BXB AU). The top MGEUMFUN performer in November was Edenred (EDEN FP), a French company that specializes in prepaid corporate services including employee benefits and expense management services. By contrast, the uranium mining firm Cameco Corp. (CCO CN) was the Index’s worst performer, and financials overall detracted from performance.



(%) Month Ending 11/30/15

Domestic Equity Markets

 

International Equity Markets

 

(%) Month Ending 11/30/15

Morningstar
Wide Moat Focus Index (MWMFTR)

 
Top 5 Index Performers
Constituent Ticker Total Return
Norfolk Southern Corporation
 
NSC US
 
19.65
Autodesk, Inc.
 
ADSK US
 
15.00
ITC Holdings Corp.
 
ITC US
 
13.34
Applied Materials, Inc.
 
AMAT US
 
12.55
Emerson Electric Co.
 
EMR US 6.92

Bottom 5 Index Performers
Constituent Ticker Total Return
Twenty-First Century Fox, Inc. Class A
 
FOXA US
 
-3.84
Union Pacific Corporation
 
UNP US
 
-5.43
Polaris Industries Inc.
 
PII US
 
-5.68
Time Warner Inc.
 
TWX US
 
-6.65
Qualcomm Incorporated
 
QCOM US
 
-17.08

View MOAT’s current constituents

 

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

 
Top 5 Index Performers
Constituent Ticker Total Return
Edenred SA   EDEN FP 12.13  
Platinum Asset Management Ltd PTM AU   10.76  
Johnson Matthey Plc JMAT LN   6.71  
Brambles Ltd BXB AU   6.55  
Sigma Pharmaceuticals Limited SIP AU   5.19  

Bottom 5 Index Performers
Constituent Ticker Total Return
Agricultural Bank of China Limited Class H 1288 HK -6.63
Kering SA KER FP -7.23
CapitaLand Commercial Trust CCT SP -7.65
Burberry Group plc BRBY LN -8.62
Cameco Corporation CCO CN -13.42

View MOTI’s current constituents

 
 
 

As of 9/18/15

Morningstar
Wide Moat Focus Index (MWMFTR)

 
Index Additions  
Added Constituent Ticker
Applied Materials Inc AMAT US
Autodesk Inc ADSK US
CSX Corp CSX US
Emerson Electric Co EMR US
Monsanto Co. MON US
Norfolk Southern Corp NSC US
Procter & Gamble PG US
Qualcomm Inc QCOM US
Time Warner Inc TWX US
Union Pacific Corp UNP US
United Technologies Corp UTX US
Walt Disney Co DIS US
Western Union Co WU US

Index Deletions  
Deleted Constituent Ticker
American Express Co AXP US
Amgen Inc AMGN US
Blackbaud Inc BLKB US
Exxon Mobil Corp XOM US
Google Inc A GOOGL US
Harley-Davidson Inc HOG US
Hershey Foods Corp HSY US
ONEOK Inc OKE US
Spectra Energy Corp SE US
The Williams Companies Inc WMB US
US Bancorp USB US
Varian Medical Systems Inc VAR US
VF Corp VFC US

View Latest MOAT Reconstitution Report
View MOAT’s list of current constituents
 

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

 
Index Additions  
Added Constituent Ticker
Banco Bilbao Vizcaya Argentaria SA BBVA SM
Bank of China Ltd 3988 HK
BOC Hong Kong (Holdings) Ltd. 2388 HK
Brambles Industries Ltd BXB AU
Burberry Group BRBY LN
Cameco Corp CCO CN
CapitaLand Mall Trust REIT CT SP
Carrefour SA CA FP
Centrica CAN LN
China Construction Bank Corp 3311 HK
Credit Agricole SA ACA FP
Edenred EDEN FP
Grupo Televisa SAB CPO TLEVICPO MM
ICICI Bank Ltd ICICIBC IN
Industrial and Commercial Bank of China 1398 HK
Ioof Hldgs Ltd IFL AU
Johnson, Matthey JMAT LN
Kering KER FP
Platinum Asset Management Limited PTM AU
Power Corporation of Canada POW CN
Power Financial Corp PWF CN
Schneider Electric SE SU FP
Sigma Pharmaceuticals Limited SIP AU
United Overseas Bank UOB SP

Index Deletions  
Deleted Constituent Ticker
America Movil SAB de CV L AMXL MM
ANZ Banking Group ANZ AU
Banco de Chile CHILE CI
Bank of Nova Scotia Halifax BNS CN
BG GROUP PLC BG/ LN
Contact Energy Ltd CEN NZ
CSL Ltd CSL AU
Dongfeng Motor Group Co. Ltd. 489 HK
Eldorado Gold Corp ELD CN
Genesis Energy Limited GNE NZ
Iluka Resources Ltd ILU AU
Kingfisher KGF LN
National Australia Bank Ltd NAB AU
National Bank of Canada NA CN
Nestle SA Reg NESN VX
Precinct Properties New Zealand Ltd PCT NZ
Rogers Communications Inc B NV RCI/B CN
Sky Network Television Limited SKT NZ
Slater & Gordon Limited SGH AU
Sun Pharmaceutical Industries Ltd SUNP IN
Tata Motors Ltd TTMT IN
Veda Group Limited VED AU
Westpac Banking Corp WBC AU
Wipro Ltd WPRO IN

View Latest MOTI Reconstitution Report
View MOTI’s list of current constituents

 
 


 
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Munis: Just the Facts - Part 1 http://www.vaneck.com/muni-nation-blog/just-the-facts-part-1-12-3-15/ ]]> Van Eck Blogs 12/3/2015 12:00:00 AM Just the Facts - Part 1

As long as the fixed income marketplace has been anticipating what has been commonly referred to as “lift-off” by the Federal Reserve (Fed), strategists have been suggesting ways to address a move to higher rates and seek to limit the damage to investment portfolios that can occur with market downturns.

There is little reason to believe that this time will be different from other times when higher rates impacted the fixed income market, except for the speed at which rates have moved or will move the markets. The Fed has been so reluctant to act aggressively that unless there is a sudden, unexpected growth spurt in the economy, I believe it may be months before short-term rates rise much above 75 basis points (bps).

The chart below illustrates the beginning and end of a three-year period of rising interest rates, from June 2003 to June 2006. During this time, the U.S. Federal Funds Target Rate rose from 1.00% to 5.25%. In the chart you can see the dramatic flattening that occurred, especially in the 1 to 17 year maturity range.

AAA Municipal Bond Yield Curves
(Beginning and End of a Period of Rising Interest Rates)

12-3-2015 Just the Facts - Part 1  

Source: BofA Merrill Lynch.  

If the Fed decides to begin raising rates this month, the initial impact of rising short-term rates may very well cause the municipal yield curve to flatten again. In my opinion, this indicates that there may be a simple strategy to employ for muni portfolios: positioning in the longer end (17 – 30 years) of the yield curve while the rate cycle plays out.

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When Will Commodities Recover? http://www.vaneck.com/blogs/van-eck-views-november-25-2015/ Commodities have been in a multi-month bear market, and this begs the question: When will this change? We believe that it could be reasonably soon.

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Van Eck Blogs 11/25/2015 12:00:00 AM Untitled Document

Commodities have been in a multi-year bear market, with especially sharp drops in the past year. As commodity investors, this begs the question: When will commodities bottom and begin to recover? 

The history of markets suggests that an upward cycle in prices is inevitable. Putting aside the fact that the fundamentals, in general, may support a turnaround, if this is a traditional commodity cycle – and that is a big caveat – investors may continue to wonder when the mayhem will end. We believe that it could be reasonably soon.

Non-fundamental, or technical, analyses can be helpful for timing cycles. Markets often move regardless of what fundamentals may indicate. The third quarter was a prime example of this phenomenon. We saw a huge, sudden fall in commodity prices, but there were no material changes in global demand. Additionally, there was no significant change in China’s economic growth; China’s growth was slowing well before the third quarter and we believe this trend will continue.  

Our Analyses Point to the First Half of 2016

Assuming this is a normal cycle, and unless commodity prices fall much further, most of our analyses suggest a bottom may occur during the first half of 2016, and most likely in the first quarter.

We examined two different indicators: the length of prior cycles and long-term price momentum.

1) Prior Commodity Cycles

First, we looked at commodity cycles historically, as shown below in Chart A. Prior cycles suggest to us that the end of March 2016 might be the time to start buying. Past commodity downturns have generally lasted approximately 18 months. We’re 11 to 12 months into the current downturn, and six months more bring us to March, or the end of the first quarter of 2016.

Chart A: Commodity Cycles Usually Last 18 Months

Measure: CRB Commodity Composite Price Index1  
CRB Commodity Composite Price Index  
Notes: Shaded areas are longer periods of falling commodity prices (> 10 months).  
Source: Financial Times, Haver Analytics, Deutsche Bank Research. Data as of October 2015.  
 

A Closer Look at Oil Prices

Let's look specifically at historical oil prices. WTI crude oil returns are currently near historic lows as shown in Chart B below. The lows of trailing 18-month price returns for WTI have historically been tested at approximately -50%. We have already seen these levels this year: as recently as September, October, and November.

Taking a different perspective on oil, we note that price cycles generally last 15 months. The length of the current downturn is 15 months. At least one prior crude supply/oversupply cycle (1994-2003) suggests getting invested now.

Chart B: Oil Prices Don't Typically Correct More than 50%

Measure: WTI Crude Oil Price Returns, Trailing 18 Months
WTI Crude Oil Price Returns  
Notes: Red Line at -50%: Lows have historically been tested at approximately -50%.  
Dotted Yellow Line at -25%: Longest period of < -25%="" trailing="" return="" is="" 17="" />  
Average period of < -25%="" trailing="" return="" is="" 6="" />  
Current period of < -25%="" trailing="" return="" is="" approximately="" 11="" months="" (nov.="" 2014="" to="" />  
Source: Bloomberg. Data as of September 30, 2015.  

2) Long-Term Price Momentum

We also looked at a long-term commodities momentum signal: the 250-day moving average. This indicator signals a "buy" when the current price is above the 250-day moving average. As shown below in Chart C, the Morningstar Long/Flat Commodity Index (which uses the 250-day moving average) currently is less than 2% invested/long exposure in commodities. Let’s look forward and assume two possible price scenarios: 1) a bullish scenario that assumes prices increase 20%; and 2) a flat scenario that assumes commodity prices stay at current levels. The bullish scenario indicates that the Morningstar Long/Flat Commodity Index signal would be more than 50% invested in commodities by April 2016. The flat scenario pushes this 50% invested date out to August 2016. If you are a bullish investor, we believe the time to invest is some time in the first quarter of 2016, well before the final signal in August should prices stay flat.

Chart C: Using a Longer-Term Signal to Get Reinvested in Commodities

Measure: Morningstar Long/Flat Commodity Index2  
Chart Commodities Momentum Lines  
Notes: Calculation based on current commodity weightings in Index and uses each commodity's 250-day moving average; Index weightings adjusted on third Friday of month.  
Source: Morningstar, Van Eck Research. Data as of November 5, 2015.   

Van Eck's Approach

Here at Van Eck, we are generally bottom-up investors, i.e., we deal in fundamentals. More precisely, we focus most of our attention on companies that can provide shareholder return despite what the markets might be doing. Of course you cannot really escape the markets, but we focus on companies with quality management teams that have the potential to add value.

Supply Drives Markets, Not Demand

Similarly, when we look at commodity markets, we focus primarily on supply. We don’t believe demand drives markets. We think that supply drives markets and that analyzing supply is a bottom-up, fundamental exercise. We look at particular markets for commodities and whether supply will increase or decrease based on the behavior of suppliers and producers.

When it comes to timing cycles, however, fundamentals may not always be the best bet. We believe it makes sense to mix technical and fundamental analyses, and given our current findings, we believe you should give serious thought to allocating to commodities.

Video: Commodities Poised to Rebound in 2016

My colleague Roland Morris, Commodities Strategist, goes into greater depth on how the current supply dynamics in commodity markets are positioning the space for a likely rebound in 2016.

  Watch Video Now »  

 
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Spin-Off in the Spotlight: Treasury Wine Estates (TWE AU) http://www.vaneck.com/blogs/spin-offs/treasury-wine-estates-november-2015/ Treasury Wine Estates (TWE AU) was spun off from Australian beer brewer Foster’s Group in May 2011. We believe it's an excellent example of how spin-offs can create value for shareholders over the long term. 

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Van Eck Blogs 11/23/2015 1:34:57 PM

Written by Horizon Kinetics' Research Analysts and CFA Charterholders Ryan Casey and Salvator Tiano, who bring more than 20 years of combined industry experience to their research roles focusing on domestic and international spin-offs.

Spin-Off Company: Treasury Wine Estates Limited (Ticker: TWE AU)
Parent Company: 
Foster’s Group Limited; Acquired by SABMiller plc (Ticker: SAB LN)  

Spin-off Date: May 10, 2011
GSPIN Index Inclusion Date: July 1, 2011

Treasury Wine Estates (TWE AU) was spun off from beer brewer Foster’s Group in May 2011. The parent company separated its wine business from its beer business in order to allow Foster’s Group to focus on defending and growing its leading market share in Australia. At the time this transaction was announced, the wine business was being negatively impacted by oversupply in Australia and was forced to take an impairment charge1 of more than AUD 1 billion, which was equal to approximately half of the company’s market capitalization of AUD 2.2 billion when it started trading.

In our opinion, management’s view of its company appears to have been correct. After announcing an agreement to acquire Diageo plc’s ("Diageo") (NYSE: DEO) U.S. and UK wine operation in October 2015, and working to optimize its supply chain in Australia and New Zealand, Treasury Wine Estates now trades at a market valuation of AUD 5.3 billion — a 140% increase since it was first spun-off approximately four-and-a-half years ago. We believe that the Diageo acquisition will continue to generate value for the company going forward, as there will likely be significant cost savings unlocked by integrating the new distribution networks with the existing ones.

Treasury Wine Estates is an excellent example of the various ways in which spin-off transactions can create value for shareholders over the long term. In the early stages, one could argue that the company was inefficiently priced given that shares were trading at a nearly 20% discount to a recent buyout offer. Once separated, the assets drew considerable interest from potential acquirers, who were willing to pay prices that would have generated significant returns for investors. Finally, the Treasury Wine Estates spin-off eventually allowed the company to restructure and grow its business, a process that has played out during the nearly five-year time horizon over which the company has been included in the Index.

As of October 31, 2015, Treasury Wine Estates Ltd. represented 1.52% of SPUN's total net assets.

View Current SPUN Fund Holdings  

View Current GSPIN Index Holdings  

 

Spin-Off in the Spotlight provides spin-off research insights from Horizon Kinetics, LLC. The firm has produced spin-off research since 1996, and began covering international spin-offs in 2010. Horizon Kinetics Global Spin-Off Index(GSPIN) is the underlying index of Market Vectors® Global Spin-Off ETF (SPUN), which was launched in June 2015. GSPIN tracks the performance of listed, publicly-held spin-offs that are domiciled and trade in the U.S. or developed markets of Western Europe and Asia.

SPUNMarket Vectors Global Spin-Off ETF

Capture the Full Potential of Spin-Offs Globally  

Key Features:

  • Spin-off investing is an established event-driven strategy
  • Global index coverage
  • Early, long-term stock positions allow index to capture full spin-off cycle

SPUN Details

Fund Ticker SPUN  
Commencement Date 6/09/2015
Gross Expense Ratio2   0.62%
Net Expense Ratio2   0.55%
Distribution Frequency Annually
Index Ticker GSPIN  
Index Rebalancing Quarterly
 
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Munis: “Fed” and Fed Up? http://www.vaneck.com/muni-nation-blog/fed-and-fed-up-11-18-15/ Uncertainty in the markets has left many tax-free investors confused about where to deploy cash in the last weeks of the calendar year. Jim contends that the tactical characteristics of munis merit consideration at this time.

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Van Eck Blogs 11/19/2015 12:00:00 AM Muni Nation: “Fed” and Fed Up?

In the wake of newly released economic indicators, namely large employment gains versus expectations, and the strong suggestion in the Federal Reserve’s (the “Fed’s”) commentary that a rate increase is likely in December, the push and pull of investor sentiment have created further uncertainty for tax-free investors in terms of deploying cash in the last few weeks of the calendar year. It is generally understood that fixed income investors are not fond of uncertainty.

For the past two years, the specter of uncertainty has, in my view, inhibited allocations to the municipal space when conjecture – not fact – has ruled the financial headlines. Factually and fundamentally, a rate rise has already been priced into the muni yield curve. History tells us that the markets overreact to such change. As a recent article on ETF.com reminds us, what remains tactically important about munis are the following:

1. Yields are currently attractive
2. My performance outlook for the asset class is positive
3. Munis have been a good diversifier to portfolios
4. Infrastructure needs should keep up muni issuance
5. Default risk has been historically very low
 

Read Article Now  

Much of what has been said in this space over the past 12-24 months about the relative value and attractiveness of both intermediate and high-yield municipals remains true. With year-to-date returns being mostly positive, the aforementioned attributes may spark consideration for those undecided about what to do as we approach year-end.

Year-to-Date Muni Total Returns
11-18-2015 Fed And Fed Up  
Source: Barclays as of 11/16/15.  

I believe that most investors are fed up with the lingering indecision of the Fed. The opportunity cost of taking no action over past weeks may no longer be worthwhile. In a challenging year for investors, this back-to-basics strategy may be the better course of action.

Post Disclosure  

Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt municipal bonds with a maturity of at least one year. Barclays High Yield Municipal Bond Index is considered representative of the broad market for below investment grade, tax-exempt municipal bonds with a maturity of at least one year.

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Has Gold’s Cyclical Bear Market Found a Base? http://www.vaneck.com/blogs/gold-commentary-october-2015/ Gold advanced in October and remains highly influenced by market expectations of a U.S. rate increase.Gold companies continue to report improving operational performance with lower expected mining costs.

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Van Eck Blogs 11/9/2015 12:37:54 PM

 

For the month ended October 31, 2015

Gold Markets Eye Fed's December Move

Once again, we must report that the outlook for the Federal Reserve Bank’s (Fed’s) rate decision influenced the movements in the gold price in October. Leaving rates unchanged is considered supportive for gold because it implies weakness in the economy, a lower U.S. dollar, and potentially lower real rates. Gold advanced on October 2 when disappointing September U.S. non-farm payrolls meant lower odds of a Fed rate increase. Gold reached its $1,191 per ounce high for the month on October 15 following retail sales that were below expectations and producer prices that fell more than forecasts predicted. Poor economic results continued with the release of downward pointing monthly reports for durable goods, consumer confidence, and other leading indicators. However, on October 28, the Fed released its post-FOMC (Federal Open Market Committee) meeting statement, which the market interpreted as increasing the likelihood of a December rate hike. In the statement, the Fed dropped previous warnings on global risk and focused on gains in household spending. As a result of the Fed’s comments, the gold price partially lost earlier gains and ended the month with a $27.09 advance (2.4%) at $1,142.16 per ounce.

Gold Stocks Perk Up

Gold stocks perked up in October, although they also saw weakness following the FOMC statement. In October, the NYSE Arca Gold Miners Index1 gained 9.2% while the Market Vectors Junior Gold Miners Index2 advanced 5.1%. Third quarter reporting started in the last week of October and will run into November. So far we are pleased with the sector’s improving operating performance. In our opinion, companies have done a good job driving down costs and early reports suggest this trend is continuing. For example, Agnico Eagle Mines Limited (7.7% of INIVX net assets) lowered the midpoint of its all-in mining cost guidance from $880 per ounce to $850, Newmont (1.9% of net assets) from $950 per ounce to $910, and Eldorado Gold Corporation (4.8% of net assets) from $925 per ounce to $870. [Access a current list of INIVX holdings.]

Positive Trends Since July

A symptom of the economic weakness in China is its foreign exchange (forex) reserves, which have been in decline since June 2014 and are down $329 billion (8.6%) so far this year. Despite this, the Peoples Bank of China (PBOC) continues to buy significant amounts of gold to add to its forex reserves. In July, the PBOC began announcing monthly changes in its official gold reserves. For the third quarter, the PBOC added 50 tonnes, which exceeds its annualized pace of 100 tonnes per year for the last six years. Meanwhile, the Chinese Gold and Silver Exchange Society believes gold consumption may match or exceed the record set in 2013. Robust Chinese demand helps underpin prices in an otherwise weak market.

Since gold fell to its cycle low of $1,072 per ounce in July, we feel it has embarked on a positive trend. Each time gold makes new lows in the bear market, we see a similar pattern, and investors wonder whether this positive trend is sustainable. The recent fundamental drivers have been safe haven3 demand due to jitters over the collapse of the Chinese stock market in August and uncertainty surrounding the Fed’s rate decision. It feels as if markets are being held hostage until the next FOMC meeting in December. Perhaps there will be answers to the multitude of questions that create uncertainty: Will rates be increased? How will markets react? How much is already priced into the gold market? How much is priced into the U.S. dollar? How will emerging economies behave? What will be the pace of rate increases? Will they have to reverse course? Until there is more clarity, it is difficult to say whether this is another false start for gold or the beginning of a lasting trend.

Analyzing Gold and Gold Equities

Many who follow gold stocks are puzzled by the depths to which they have fallen. There are several ways of analyzing this, some of which are misleading. Chart 1 shows the ratio of the NYSE Gold Miners Index (GDM) to gold at all-time lows, well below the levels of the 2008 credit crisis crash or the 1980–2001 secular bear market. This chart depicts the unprecedented decline in gold stocks.

Chart 1: GDM Index/Gold Ratio (2001-2015 Weekly Close)

GDM Gold Ratio - Gold Blog October Commentary

Source: Bloomberg, Van Eck Research. Not illustrative of an investment in the Fund. Historical information is not a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.  

The GDM index saw its cycle low of 348 on September 11, 2015. The last time it was this low was in 2002 when gold was $300 per ounce. We do not believe that this means stocks are anticipating much lower gold prices. The average all-in mining cost for our coverage universe is $920 per ounce. We do not know of any mines that are producing gold for $300 per ounce. In fact, in our view, high cost mines would begin shutting down at around the $1,000 per ounce level and the entire industry would likely to cease to exist long before gold reached $300.

These can be valid ways of looking at markets, however, for gold and gold stocks they are misleading because they fail to capture important changes in the fundamentals of the industry over the past 15 years. To demonstrate and quantify these changes, we look to Chart 2. This chart uses the same data as Chart 1, but displays it as an x-y plot, rather than a ratio.

Chart 2: Gold vs. GDM Index Plot (2001-2015 Weekly Close)

Gold Price Trends - Gold Blog October Commentary

 

Source: Bloomberg, Van Eck Research. Not illustrative of an investment in the Fund. Historical information is not a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

The first thing to notice is that gold and the GDM form three distinct trends over different periods. The transition between trends is shown as open circles. The correlation statistics (R-squared) for each trend is close to a perfect 1.00,4 which means that there is indeed a very strong correlation between gold bullion and gold shares.

Each trend is positioned progressively to the right at higher gold prices. This means that higher gold prices have been required to maintain the same GDM value. Each time the trend shifts from A to B to C, stocks are de-rating due to a loss in value. In the late 1990s, many companies became heavily hedged, locking in future production at low prices. When the bull market started, they were unable to take advantage of higher prices until in the 2000s, when they started spending billions of dollars to buy back their hedge books. As a result of what appear to be irresponsible hedging policies, gold stocks devalued from Trend A to B. The good news is that today the industry remains essentially unhedged, not wanting to repeat the mistakes of the past.

A different type of mistake caused the second devaluation form Trend B to C. The global mining industry was the victim of double-digit cost inflation during the 2008 to 2011 period of Trend B. The gold miners were not immune to this, and shareholders saw profit margins squeezed and capital cost escalations that diminished returns on new projects. Frustrated by the relentless rise in costs and missed expectations, the market de-rated the sector to its current Trend C. As has been the case with hedging, we believe the industry will not repeat the mistakes of the past. Managements are now focused on maintaining operational excellence and preserving margins.

To be fair, in the 1990s there were many companies with policies against hedging, and more recently there have been many with prudent cost controls. We have aimed to generate alpha5 in our portfolios by avoiding hedged producers and investing in companies with low costs and manageable debt. However, the majors have struggled the most with the problems that have plagued the industry. These companies dominate the indices and they are the “go-to” names for large generalist investors. In our view, poor leadership has cast a negative image across the broader industry.

We do not believe the industry will encounter further de-ratings in the future. We believe that a “Trend D” is not in the cards because the hard lessons that have been learned will not be forgotten, and companies should be able to maintain value. It is also unlikely that the industry re-rates higher towards Trend B. In order to create a positive step-change in value, it would take revolutionary technology or substantially more high-grade discoveries that enable low-cost mines to be built. While some companies are likely to make game-changing discoveries, we do not see it happening for the industry as a whole. Budgets have been slashed and geologic limitations have made exploration success harder to come by.

This Cyclical Bear Market Continues to Find a Base

This means that Trend C is probably the “new normal”, and, if so, what can we expect? The stocks are exhibiting considerable beta6 to the gold price. From the September close of $1,142 per ounce, a $100 (8.7%) change in the gold price caused a 36.4% change in the GDM along Trendline C. At higher gold prices the beta diminishes, but is still significant. For example, a $100 (6.2%) change from $1,600 per ounce causes a 13.7% change in the GDM along the trendline. Fundamentally, we explain this through optionality and leverage. At lower gold prices the volatility increases as stocks trade more like pure options. Around the $1,000 per ounce gold price, the industry does not generate any free cash and has little intrinsic value. However, there is still investment demand for the equities as options on higher gold prices.

Leverage at low gold prices also causes increased volatility and beta. Operating leverage increases when earnings and cash flows are at depressed levels. Small changes in the gold price can provide large percentage changes in earnings. For companies with high debt loads, there is also substantial financial leverage at low gold prices because so much of their cash flow is tied up in servicing debt.

While the near-term outlook for gold is murky, we expect to see plenty of volatility as this cyclical bear market continues to find a base.      

Download Commentary PDF »

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Munis: A Better Road for Tomorrow http://www.vaneck.com/muni-nation-blog/a-better-road-for-tomorrow-11-03-15/ Muni Nation invited Thomas G. Doe, President and Founder of Municipal Market Analytics, Inc., to provide this week's commentary. Municipal Market Analytics (MMA) is an independent research firm based in Concord, Massachusetts.

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Van Eck Blogs 11/3/2015 10:01:45 AM A Better Road for TomorrowMuni Nation invited Thomas G. Doe, President and Founder of Municipal Market Analytics, Inc., to provide this week's commentary. Municipal Market Analytics (MMA) is an independent research firm based in Concord, Massachusetts. MMA's core business is strategic market and credit research on the U.S. municipal market and industry.

A Better Road for Tomorrow Could be Built One Driverless Car at a Time  

Automated vehicle companies are in an ideal position to help influence and possibly assist in the funding of short- and medium-term infrastructure investment. Technology requirements likely will dictate that these companies participate in the planning and integration of their technology into existing infrastructure and, perhaps more importantly, new construction. Sections of roads and highways that are vital to the business plans of these companies could be prioritized, as well as improvements funded by private companies. In addition, the evolution of better highways with high speed, safe, and unencumbered vehicles could provide an economical alternative to other public transportation systems, e.g., rail, thus potentially saving scarce budgetary dollars.

States and municipalities control a fundamental asset that is of considerable value to the automobile industry: transportation infrastructure. The public entities should begin to work with the private sector to develop a strategic plan for faster development and integration of new technologies for the public benefit, while also monetizing the value of public infrastructure for the car companies.

Also, the driverless car’s evolution is occurring concurrent to that of drone technology. Therefore automated vehicle participants should have equally motivated partners, i.e., Amazon, FedEx, and UPS, to access established transportation routes that are relatively safe, efficient, and jointly funded by those who use them and those who profit from them. Highways could become multi-layered networks of cars and drones on which goods, services, and people are guided and delivered to specific points with efficiency and effectiveness. But such a future can only be accomplished by the equitable sharing of costs absorbed by both private companies and a taxpaying population – the former profiting from the revenue of products sold and delivered, and the latter from a likely safer and better tomorrow.

Approximately hundreds of millions of dollars have been invested in research programs by the federal government, private car companies, transportation entities, and insurance companies. The public and private investment is already considerable in the future design and projected implementation of the technology into everyday life. Therefore, state and municipal governments have a unique opportunity to leverage their assets to partner with the private driverless car companies, so the companies could gain a return on their current investment and governments will have a committed partner to address the public’s great needs.

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Spin-Off in the Spotlight: PayPal Holdings (PYPL) http://www.vaneck.com/blogs/spinoffs-paypal-october-2015/ PayPal Holdings (PYPL) was spun off from eBay Inc. (EBAY) in July 2015. The transaction was arguably undertaken to improve PayPal’s competitive footing in the rapidly changing online and mobile payments industry.

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Van Eck Blogs 10/19/2015 8:43:38 AM

Written by Horizon Kinetics' Research Analysts and CFA Charterholders Ryan Casey and Salvator Tiano, who bring more than 20 years of combined industry experience to their research roles focusing on domestic and international spin-offs.                      

Spin-Off Company: PayPal Holdings Ltd. (Ticker: PYPL)
Parent Company: eBay, Inc. (Ticker: EBAY)

Spin-off Date: July 20, 2015
GSPIN Index Inclusion Date: October 1, 2015

PayPal Holdings (NASDAQ: PYPL) was spun off from eBay, Inc. (NASDAQ: EBAY) in July 2015. The transaction was arguably undertaken to improve PayPal’s competitive footing in the rapidly changing online and mobile payments industry. As an independent entity, it is expected that PayPal will have a greater degree of freedom to expand its technology platform, either through acquisition or investment, thus allowing it to better compete with the likes of Apple (NASDAQ: AAPL) and Google/Alphabet (NASDAQ: GOOG). 

The separation also helps eliminate any perceived conflicts of interest; whereby, other online retailers, i.e., competitors of eBay, may have been reluctant to use PayPal for payment processing, for fear that they would be subsidizing a competitor and/or providing it with information about their business. As such, we believe PayPal may have additional organic growth opportunities now that it is an independent company.

Of course, the acquisition of PayPal by a well-capitalized competitor, such as either of the aforementioned tech giants, is a possibility and would likely give that acquirer a significant strategic asset in the payments industry.

At the time of the separation, the revenue growth that PayPal derived from sources outside of eBay was three times the rate of its eBay-related business. With revenues forecast to increase organically at a double-digit rate over the next year, PayPal offers significant future upside potential. Should this expansion materialize, we believe that the spin off transaction could generate additional benefits by allowing the market to value PayPal at a premium multiple relative to the more mature eBay business. When one further considers the strategic advantages of operating as an independent entity, we believe that this spin-off has the potential to create significant value for shareholders.

As of September 30, 2015, PayPal Holdings represented 0.80% of SPUN's total net assets.

View Current SPUN Fund Holdings  

View Current GSPIN Index Holdings  

 

Spin-Off in the Spotlight provides spin-off research insights from Horizon Kinetics, LLC. The firm has produced spin-off research since 1996, and began covering international spin-offs in 2010. Horizon Kinetics Global Spin-Off Index(GSPIN) is the underlying index of Market Vectors® Global Spin-Off ETF (SPUN), which was launched in June 2015. GSPIN tracks the performance of listed, publicly-held spin-offs that are domiciled and trade in the U.S. or developed markets of Western Europe and Asia.

SPUNMarket Vectors Global Spin-Off ETF

Capture the Full Potential of Spin-Offs Globally  

Key Features:

  • Spin-off investing is an established event-driven strategy
  • Global index coverage
  • Early, long-term stock positions allow index to capture full spin-off cycle

SPUN Details

Fund Ticker SPUN  
Commencement Date 6/09/2015
Gross Expense Ratio1   0.62%
Net Expense Ratio1   0.55%
Distribution Frequency Annually
Index Ticker GSPIN  
Index Rebalancing Quarterly

1Expenses for SPUN are capped contractually at 0.55% until at least 2/01/17. Cap excludes certain expenses, such as interest.

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Special Gold Market Update 10/16/15 http://www.vaneck.com/blogs/gold-special-market-update-october-16-2015/ October 16, 2015: I would say that we are into what I call a short-covering rally. There are big short positions in the market, not just gold, but across many commodities. These short-covering rallies are typically driven by financial risks for gold.]]> Van Eck Blogs 10/16/2015 11:21:52 AM

Will Gold's Positive Momentum Continue?

[Excerpted from Joe's 10/13/15 Gold Conference Call]

A Closer Look at July's Selloff

There was a significant selloff in July in the gold market. While we've seen selloffs of this magnitude a number of times over the course of this bear market, I’d like to review this selloff in some detail with you. During our last conference call on July 14, I told you that our near term outlook was favorable for gold. Gold was at cycle lows and we believed that its positioning on COMEX [formerly Commodity Exchange, Inc.] looked favorable. Keep in mind that we had already had a three-plus-year history of selling pressure on gold and gold stocks, and we were seeing the usual summer seasonal weakness traditionally observed in the gold market. We believed that with all that pressure on gold that the near-term looked favorable for a more positive trend.

China is the World's Largest Gold Buyer

On July 17, the People's Bank of China announced that it had increased its gold holdings by 600 tonnes. The last time it had announced its reserves was in 2009. This meant that over the past six years, the Bank had been buying, on average, about 100 tonnes a year, making them the largest gold buyer on the planet. However, while the increase was of significant size, the Bank’s estimates did not meet the markets’ expectations, and it did not meet our expectations. I had expected the Bank to announce something that was at least double what it had announced. The market reacted negatively and the selloff in gold ensued.   

Since then, we have changed our thinking on what the Chinese government is doing with its gold holdings. China owns 1,658 tonnes of gold. That represents 1.6% of China’s forex (foreign exchange) reserves. Previously, I had thought that China was working toward having a gold reserve in terms of forex reserves that was somewhere in the double digits, more on par with what we see in western countries. Germany, France, the U.S., and Italy have gold as a percentage of forex reserves in the 30-70% range. I no longer think that China's being that aggressive. I now think that China is content to have a level of reserves that's more normal for Asia. If you look at Japan or Korea or other Asian countries, they have less than 5% gold in forex reserves.  I believe that's more in line with the range that China is targeting. Having said that, even though China is not as aggressive as we had thought, China is still a significant buyer in the gold market. 

The People’s Bank of China has started announcing changes in its gold position on a monthly basis, like other central banks.  The Bank added 15 tonnes in July and another 19 tonnes in August. The Bank is on track to purchase a few hundred tonnes annualized, making it a huge buyer in the market, and we think these levels will continue into the foreseeable future. Having said that, the announcement of a 600-tonne increase over the last six years in our view was still a disappointment. As a result, we saw very heavy redemptions from gold bullion ETFs. We also saw broader pressure across the commodities complex. Gold was down 6.5% in July, copper was down 9%, and WTI crude oil was down 21%. The additional pressure across the commodities complex put extra pressure on gold. 

July’s Heavy Trading in After-Market Hours

Another peculiar thing that happened in July was heavy trading in off-market hours, and it's very suspicious we feel. On July 19, on a Sunday night, at 11:27 PM, gold fell $62 an ounce in an instant, to its cycle lows of $1,072 an ounce. This is something we've seen before. This was in the middle of the night, when most market participants are in bed. Somebody came in and hit the market with sell orders and drove the price down. In addition to that, I think we're seeing some algorithmic trading kick in here. Everybody knows that when you move a security through certain technical levels, whether higher or lower, trading algorithms can kick in that are monitoring the market 24/7 and automatically take the price lower or higher, in whichever direction the price is being pushed. This is an issue not just for the gold market; it impacts many other commodities markets as well. These activities need to be addressed:  trading in times of very low liquidity and the impact of algorithmic trading. Other metals got hit at the same time as gold. I've looked at the minute-by-minute charts for July 19, and as gold was being hit, so was copper, zinc, silver, and the platinum group. So I'm not sure if this was a specific attack on gold, or an attack on the metals complex more generally, but nonetheless, it did drive gold to new lows. It ended up in a painful selloff for investors.

The gold market has bounced back since July. In August and September gold traded higher on increasing financial risk. In August, it was China. You all saw the crash in the Chinese stock market that resulted in panicked markets around the world, and gold outperformed in August as a perceived safe haven investment. In September, the U.S. Federal Reserve [the "Fed"] didn't raise interest rates, and since then we have started to see markets lose a bit of confidence in the Fed. This has been supportive of gold. The Fed built all these expectations around a rate increase, and then it held back, and that has been a good driver for gold. In August and September, we made up for much of what we lost in July. Since its July lows, gold is up about 6%. Our ETFs are also up: GDX [Market Vectors Gold Miners ETF] and GDXJ [Market Vectors Junior Gold Miners ETF] have posted gains since July.  While certainly not an indication of future results, gold has been gaining momentum over the last couple of months.   

Does this Rally Have Legs?

As we look forward, I would say that we are into what I call a short-covering rally. There are big short positions in the market, not just gold, but across many commodities. These short-covering rallies are typically driven by financial risks for gold. Historically, they haven't lasted in the longer term. In order for the current rally to last, I think we need to see more problems in the U.S. financial system, or with the U.S. economy, or have the market lose more confidence in what the Fed is doing. As we look forward, it is hard to give any clarity right now given that the Fed seems to dominate everything with this rate decision. It is a kind of wall: You can't see through it, and you can't see over it. Once the Fed finally raises rates, the market will likely look forward to say, how high will it raise rates? Will the Fed have to reverse course? Once we know how the market will react to an actual rate rise, we will be able to move on from there.  In my view, the Fed is in a box and will have a hard time doing anything that satisfies the market at this point. If the Fed doesn’t raise rates, I think confidence will erode further, and that would be good for gold. On the other hand, once the Fed does raise rates, it may create problems that increase financial risk.

How do you know if a fundamental event like a Fed rate hike is going to help drive gold in the longer term? It's very difficult to know whether it's another short-covering rally or a longer-term driver. It helps to look at the fundamentals as well as the technicals. 

If you were to run a five-year gold prince chart since mid-2013, you can see that gold has clearly been in a downward trend over the last two-and-a-half years. If you draw a trend line across the top and the bottoms of that gold chart, the top of that channel or trend is $1,230 an ounce. Given this, if we have a fundamental event, a macro event, that causes the gold price to trend through $1,230 an ounce, I would see that as a positive sign, and that might be a point at which we might think about calling an end to this bear market and looking forward to a better performance from gold longer term. By the same token, the bottom of that trend is $1,050. If gold fell through the bottom of that trend line, then obviously that would be negative. I tend to think that the bottom is fairly solid for gold for a couple of reasons. One is that the gold industry at $1,100 an ounce is making a little bit of money. At $1,000 an ounce, many mines are losing money. And as the gold price gets down to $1,000, I think you would see companies start to cut production at their unprofitable mines. 

Gold Price Range Since Mid-2013 

Gold Price Chart October 2015  

Source: Bloomberg  

Glencore is a significant example of this [represented 0% of Van Eck International Investors Gold Fund as of 9/30/15]. Glencore is the largest zinc producer in the world, and several days ago it announced a significant cut in its zinc production. The company is shutting down mines and taking zinc off the market. And most commodities markets reacted positively to Glencore cutting zinc production. I think this is the market coming to realize that these metals prices are not sustainable in the longer term. You can't afford to build new mines at current prices for gold and many other metals. The industry is suffering at current prices. The gold industry isn't in a Glencore-type zinc situation yet, but at $1,000 an ounce, it would be, and at that point, we would start to see significant closures, I believe, in the gold mining industry. 

A U.S. dollar chart is also worth looking at. Obviously, gold has historically had a strong negative correlation with the U.S. dollar. If you look at a 12-month chart, you can see a well-defined trend or a channel in which the dollar has traded since May of this year. We are currently near the bottom of that trend, so the dollar is a bit vulnerable in our view. If something happens to cause the dollar to fall out of that trend on the downside that would be positive for gold in our view, and would definitely get our attention. In the longer term, as I've said before, I believe that the U.S. has mismanaged fiscal and monetary policies for years now. I think it may end badly, and eventually we'll see financial risks come back into the system. If not now, then likely as we enter the next recession.

Dollar Rangebound Since May 2015

  USDollar Chart October 2015  

Source: Bloomberg

Gold Companies: Low Valuations and Efficiency

Moving on to gold stocks, we recently spent time in Colorado at the Denver Gold Show and the Precious Metals Summit. In our view, gold companies are continuing to become increasingly efficient. They're not able to reduce costs as significantly as they were a year or two ago, but they appear to be still finding ways to economize and spend capital more wisely. We believe valuations are still quite favorable. We're at cycle lows in terms of the valuations of many of these gold stocks right now. Given the low valuations and the efficiency of the companies, gold mining stocks looks attractive right now. The one thing we are missing is a higher gold price. 

Another theme that was discussed at Denver, and that been playing out for a while now is the likely impact of currency on cost savings. For gold companies that have operations around the world, for example Brazil or Canada or Australia, over the last couple of years, they have enjoyed probably about 20% in cost savings. A mine cost of $1,000 an ounce in Australia a couple of years ago is now costing around $800 an ounce today in U.S. dollar terms. The mine’s revenues are in U.S. dollars, but its costs are in local currencies. Recent weakness in currencies around the world has enabled many mines to reduce costs. And then when you get the additional savings from efficient mining methods or lower costs from suppliers or EPCM [Engineering, Procurement and Construction Management] contracts, we're seeing significant cost savings across the industry. Right now, we are looking at under $1,000 an ounce as the all-in cost on average for the industry.

Small- and Micro-Cap Activity Seems Promising

Lastly, I will talk about our gold strategy. In terms of portfolio holdings, we have not made many changes over the past quarter; we still have about a third of our holdings in juniors, and we remain underweight in the large-caps.   

We have had a couple of our small-cap companies taken over in the last quarter; two of our juniors: Romarco (RTRAF) and Gold Canyon (GDCRF). Romarco Minerals was taken out by OceanaGold (OCANF). OceanaGold is an Australian-based company, and this was a share deal, so we'll keep the OceanaGold when our Romarco changes into OceanaGold. Gold Canyon Resources is a development project, representing a significant gold deposit in Ontario. It was purchased by a company called First Mining Finance (XTSX:FF). Gold Canyon is not likely to get developed until we see higher gold prices, but if gold prices rise, it should become an attractive project, and that's why we continue to hold it in the portfolio. This is the kind of activity we are beginning to see: smaller companies like Gold Canyon that were out of money, out of luck, and with management that is willing to give up control. First Mining is really a land bank and it has adept management. They have been accumulating gold properties and other metals properties in this market, and they're willing to sit on these properties and wait for higher metals prices. This type of activity in these smaller companies is very encouraging to me, and is something that we want to be involved in.  [As of 9/30/15, the above-mentioned holdings were represented in the Van Eck International Investors Gold Fund as follows: Romarco Minerals 1.12% of the Fund's total net assets; OceanaGold, 0.0%; Gold Canyon Resources, 0.17%; and First Mining Finance, 0.0%. See more details on Fund holdings.]   

 

 

 

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Munis: Value Seen in Muni Bond Closed-End Funds http://www.vaneck.com/muni-nation-blog/value-seen-in-muni-bond-closed-end-funds-10-12-15/ Paul Mazzilli, Independent Fund Consultant and Senior Advisor for S-Network Global Indexes, shares his thoughts on the current attractiveness of municipal bond closed-end funds.

 

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Van Eck Blogs 10/12/2015 10:07:54 AM

Guest Paul Mazzilli, Independent Fund Consultant and Senior Advisor for S-Network Global Indexes, shares his thoughts on the current attractiveness of municipal bond closed-end funds:

  • Their ability to use leverage very effectively;
  • Wide discounts: share price dislocation versus net asset values;
  • The potential impact of the Puerto Rico debt crisis.

Watch Video The Hidden Value in Municipal Bond Closed-Ends Funds  

Watch Now | Video Transcript  

Video Transcript - The Hidden Value in Municipal Bond Closed-End Funds

TOM BUTCHER: I'm here with Paul Mazzilli, Senior Advisor to S-Network Global Indexes. ETF providers often seek to partner with innovative third-party index developers like S-Network. Using his extensive knowledge of the closed-end fund market, Paul was instrumental in the development of the S-Network Municipal Bond Closed-End Fund Index.

Paul, why may municipal bond closed-end funds be attractive for investors right now?

PAUL MAZZILLI:There are three attractive aspects of municipal closed-end funds, all of which are working together right now. The first, as a closed-end fund, they have a set investment, they're run by professional managers, and since they don’t having assets come in and out like an open-end mutual fund, they can buy less-liquid, higher-yielding securities like private placements, non-rated bonds, and they're not forced to sell bonds when people are seeking out liquidity. The next is a unique aspect of municipal closed-end funds. They have the ability to leverage. When a closed-end fund leverages, it will borrow against its own assets and buy more bonds. Here is a simple example: For a $100 million closed-end fund, the most its allowed to borrow is one-third leverage. It can borrow $50 million and buy another $50 million of bonds. The $100 million in assets becomes $150 million invested. If the underlying bonds are yielding 4%, the leveraged fund would yield 6%, approximately, before any incremental costs. You get almost a 50% increase given this ability to leverage one third.

The final thing is that after closed-end funds are issued, they trade as stocks in the marketplace. Based on demand and supply, they can trade rich to their value [at a premium], or they can trade cheap to their value [at a discount]. Right now, they're selling historically cheap at about a 10% average discount. The 25-year average discount is approximately 2%. So when you're selling at a 10% discount, if you're buying a dollar of assets for $0.90, if you had an asset yielding 10%, you're actually getting an 11.1% yield on the money you're putting up.

This fact that they're trading at a discount is happening right now because investors are fearful of the Fed raising rates. They are fearful of the equity markets, they've been raising cash since they've traded stocks, they're selling them, they're not looking at the underlying value, and it's created a real buying opportunity. The discount has one other final advantage: If bonds were to sell off, but you're buying at a 10% discount and it goes to a 5% discount, you actually could have a capital gain, even though the underlying bonds sell off.

BUTCHER: Is the prospect of debt restructuring in Puerto Rico going to have any impact on municipal bond closed-end funds?

MAZZILLI: Very good question. I think there are two different aspects. First, what does Puerto Rico do to the general municipal bond market? It is a significant issuer. It could have some impact in terms of how bonds trade. I personally believe a lot of that is already reflected in the market. Second is, what does it do to our index of municipal closed-end funds [S-Network Municipal Bond Closed-End Fund Index, CEFMX]? Our index currently has a very low exposure of about 0.43% to Puerto Rico. And that comes from two reasons. One: municipal closed-end funds tend to buy higher-quality funds, which would exclude Puerto Rico right now, or in the past. Two, we buy only national municipal closed-end funds, or our index represents only national municipal closed-end funds. And the national funds buy very little Puerto Rico exposure because they have a lot of other ways to diversify.

BUTCHER: Paul, thank you very much for joining me today.

MAZZILLI: Thank you.

 

Post Disclosure

Index returns are not Fund returns and do not reflect any management fees or brokerage expenses. Investors cannot invest directly in the Index. Returns for actual Fund investors may differ from what is shown because of differences in timing, the amount invested and fees and expenses. Index returns assume that dividends have been reinvested. The S-Network Municipal Bond Closed-End Fund Index is a rules based index intended to serve as a benchmark for closed-end funds listed in the US that are principally engaged in asset management processes designed to produce federally tax-exempt annual yield.

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Moat Investing: Volatility Fuels Turnover in Moat Indices http://www.vaneck.com/blogs/moat-investor-monthly-october-2015/ September was a difficult month for global equity markets and moats were not spared, however, international moats outperformed U.S.moats.

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Van Eck Blogs 10/7/2015 10:39:52 AM


 

For the Month Ending September 30, 2015

Performance Overview  

September was a difficult month for global equity markets and moats were not spared. Although the U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR) trailed the S&P 500® Index (-4.02% versus -2.47% ), the internationally focused Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN) outperformed the MSCI All Country World Index ex USA (-2.88% vs. -4.67%). The main market downer was the U.S. Federal Reserve’s decision to leave interest rates unchanged at its September Federal Open Market Committee (FOMC) meeting.


Domestic Moats: Everyone Loves Chocolate  

For U.S. moat-rated stocks, consumer discretionary and information technology firms were the top detractors from MWMFTR performance. In terms of individual constituents, asset manager Franklin Resources, Inc. (BEN US) was the worst performing constituent in MWMFTR for the month while chocolate producer Hershey Company (HSY US) led the positive performing constituents. Thirteen of 20 constituents were replaced in the Index on September 18, 2015, and this high turnover reflects the impact of increased market volatility throughout the third quarter.  

 

International Moats: Takeover Pressure Boosts Veda  

Financials weighed down MGEUMFUN in September, but strong relative performance from industrials, information technology, and consumer staples companies helped the Index outperform the broader international markets. In terms of individual companies, Australia’s Veda Group Limited (VED AU) soared on takeover pressure from Equifax, and Potash Corporation of Saskatchewan Inc. (POT CN) was the biggest detractor. As in the U.S., high turnover was also the result of MGEUMFUN’s September quarterly Index review. Roughly half of the 50-stock portfolio was replaced on September 18, 2015.  

 

  

(%) Month Ending 09/30/15

Domestic Equity Markets

 

International Equity Markets

 

(%) Month Ending 09/30/15

Morningstar
Wide Moat Focus Index (MWMFTR)

 
Top 5 Index Performers
Constituent Ticker Total Return
Hershey Company HSY US 3.28
Procter & Gamble Company PG US 2.86
Google Inc. Class A GOOGL US 2.02
ITC Holdings Corp. ITC US 1.96
Union Pacific Corporation UNP US 0.72

Bottom 5 Index Performers
Constituent Ticker Total Return
Blackbaud, Inc. BLKB US -5.15
Merck & Co., Inc. MRK US -7.49
Polaris Industries Inc. PII US -7.70
Applied Materials, Inc. AMAT US -7.78
Franklin Resources, Inc. BEN US -7.81

View MOAT’s current constituents

 

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

 
Top 5 Index Performers
Constituent Ticker Total Return
Veda Group Limited VED AU 31.41
Dongfeng Motor Group Co., Ltd. 489 HK 20.64
Genesis Energy Ltd GNE NZ 10.34
Eldorado Gold Corporation ELD CN 7.28
Rogers Communications Inc. RCI/B CN 6.14

Bottom 5 Index Performers
Constituent Ticker Total Return
Cameco Corporation CCO CN -9.22
Edenred SA EDEN FP -9.63
Grupo Televisa S.A.B TLEVICPO MM -10.98
LafargeHolcim Ltd. LHN VX -13.74
Potash Corporation of Saskatchewan Inc. POT CN -20.54

View MOTI’s current constituents

 
 
 

As of 09/18/15

Morningstar
Wide Moat Focus Index (MWMFTR)

 
Index Additions  
Added Constituent Ticker
Applied Materials Inc AMAT US
Autodesk Inc ADSK US
CSX Corp CSX US
Emerson Electric Co EMR US
Monsanto Co. MON US
Norfolk Southern Corp NSC US
Procter & Gamble PG US
Qualcomm Inc QCOM US
Time Warner Inc TWX US
Union Pacific Corp UNP US
United Technologies Corp UTX US
Walt Disney Co DIS US
Western Union Co WU US

Index Deletions  
Deleted Constituent Ticker
American Express Co AXP US
Amgen Inc AMGN US
Blackbaud Inc BLKB US
Exxon Mobil Corp XOM US
Google Inc A GOOGL US
Harley-Davidson Inc HOG US
Hershey Foods Corp HSY US
ONEOK Inc OKE US
Spectra Energy Corp SE US
The Williams Companies Inc WMB US
US Bancorp USB US
Varian Medical Systems Inc VAR US
VF Corp VFC US

View Latest MOAT Reconstitution Report
View MOAT’s list of current constituents
 

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

 
Index Additions  
Added Constituent Ticker
Banco Bilbao Vizcaya Argentaria SA BBVA SM
Bank of China Ltd 3988 HK
BOC Hong Kong (Holdings) Ltd. 2388 HK
Brambles Industries Ltd BXB AU
Burberry Group BRBY LN
Cameco Corp CCO CN
CapitaLand Mall Trust REIT CT SP
Carrefour SA CA FP
Centrica CAN LN
China Construction Bank Corp 3311 HK
Credit Agricole SA ACA FP
Edenred EDEN FP
Grupo Televisa SAB CPO TLEVICPO MM
ICICI Bank Ltd ICICIBC IN
Industrial and Commercial Bank of China 1398 HK
Ioof Hldgs Ltd IFL AU
Johnson, Matthey JMAT LN
Kering KER FP
Platinum Asset Management Limited PTM AU
Power Corporation of Canada POW CN
Power Financial Corp PWF CN
Schneider Electric SE SU FP
Sigma Pharmaceuticals Limited SIP AU
United Overseas Bank UOB SP

Index Deletions  
Deleted Constituent Ticker
America  Movil  SAB de CV L AMXL MM
ANZ Banking Group ANZ AU
Banco de Chile CHILE CI
Bank of Nova Scotia Halifax BNS CN
BG GROUP PLC BG/ LN
Contact Energy Ltd CEN NZ
CSL Ltd CSL AU
Dongfeng Motor  Group Co. Ltd. 489 HK
Eldorado Gold Corp ELD CN
Genesis Energy Limited GNE NZ
Iluka Resources Ltd ILU AU
Kingfisher KGF LN
National Australia Bank Ltd NAB AU
National Bank of Canada NA CN
Nestle SA Reg NESN VX
Precinct Properties New Zealand Ltd PCT NZ
Rogers Communications  Inc B NV RCI/B CN
Sky Network Television Limited SKT NZ
Slater & Gordon Limited SGH AU
Sun Pharmaceutical Industries Ltd SUNP IN
Tata Motors Ltd TTMT IN
Veda Group Limited VED AU
Westpac Banking Corp WBC AU
Wipro Ltd WPRO IN

View Latest MOTI Reconstitution Report
View MOTI’s list of current constituents

 
 


 
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Munis: Video Viewpoint with Colby http://www.vaneck.com/muni-nation-blog/video-viewpoint-with-colby-10-06-15/ Watch Jim's latest muni videos on the Fed's decision to postpone a rate hike, Puerto Rico's declaration, and his 4Q'15 outlook.

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Van Eck Blogs 10/6/2015 12:18:32 PM

Take a look at my latest video commentaries: 

Watch Video Municipal Bonds: Fed's September Hike Delay and Puerto Rico Default  

In this first video I discuss the Fed's decision to hold rising interest rates and the impact on munis, as well as Puerto Rico's declaration.

Watch Now | Video Transcript  

Watch Video Munis: 4Q'15 Outlook  

In this second video I provide my fourth quarter outlook and expectations for municipal market performance.

Watch Now | Video Transcript  

Video Transcript - Municipal Bonds: Fed's September Hike Delay and Puerto Rico Default

 

TOM BUTCHER: The Federal Open Market Committee (FOMC) has decided to do nothing with interest rates. How will this affect the muni market going forward?

JAMES COLBY: I think the market is going to be disappointed. We've been waiting for two-and-a-half years for the Federal Reserve (Fed) to make a move. For reasons that are probably pretty clear, they've chosen not to adjust rates. Consequently the municipal market has been on hold for the better part of six months. Flows either have flat lined or have been slightly negative into investments such as muni ETFs and mutual funds. Investors are looking for yield and an opportunity to invest. They're looking for something different and the evidence indicates that perhaps they are looking at other asset classes. Hopefully, in the fourth quarter of this year investors will revisit munis and see the value that is inherent in muni bond investments. I daresay that disappointment will prevail in the short run.

BUTCHER: How can municipal bonds provide investors with stability in a rising interest rate environment?

COLBY: History suggests that if you look back at the asset class in terms of its performance, i.e., its long-term performance versus other asset classes, munis are far less volatile over several different interest rate cycles compared to corporates or equities, for example. The reason for this is perhaps twofold. Number one is the structure of municipal bonds. Bonds tend to be callable and have relatively short calls; therefore their price doesn't vary in a significant way over time. Secondly, individuals own the majority of muni bonds and they often hold onto these bonds and don't sell them, whether they are held as individual securities or through packaged investments such as ETFs or mutual funds. Very few bonds that get issued in this marketplace trade much beyond three, four, or five years from the time of issuance. There is a degree of stability in the municipal marketplace. It's something that investors should consider when deciding how to allocate investments, redistribute volatility, and mute the impact of interest rate changes, which everyone is anticipating.

BUTCHER: Turning to Puerto Rico, do you have any comments on its declaration that debt restructuring needs to take place?

COLBY: It's a proclamation in the sense that the Commonwealth of Puerto Rico now is admitting to the world something that we've all known for some time: They are at best going to struggle to meet their obligations. Presently the Commonwealth likely has no ability to meet its obligations without significant changes, which might be changes to their constitution or changes promulgated in Washington, D.C. to give them the authority and ability to affect restructuring. There is talk right now between one of the prime issuers in the Commonwealth and some significantly large bondholders about restructuring a particular obligation, the electric authority. The rest of the issuers in the Commonwealth have yet to undertake such conversations. It’s unclear exactly how that's going to go. The declaration that came out deals with that. It's a statement that we're to expect negotiations to take place over the next many months; the outcome will be up in the air and uncertain.

BUTCHER: It’s purely a declaration then.

COLBY: Exactly.

BUTCHER: Jim, thank you very much.


Video Transcript - Munis: 4Q'15 Outlook

 

TOM BUTCHER: What is your fourth quarter outlook for munis?

JAMES COLBY: My outlook is very healthy for the municipal marketplace. Why do I say that? Many of the factors that made munis attractive at the end of 2014 are still in place right now. They include certain aspects of the municipal market at large. I think the lower investment-grade and high-yield investments are still very attractively priced relative to the highest credit quality offerings in the municipal marketplace.

Also, one needs to compare munis to other asset classes. At Van Eck we've been looking at the relative value of municipals on a taxable-equivalent basis compared to other asset classes, and to us munis continue to stack up in providing superior income return to the investor. That has been the case for quite some time. I think the attractiveness of munis has been overshadowed by concerns about the economy and what the Federal Reserve is going to do.

Going into the fourth quarter, I believe it's very likely that we'll overcome some of these concerns and focus on positioning portfolios, and investing cash for the remaining three months of the year to generate income and performance for investors who have been otherwise occupied with other concerns in the economy and around the world.

  jim_Colby_signature  

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Gold Bear Market Continues Despite Global Economic Concerns http://www.vaneck.com/blogs/gold/gold-bear-market-continues-september-2015/ In September, gold bullion and gold shares continued to consolidate above the July lows of the year; bullion ended the month at $1,115.07.

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Van Eck Blogs 10/5/2015 12:00:00 AM

Download Commentary PDF  

For the Month Ending September 30, 2015

Gold Bullion and Shares Post Small Losses

Gold bullion and gold shares continued to consolidate above the July lows of the year. Gold traded in a $1,100 to $1,150 per ounce range during September, ending the month with a $19.73 (1.7%) loss at $1,115.07 per ounce. Gold stocks also saw small losses, with the NYSE Arca Gold Miners Index1 down 2.3% and the Market Vectors Junior Gold Miners Index2 declining 3.1%.

After spending much of the past year informing the market of its plans to raise rates, on September 17 the Federal Reserve (Fed) once again put it off until a later, unspecified time. Fed Chair Janet Yellen said "the economy has been performing well", but cited concern over "global economic and financial developments." The Fed lowered its growth and inflation forecasts. Gold responded positively by trending higher, topping out at $1,156 per ounce on September 24.

We attended the 2015 Precious Metals Summit and Denver Gold Forum, which attracts most of the gold companies in our investment universe. The Precious Metals Summit features smaller development companies, explorers, and a few producers. Many companies are shepherding cash and slowing development to ride out the current low gold prices. Lower drilling costs may enable companies to do more with less and we are seeing more thorough and thoughtful planning. We are also seeing companies able to take advantage of the weak market. Companies with attractive properties that have run out of time and capital are becoming willing sellers. Others who have been through these cycles and have better access to capital and expertise, are picking up such properties in preparation for an eventual turnaround in the market.

Somber Mood Dampens Denver Gold Forum

The Denver Gold Forum was not as vibrant as in past years, reflecting the current mood in the market. Austerity was an overriding theme as companies explained how they continue to rein in costs and outlined their plans should gold prices fall further. While no one expects lower prices, contingency plans for prices as low as $900 per ounce were shown. The industry generates positive cash flow at current prices; however, roughly 25% of production becomes unprofitable at $1,000 per ounce, at which point we would expect to see closures. Many regions are seeing a positive currency effect. Currencies at multi-year lows in Canada, Australia, Brazil, and elsewhere effectively reducing costs in U.S. dollar terms, making mines in those areas more profitable. The standouts at this conference were those able to develop mines at current gold prices. Some companies have been able to combine the deflation in development costs with smarter engineering plans and capital deployment to build projects that are better placed than those envisioned and built several years ago at higher gold prices. Examples include developers Roxgold Inc. (0.8% of Fund net assets as of 9/30/2015), Torex Gold Resources Inc. (2.4% of Fund net assets), and Guyana Goldfields Inc. (2.2% of Fund net assets) and mid-tiers Agnico-Eagles Mines Ltd. (7.5% of Fund net assets), B2Gold Corp. (5.2% of Fund net assets), and Randgold Resources Ltd. (5.8% of Fund net assets). The royalty companies also had an impressive showing, as royalties have evolved from niche to mainstream financing.

This is a Cyclical not Secular Bear Market

Given the depth and duration of the gold bear market, many must wonder whether this is the beginning of a secular bear market measured in decades rather than a cyclical bear market that is measured in years. The last secular bear market lasted 21 years from 1980 to 2001. There were a number of cyclical bull markets after 1980, however the longer-term trend was downward for gold. Several major macroeconomic drivers drove the secular bear market. In the early eighties, the Fed raised rates to combat inflation. While this initially caused a difficult recession, it set in motion a long period of disinflation and price stability in the economy. The Reagan presidency further set the economy, in our view, on a positive trajectory with tax cuts and reforms that limited or reduced the regulatory burden on business. The U.S. won the Cold War, with peace and commerce breaking out in many regions of the globe. With strong leadership and prescient policies, there was ample generation of wealth, tail risk3 diminished, and investment demand for gold remained weak.

In our opinion, the conditions that supported that secular bear market could not be more different than today’s. In fact, we would argue they are polar opposites. The stable disinflation that prevailed for over two decades ended with the credit crisis. Since 2008, deflationary concerns have dominated monetary policy decisions. This has intensified with the slowdown in China and commodity weakness. Economic weakness has been met with policies of taxation and austerity. Increasing regulation of finance, health care, and energy capture the headlines, while insidious smaller scale regulations continue to accumulate across most industries. The "Cold War" has returned with proxy battles breaking out in the Middle East. Failed states, refugees, and violence appear to be trending in the wrong direction. The U.S. has seen very limited fallout from the weak global economy and political strife; hence the U.S. dollar and U.S. assets are seen as possible safe havens for now. However, we believe this is a cyclical occurrence for gold, not a secular trend.

The Fed's chronic reluctance to raise rates suggests that it sees the economy as so fragile that it cannot withstand a series of relatively miniscule 25 basis point increases. Quantitative easing and near-zero rate policies have failed to deliver the stronger GDP growth predicted by the Fed. We believe businesses do not want to invest when they do not know the impact of a promised rate hike that never seems to materialize. Yet, these failed policies have been copied by central banks around the world with no better results: Perpetually changing expectations and outlook risks losing market confidence. After six years of economic expansion and a bull market that took the S&P 5004 Index to new highs, it appears that rates could remain near zero into the next recession. The multi-generational low in interest rates has created misallocations of wealth that could bring a rash of unintended consequences that become apparent in the next economic downturn. Artificially low rates incentivize risk-taking, redistribute income to those with financial assets, and distort the allocation of credit. Examples include ballooning levels of student debt, auto loans, margin debt, high-yield debt, commercial real estate, and luxury residential construction.

Brazil is the First to Fall

The first significant economy to fall into recession in the current weak global economy is Brazil. It is reminiscent of the U.S. "dot-com bubble"5 in 2000, when a fall in technology stocks and business activity brought a recession. Around the same time, accounting scandals were revealed and the Enron debacle was exposed. The U.S. dollar embarked on a bear market and the gold bull market ensued. The contemporary Brazilian economy is driven more by commodities than technology, but the result is the same. The commodities bust triggered economic weakness and recession. A massive graft scandal at state-run oil giant Petrobras has sent shock waves through the rest of the economy. S&P cut the nation's debt rating to junk with a negative outlook. Since 2011, the Brazilian real has been in a bear market, and the market has worsened over the past year. The gold price in Brazilian real terms is at all-time highs, gaining 40.7% so far this year.6  

Perhaps the Fed’s trepidation with raising rates is justified. Maybe Brazil is the first domino to fall. Is Japan or China next? Will the U.S. economy be the last to topple? Brazilians have found gold to be a prudent store of wealth. Perhaps it is not too soon for those in many other countries to think about ways of preserving wealth should mainstream investments begin to falter.

INIVX Performance

The Van Eck International Investors Gold Fund Class A shares (INIVX) returned -4.41% for the one-month period ending September 30, 2015 (excluding sales charge), while the NYSE Arca Gold Miners Net Total Return Index (GDMNTR) returned -2.28% for the same period. The Fund is actively managed and invests mainly in gold-mining equities, and is managed by a specialized investment team that conducts continuous research to assess mining efficiencies and opportunities. View additional performance data here.                     

Average Annual Total Returns (%) as of September 30, 2015

  1 Mo* 1 YR 5 YR 10 YR LIFE
(1/1/56)
INIVX at NAV -4.41 -34.45 -21.83 -0.22 8.14
INIVX at Max 5.75% sales charge -9.94 -38.19 -22.75 -0.81 8.03
GDMNTR Index -2.28 -35.32 -23.60 -6.09 --

*Monthly returns are not annualized.

Expenses: Class A: Gross 1.47%; Net 1.45%. Expenses are capped contractually until 05/01/16 at 1.45% for Class A. Caps exclude certain expenses, such as interest.

The tables present past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect applicable fee waivers and/or expense reimbursements. Had the Fund incurred all expenses and fees, investment returns would have been reduced. Investment returns and Fund share values will fluctuate so that investor's shares, when redeemed, may be worth more or less than their original cost. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Index returns assume that dividends of the Index constituents in the Index have been reinvested. Please call 800.826.2333 or click here for performance current to the most recent month end.  

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Munis: Back to Fundamentals http://www.vaneck.com/muni-nation-blog/back-to-fundamentals-09-30-15/ Take a deep breath and tune out the noise of recent market volatility and chatter about the non-action taken by the Federal Reserve (Fed).

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Van Eck Blogs 9/29/2015 10:58:30 AM September 30, 2015

Take a deep breath and tune out the noise of recent market volatility and chatter about the non-action taken by the Federal Reserve (Fed). To me, the simple message that emerges is that over the long term (10 years in the example below) the municipal asset class has touched what I feel are two very important demands of many investors: low volatility and comparatively attractive returns, particularly on a taxable equivalent basis. Couple those elements with historically low default rates1 and one might say, “Oh yeah, munis have been generally steady, as advertised.”

As we enter the final quarter of the year and put behind us a Summer of Discontent, in which China devalued its currency, Greece tiptoed on the precipice of default, and the U.S. economic recovery continued enigmatically while investors hung upon every syllable the Fed uttered, it occurs to me that investors may want to revisit the potential benefits of the municipal asset class.

If doubt about the economy and movement of interest rates is creating uncertainty for investors, munis should be capable, in my opinion, of helping the undecided chart a near-term strategy. If comparative returns and lower relative volatility are important elements in one’s portfolio design, this chart might be helpful in providing one of those “Ah…ha” moments of discovery. Let’s get back to fundamentals while the rest of the world waits to see what happens.


 

Fixed Income and Equity Index Comparison of Total Return and Risk Over the Past 10 Years

Chart  

  jim_colby_signature  

Post Disclosure
 

Source: FactSet. As of August 31, 2015. Indices are unmanaged and are not securities in which an investment can be made. See below for index descriptions and an explanation of material differences between them. Past performance is not indicative of future results. Standard deviation is the statistical measure of the historical volatility of a portfolio. *Tax-equivalent return is calculated using the 39.6% highest effective federal tax rate. Results would have been substantially lower using lower tax brackets.

The chart shows the return of the Barclays Municipal Bond Indices on a tax-equivalent basis and compares such returns and standard deviations to other asset classes as represented by indexes. Fixed income investments have interest rate risk, which refers to the risk that bond prices generally fall as interest rates rise and vice versa. U.S. government bonds are guaranteed by the full faith and credit of the United States government. Municipal and corporate bonds are not guaranteed by the full faith and credit of the United States and carry the credit risk of the issuer. Municipal bonds are exempt from federal taxes and often state and local taxes. U.S. Treasuries are exempt from state and local taxes, but subject to federal taxes. Other securities listed are subject to federal, state and local taxes. Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. Prices of bonds change in response to factors such as interest rates and issuer’s credit worthiness, among others. Investing in smaller companies involves risks not associated with investing in more established companies such as business risk, stock price fluctuations, and illiquidity.

Van Eck does not provide tax advice or guidance. You should consult your own tax professional about the tax consequences of a particular investment.

The indices listed are unmanaged and do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in any Fund. An index’s performance is not illustrative of any Fund’s performance. Indices are not securities in which investments can be made.

1Source: Moody’s Investors Services; “U.S. Municipal Bond Defaults and Recoveries, 1970-2013”

Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt municipal bonds with a maturity of at least one year. The AAA and BBB indices are sub-sets of this broader index. Barclays U.S. Corporate High Yield Index is the Corporate component of the Barclays U.S. Credit index. The index includes publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality requirements. To qualify, bonds must be SEC-registered. Barclays U.S. Credit Index The index measures the performance of investment grade corporate debt and agency bonds that are dollar denominated and have a remaining maturity of greater than one year. Barclays High Yield Municipal Bond Index is considered representative of the broad market for non-investment grade, tax-exempt bonds with a maturity of at least one year. Barclays U.S. Treasury Index is the U.S. Treasury component of the Barclays U.S. Government Index. The index includes public obligations of the U.S. Treasury with a remaining maturity of one year or more. S&P 500® Index is widely regarded as the best single gauge of the U.S. equities market, including 500 leading companies in major industries of the U.S. economy. MSCI EAFE Index is comprised of the MSCI country indexes capturing large- and mid-cap equities across developed markets in Europe, Australasia and the Far East, excluding the U.S. and Canada. MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of emerging markets.

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Spin-Off in the Spotlight: Cheung Kong Property Holdings Ltd. http://www.vaneck.com/blogs/spundamentals/ Cheung Kong Property Holdings Ltd. was spun off from CK Hutchison Holdings Ltd. in June 2015, the latter being the result of a merger between Cheung Kong (Holdings) Ltd. and its publicly traded subsidiary Hutchison Whampoa Ltd.

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Van Eck Blogs 9/25/2015 10:55:45 AM

Written by Horizon Kinetics' Research Analysts and CFA Charterholders Ryan Casey and Salvator Tiano, who bring more than 20 years of combined industry experience to their research roles focusing on domestic and international spin-offs.                      

Spin-Off Company: Cheung Kong Property Holdings Ltd. (Ticker: 1113 HK)
Parent Company: CK Hutchison Holdings Ltd. (Ticker: 1 HK)

Spin-off Date: June 2, 2015
GSPIN Index Inclusion Date: July 1, 2015

Cheung Kong Property Holdings Ltd. (“Cheung Kong Property”) (Ticker: 1113 HK) was spun off from CK Hutchison Holdings Ltd. (Ticker: 1 HK) in June 2015, the latter being the result of a merger between Cheung Kong (Holdings) Ltd. and its publicly traded subsidiary Hutchison Whampoa Ltd. The spin-off of Cheung Kong Property separates the real estate assets of Cheung Kong Holdings and Hutchison Whampoa from the remaining conglomerate and will create a pure-play real estate business that we believe should garner a market valuation more reflective of its asset value. The businesses of CK Hutchison Holdings will span utilities, transportation assets, telecommunications, port services, and energy. We expect Li Ka-shing, the richest man in Asia, to continue to own 30% of both entities.

Cheung Kong Property Holdings operates under four segments: property sales, property rentals, hotels and serviced suites, and property and project management. The first segment derives its revenue from the development and sale of real estate, particularly residential properties. The property rental segment generates stable and recurring income from a portfolio of premium commercial real estate located primarily in Hong Kong. Hotels and serviced suites comprise properties in Hong Kong, China, and the Bahamas that are held for short-term leases. The company also owns equity interests in a number of publicly traded real estate investment trusts.

At the time of the spin-off, the company’s real estate portfolio was appraised at a market value of HKD420 billion,1 yet it is recorded on the balance sheet at a value of only HKD275 billion. By making this adjustment, one finds that the current share price represents a 35% discount to net asset value, thus allowing investors to purchase this real estate portfolio at an attractive price and potentially benefit from the value created by future development projects. Though the headwinds facing the Chinese economy are real and may well impact fundamentals for the China- and Hong Kong-based real estate assets, we believe the discount to net asset value at which the shares currently trade appears excessive.

1As appraised by various real estate brokers, including DTZ.

As of August 31, 2015, Cheung Kong Property Holdings Ltd. represented 1.2% of SPUN's total net assets.

View Current SPUN Fund Holdings  

View Current GSPIN Index Holdings  

 

Spin-Off in the Spotlight provides spin-off research insights from Horizon Kinetics, LLC. The firm has produced spin-off research since 1996, and began covering international spin-offs in 2010. Horizon Kinetics Global Spin-Off Index(GSPIN) is the underlying index of Market Vectors® Global Spin-Off ETF (SPUN), which was launched in June 2015. GSPIN tracks the performance of listed, publicly-held spin-offs that are domiciled and trade in the U.S. or developed markets of Western Europe and Asia.

SPUNMarket Vectors Global Spin-Off ETF

Capture the Full Potential of Spin-Offs Globally  

Key Features:

  • Spin-off investing is an established event-driven strategy
  • Global index coverage
  • Early, long-term stock positions allow index to capture full spin-off cycle

SPUN Details

Fund Ticker SPUN  
Commencement Date 6/09/2015
Gross Expense Ratio1   0.62%
Net Expense Ratio1   0.55%
Distribution Frequency Annually
Index Ticker GSPIN  
Index Rebalancing Quarterly

1Expenses for SPUN are capped contractually at 0.55% until at least 2/01/17. Cap excludes certain expenses, such as interest.

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Fed's Rate Delay is Disappointing http://www.vaneck.com/blogs/van-eck-views-september-24-2015/ September 24, 2015: The Fed’s decision was a bit of a surprise to us. We have been monitoring U.S. labor market statistics, and unemployment has been falling steadily. We believe that this was strong enough data for the Fed to start its interest increase cycle...

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Van Eck Blogs 9/24/2015 2:39:26 PM

Thursday, September 24, 2015

Watch Video CEO Jan van Eck: Fed's Rate Delay is Disappointing  

“The Fed’s decision was a bit of a surprise to us, because we had been looking at the U.S. labor market statistics. Unemployment has been falling, and we thought that this was good enough data for the Fed to start its interest rate increase cycle.”

Watch Now  

Video Transcript

Tight U.S. Labor Supports a Rate Increase

TOM BUTCHER: Jan, what is your reaction to the recent decision by the Federal Open Market Committee to hold off on raising interest rates? And what kind of effect is this decision going to have on gold and oil?

JAN VAN ECK: I think that the Fed’s decision was a bit of a surprise to us, because we had been looking at the U.S. labor market statistics. Unemployment has been falling, and we thought that this was good enough data for the Fed, which seems to be data-driven, to start its interest rate increase cycle, which it has been communicating to markets now for many months.

Oil Prices Unaffected

VAN ECK: We don't think the Fed’s decision to keep rates unchanged affects oil prices at all, because we're in a supply-driven commodity cycle, meaning what caused commodity prices to fall over the past several years has been a significant oversupply in global markets. Although this was not always apparent, it's clearly turned out that way. And it usually takes an extended period of time for companies to stop spending money on exploration and for production to actually start tailing off, which it has started to do. I believe there needs to be a lot of pain felt by the commodity markets in order for these oversupply cycles to work themselves out. The Fed’s inaction brought virtually no surprises on the oil side.

Gold Rallied Strongly

VAN ECK: Gold rallied quite strongly in the wake of the Fed’s decision. For gold, lower interest rates are good, because gold competes with, if you will, money in the bank. If money in the bank is paying high interest rates, then that is typically negative for gold. I think there is growing concern that the developed markets may be stuck in a stagnant growth cycle, and there are questions about what central banks would do to help stimulate economies if we were to slide into a global recession. I think this pessimism is helping gold quite a bit right now, but we will have to see. One last point, this is seasonally a good time for gold, as historically the August to December time period has tended to be positive for gold.

2015 is a Waterfall Year for China

BUTCHER: What about two other themes that we've been discussing recently: China and the emerging markets?

VAN ECK: 2015, thus far, has been a waterfall year for China and its interaction with the rest of the world. For its previous 20 years of growth, China had been cut off from global financial markets. China's trade exploded after 2001, when it joined or acceded to the WTO, the World Trade Organization. But the financial markets are basically capital controls in terms of limiting the convertibility of the renminbi and other currencies. We think that China is in a 24-month cycle of opening up its capital account, and this has started to impact global markets, especially as we saw in the summer of 2015. For example, small changes such as a 3-4% devaluation in China's currency had a dramatic ripple effect throughout the world's financial markets. In general, China is decreasing its interest rates over a multi-year cycle, and the Fed is likely to increase interest rates in the near term. This might cause a bit of a seismic mismatch of policies over the next several years. What is interesting is that China is decreasing interest rates at the same time that it is liberalizing its financial markets. So we have these multiple crosscurrents. The point we make is that financial markets, in my view, don't like uncertainty, and that's what we’ve seen coming out of China this year. At the same time, I do think that China's central bank doesn't mind surprising markets. It doesn't tend to pre-announce or to communicate its actions ahead of time, and the world should get used to that.

EM Have Been Expecting Higher U.S. Rates

BUTCHER: What about emerging markets?

VAN ECK: Overall I believe that emerging markets have been reacting to concerns about China’s slowing growth. They have also been anticipating rising interest rates or tighter monetary policy in the United States, because some of their funding is in U.S. dollars. The question is: Is this cycle over or not? We think that emerging markets have become extremely attractive now, especially emerging markets equities. They probably led the world in the recent bottoming out cycle, so we believe it's a good time to look at emerging markets going into 2016.

BUTCHER: Wonderful. Thank you very much Jan.

 
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Moat Investing: Media Sector Not So Darling in August http://www.vaneck.com/blogs/moat-investor-monthly-september-2015/ Negative performance plagued global equity markets in August, and our moat-focused Indices were no exception. In the U.S., moats were hurt by the media industry sell-off on the back of reports of ESPN subscriber losses, which exerted price pressure on the global media industry.

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Van Eck Blogs 9/21/2015 2:13:37 PM


For the Month Ending August 31, 2015

Performance Overview  

August was a difficult month for global equity markets. Both moat-focused Indices trailed their respective benchmarks: the U.S.-oriented Morningstar® Wide Moat Focus IndexSM trailed the S&P 500® Index (-6.96% versus -6.03% ), and the harder hit internationally focused Morningstar® Global ex-US Moat Focus IndexSM trailed the MSCI All Country World Index ex USA (-8.66% vs. -7.64%).


Domestic Equity Markets: Media Slumps Amid Market Sell-Off  

American Express (AXP) was August's sole positive performing constituent in the Morningstar® Wide Moat Focus IndexSM (MWMFTR). AXP remained in the black despite its recent struggles, which were linked to the rising U.S. dollar and the company's split with fellow wide moat-rated firm Costco (COST). MWMFTR’s exposure to media companies Discover Communications (DISCA) and Twenty-First Century Fox (FOXA) was the largest detractor from performance for the month. The media industry sell-off was driven, in part, by reports of ESPN subscriber losses (ESPN is owned by wide moat-rated firm Disney (DIS)), which exerted price pressure on the industry as a whole.


International Equity Markets: Down, Down Under  

Several sector exposures in the Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN) hurt performance in August, most notably financials; Australian and Asian banks were significant detractors. Strong performance from Indian pharmaceutical firm Sun Pharmaceutical Industries (SUNP) barely mitigated the negative impact Indian companies had on MGEUMFUN. Materials sector firms and Canadian and Hong Kong companies were also a drag on Index performance. International media companies did not escape the “ESPN Effect,” as New Zealand media firm SKY Network Television (SKT) also fell significantly during the month.

 

(%) Month Ending 08/31/15

Domestic Equity Markets

 

International Equity Markets

 

(%) Month Ending 08/31/15

Morningstar
Wide Moat Focus Index

 
Top 5 Index Performers
Constituent Ticker Total Return
American Express Company AXP 0.87
Google Inc. Class A GOOGL -1.47
Spectra Energy Corp SE -2.75
Hershey Company HSY -3.00
Exxon Mobil Corporation XOM -4.12

Bottom 5 Index Performers
Constituent Ticker Total Return
Williams Companies, Inc. WMB -8.16
Franklin Resources, Inc. BEN -10.91
Amgen Inc. AMGN -13.65
Discovery Communications, Inc. Class A DISCA -19.44
Twenty-First Century Fox, Inc. Class A FOXA -20.59

View MOAT’s current constituents

 

Morningstar
Global ex-US Moat Focus Index

 
Top 5 Index Performers
Constituent Ticker Total Return
Sun Pharmaceutical Industries Limited 524715 5.24
Contact Energy Limited CEN 2.84
Canadian Imperial Bank of Commerce CM 1.16
Genesis Energy Ltd GNE -0.21
Banco de Chile CHILE -1.63

Bottom 5 Index Performers
Constituent Ticker Total Return
Ambuja Cements Limited 500425 -13.94
Australia and New Zealand Banking Group Limited ANZ -17.49
Sun Hung Kai Properties Limited 00016 -17.52
Veda Group Limited VED -17.64
SKY Network Television Limited SKT -21.03

View MOTI’s current constituents

 
 
 

As of 06/19/15

Morningstar
Wide Moat Focus Index

 
Index Additions
Added Constituent Ticker
Google Inc Class A GOOGL
ITC Holdings Corp ITC
Berkshire Hathaway Inc Class B BRK.B
The Hershey Co HSY
American Express Co AXP
Blackbaud Inc BLKB
Varian Medical Systems Inc VAR
Twenty-First Century Fox Inc Class A FOXA
U.S. Bancorp USB
Franklin Resources Inc BEN

Index Deletions
Deleted Constituent Ticker
Emerson Electric Co EMR
Baxter International Inc BAX
Express Scripts Holding Co ESRX
Core Laboratories NV CLB
General Electric Co GE
Philip Morris International Inc PM
Schlumberger NV SLB
International Business Machines Corp IBM
Gilead Sciences Inc GILD
W W Grainger Inc GWW

View Latest MOAT Reconstitution Report
View MOAT’s list of current constituents

 

Morningstar
Global ex-US Moat Focus Index

 
Index Additions
Added Constituent Ticker
Slater & Gordon Ltd Ord SGH
Iluka Resources Ltd Ord ILU
Westpac Banking Corp Ord WBC
Svenska Handelsbanken SHB A
National Australia Bank Ord NAB
Millicom Intl Cellular Sa Sdr MIC SDB
State Bank Of India Ltd Ord 500112
Koninklijke Philips Nv Ord PHIA
Sun Pharmaceutical Industries Ord SUNP
Wipro Ltd Ord 507685
Toronto Dominion Bank Com TD
Contact Energy Ltd Ord CEN
Nestle Sa Ord Reg NESN
Commonwealth Bank Australia CBA
Csl Ltd Ord CSL
Bg Group Plc Ord BG
Wharf Holdings Ltd Ord 4
Genesis Energy Ltd Ord GNE
Unilever Nv Ord Cert UNA
Bank Of Nova Scotia Com BNS
Banco De Chile Sa Ord CHILE
Capitacommercial Trust Reit Unit CCT

Index Deletions
Deleted Constituent Ticker
Banco Santander Brasil Sa Units SANB11
Cpfl Energia Sa Ord CPFE3
Telefonica Brasil Sa Pfd VIVT4
E On Se Ord EOAN
Banco Bradesco Sa Ord Pfd BBDC4
Itau Unibanco Hldg (Multiplo) Pfd ITUB4
Catamaran Corp Com CTRX
Peyto Exploration & Development PEY
Suncor Energy Inc Com SU
Banco Santander Sa Ord SAN
China Shenhua Energy Co Ltd Ord H 01088
Industrial & Commercial Bk China 01398
China Construction Bank Ord H 00939
Cia Cervecerias Unidas (Ccu) Ord CCU
Rexam Plc Ord<