Van Eck Blogs http://www.vaneck.com/Templates/PageLayout_Special_rwd.aspx?pageid=12884903011?blogid=2147483856 Insightful, Weekly Commentary on the Municipal Bond Markets 2016-07-23 en-US Energy Resilient, Gold Shines in 2Q http://www.vaneck.com/blogs/natural-resources/energy-resilient-gold-shines-july-2016/ Van Eck Blogs 7/21/2016 12:00:00 AM

2Q Hard Assets Strategy Review and Positioning

In the second quarter of 2016, the hard assets strategy's positions in Gold and Energy were, in particular, significant contributors to positive performance, with Gold leading Energy. Within the Energy sector, positive performance stemmed mainly from the Oil & Gas Exploration & Production (E&P) sub-industry; within this sector, only the Oil & Gas Refining & Marketing sub-industry detracted from performance, but only minimally. Only three other sub-industries detracted from performance during the second quarter, and, likewise minimally: Precious Metals and Minerals; Electrical Components & Equipment; and Fertilizers & Agricultural Chemicals.

2Q Performance Contributors

The top five contributing companies in 2Q came from Gold and the Energy sectors. The top two contributors were gold mining companies. The fact that gold miners continued to perform so well in 2Q provides, we believe, further confirmation that they came into 2016 considerably healthier than they had been for quite a while and truly deserved a valuation re-rating.

Agnico Eagle Mines1 benefited from strong operational performance, a continued focus on cost reduction, and engineering-related restructuring. Barrick Gold2 benefited from the restructuring it has been undertaking and its leverage to gold prices.

Within the Energy sector, Oil & Gas Exploration & Production company Newfield Exploration3 benefited from successful drilling results in central Oklahoma's STACK play; Oil & Gas Equipment & Services company Halliburton4 rose on the back of firmer oil prices and an uptick in drilling; and, Oil & Gas Exploration & Production company Cimarex Energy5 benefited from successful drilling in the Delaware Basin.

2Q Performance Detractors

The hard assets strategy's five biggest individual performance detractors came from the Fertilizers & Agricultural Chemicals and Diversified Metals & Mining sub-industries, and the Energy sector. CF Industries Holdings6 was hit by concerns around both Chinese production (which continued unabated) and the value of the Renminbi, in addition to concerns around nitrogen prices. Glencore7 suffered from profit taking after a successful first quarter and a moderation in key commodity prices. Valero Energy (sold by the strategy during the quarter) suffered from the rebound in crude oil prices. Oil & Gas Storage & Transportation companies Scorpio Tankers8 and Golar LNG9 suffered, respectively, with lower tanker rates and a softening in the global liquefied natural gas (LNG) market.

Brexit Decision Seen as a Defining Moment of 2Q

Despite the market spending most of the three-month period under the twin shadows and uncertainties of Brexit and the U.S. presidential elections, sentiment remained positive. Overall the environment was positive for commodities, particularly for gold. The most significant macroeconomic factor influencing commodities markets was the continued extraordinary accommodation extended by central banks around the world. In addition, supply and demand, particularly for oil and gas, continued to rebalance.

For many, the Brexit referendum on June 23, the result of which was the U.K. voting to reject continued membership of the European Union (EU), was seen as a defining moment. Perhaps somewhat surprisingly, Brexit's immediate effect was somewhat less than cataclysmic, and commodities have remained surprisingly resilient. It remains to be seen, however, just what the long-term effects of the vote will be.

Demand for Crude Oil Remains Strong

Despite lackluster prospects for economic growth in both Europe and the U.S., the demand for crude oil and, in particular, gasoline remained remarkably strong. The U.S. is now consuming almost 10 million barrels a day. The country's gasoline demand exceeds the unrefined crude oil demand of every country in the world except China.

Concerns that a flood of Iranian crude oil could swamp the market continued to prove unfounded. Albeit reasonably strong, supply from the country was, in no way enough to offset supply disruptions in the market, for exogenous reasons, during the quarter. These included pipeline outages in Nigeria, wild fires in Canada that hit oil sands production particularly hard, reduced supply from Libya on the back of persistent political uncertainty, and supply from Venezuela reduced still further because of both the country's dire economic circumstances and continued drilling challenges.

Industrial Metals Companies Continued to Restructure

Base metal companies continued to restructure during the quarter, cleaning up balance sheets, streamlining operations, and focusing more on profitability. In addition, they continued to sell off assets and reduce debt levels. On the back of the finding by the U.S. Department of Commerce that government subsidies and dumping were occurring, tariffs were imposed on imports of steel into the U.S., particularly those from China. U.S. steel stocks benefited accordingly.

Hard Assets Strategy Prudently Positioned for Brexit Impact

The U.K.'s historic Brexit decision on June 23 was clearly one of the most important events during the quarter. Currently our London-listed and GBP-denominated exposure represents around 4% of our strategy's exposure. We believe that we were prudently positioned going into the vote given a gold equities exposure of approximately 19%, one of the highest allocations since the inception of our hard assets strategy. Furthermore, the high-quality, companies (i.e., strong balance sheets and long-term structural growth stories) in our other sectors are likely to prove relatively resilient during the period of uncertainty that will follow the vote.

While global economic growth trends were put at risk by the result of the vote, we continue to believe that demand for commodities will likely remain solid in the face of moderate GDP progression. Further output constraint in crude, base metals, and some bulk materials could possibly be exacerbated by this murky outlook, but this may in turn tighten commodity markets and support prices. Given that the U.S. Federal Reserve is now not likely to raise interest rates, this should continue to put pressure on the U.S. dollar which may be stimulating to emerging markets and commodity demand.

Room for Tempered Optimism

While we still believe there is room for optimism, we also believe that this should still remain tempered when it comes to supply and demand rebalancing in the oil and gas sector. It remains, perhaps, too easy to fall into the trap of thinking that a 10%, or even a 50%, increase in a U.S. onshore oil rig count of fewer than 350 can restore the balance, and to forget that, to plumb its current depths, the rig count has actually dropped from its highs by a total of some 1,300 rigs. It is going to take an increase of considerably more than 150-200 rigs to bring back any growth in production. Maybe not all 1,300 rigs, but perhaps at least half of them. And for crude to be anywhere from $50 to $60 a barrel.

Inaugural VanEck Energy Renaissance Conference 2016 a Success

Finally, we held our inaugural VanEck Energy Renaissance Conference 2016, in Houston at the end of May to which we invited a number of leading CEOs from the space. One of the main themes we explored during the day was "Surviving and Thriving through the Current Downturn," with special reference to the oil and gas industry here in the U.S. The very fact that we could hold the conference and discuss this provides proof that there are such companies.

One of the main pillars of our investment philosophy continues to be to look for long-term growth and the structural enhancement in intrinsic value in the companies in which we invest. Even in today's market conditions this continues to be one of our guiding tenets. Since we remain convinced that positioning our strategy for the future, and not just reacting to current circumstance, is of paramount importance, our focus across the sectors in which we invest remains on companies that can navigate commodity price volatility and help grow sustainable net asset value.

Download Commentary PDF with Fund specific information and performance »


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Emerging Markets End Quarter on High Note http://www.vaneck.com/blogs/emerging-markets/emerging-markets-end-quarter-high-note-july-2016/ Emerging markets equities, and our investment strategy, performed relatively well in 2Q, despite the challenges of Brexit, negative bond yields, a sharp appreciation in the Japanese yen, and concerns about the rise of “populist politics”.

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Van Eck Blogs 7/21/2016 12:00:00 AM Macro Turbulence Persisted in 2Q

At the end of first quarter of 2016, we observed: "This quarter has been one of more twists and turns in macro factors than we can, perhaps, remember." Three months later, as macro-driven turbulence continued, this statement still resonates. Markets have been challenged by the U.K.'s Brexit decision to leave the European Union (EU), negative bond yields, a sharp appreciation in the Japanese yen, and concerns about the rise of "populist politics". However, despite these various continuing risk events, there have been a number of factors which have contributed to the outperformance of the emerging markets asset class for the quarter and year-to-date.

One of the most important changes is that the U.S. dollar appears to have discovered a level of equilibrium, after a period of sharp appreciation. A strengthening U.S. dollar is not helpful for emerging markets. It negatively affects earnings, domestic liquidity, and translation of returns to U.S.-based investors. Commodities have rebounded across the board this year. Our strategy eschews investment in cyclically driven stocks, so while this is not helpful for relative performance (as discussed below), it tends to be positive for the asset class as a whole.

Large-Caps Outperformed Small-Caps Again

In emerging markets equities, the second quarter of 2016 witnessed some of the same dynamics and factors that dominated in 1Q. In particular, return dispersions between sectors and countries remained large, and large-caps continued to outperform small-caps. Commodities-related sectors and countries continued to rally (although less so than in the first quarter). Both the MSCI China and MSCI India Indices' performances improved in the second quarter, but have certainly not matched the year-to-date performance of their Latin America (LATAM) counterparts. It is worth noting that, so far this year, despite all the negative events and headlines, the MSCI EM Index is ahead of most major global indices, a marked contrast to the last five years. Gratifyingly, despite all this turmoil and confusion, and the outperformance of commodities-related sectors, our strategy was able to outperform its Index in the second quarter, clawing back a significant part of the first quarter underperformance, and continuing its long run outperformance of the asset class.

LATAM Outpaced Asia, Led by Brazil

On a country level, in the second quarter, LATAM emerging markets countries continued to outperform Asian emerging markets countries, led by Brazil, Peru, and Argentina. Brazil is still enjoying a post-impeachment run. Confidence in the economy has improved recently and Brazil's GDP forecast for 2017 has generally been upgraded and inflation forecasts cut. However, Brazil, as a commodity exporter, will continue to be sensitive to negative headlines regarding global growth. In addition, the structural issues relating to its fiscal accounts and lack of infrastructure will not be easily solved.

Peru performed well in the second quarter, following a positive presidential election cycle. The country also benefited from MSCI's decision to keep it in the MSCI EM Index. Argentina equities are still enjoying the country's return to global markets. Poland and Turkey were among the worst performers during the second quarter. Both countries have significant political issues to cope with, while suffering from the possible consequences of the Brexit vote.

Concerns about Capital Outflows from China Declined

The MSCI China Index was up slightly in the second quarter. Concern surrounding China's capital outflows has lessened, but there is still net depreciation pressure on the yuan (CNY). In some ways, mild, engineered depreciation versus a basket of currencies, while keeping a lid on capital outflow pressures, represents a positive outcome for China. Market concern has tended to focus more on the rapid increase in leverage that we have seen in China since the global financial crisis. While we do agree that there is a significant issue that will necessitate some hard decisions, we think that there are very significant differences in the nature of that debt and the management of the economy should prevent a systemic crisis in the foreseeable future.

As a reminder, our investments in China are firmly focused on the better, more sustainable parts of the Chinese equity story. We find areas such as tourism, education, healthcare, and e-commerce to be some of the healthier and more predictable places to makes investments in China. This contrasts with the more cyclical parts of China, involving commodities, heavy industry, and property, which may nevertheless have their "moment in the sun" from time to time.

Brexit Likely to Impact Eastern Europe

A major, unexpected event in the second quarter for world markets and currencies was, of course, the Brexit vote in the U.K. The direct, first order implications for emerging markets are relatively small. But the long term ramifications may be very significant. The uncertainty surrounding the future relationship that the U.K. has with the rest of Europe, and, indeed, the nature of European integration going forward, is unlikely to be helpful for either U.K. or European growth.

Eastern European countries, especially Poland and Hungary, will be impacted more directly, as they are recipients of European Union (EU) funds (the U.K. is a major contributor), remittances (many Eastern Europeans work in the U.K.), and trade. As for the rest of the emerging markets, the impact will likely be in the form of slower growth in Europe and the U.K., potentially affecting major trading partners and commodities exporters in the emerging markets.

2Q'16 Emerging Markets Equity Strategy Review and Positioning

On a country level, positioning in China was the main detractor from the emerging markets equity strategy's performance, followed by positioning in Russia and Hong Kong. On the positive side, India, Peru, and South Korea gave the strategy's relative performance a boost. On a sector level, industrials and information technology hurt the Fund's relative performance while financials added value.

2Q Performance Contributors

India

In India, Yes Bank Limited1 and Axis Bank2 both made the list. Yes Bank, a high quality, private sector bank, benefited from both improving loan growth and widening lending spreads. This led to significantly positive results, driven also by the Bank's focus on retail, as opposed to commercial, business opportunities. In addition, as it becomes clear that the current government is unlikely to recapitalize the overly indebted state-owned banking sector, the well-managed private banks are well positioned to take considerable market share. Axis Bank is exposed to many of the above trends, but its performance in this quarter was driven as much by the recovery in the share price after the initial poor reaction from investors to its conservative provisioning announcement in the first quarter.

China

Long-term portfolio position Chinese internet company, Tencent Holdings3 reported very strong first quarter revenue and profit numbers, and continued to be driven by its core games business. Upgrades to earnings and an increase in the share price quickly followed. It remains a core holding.

Peru

In Peru, in addition to its improving asset quality, consistent performance, and asset growth, financial holding company Credicorp Ltd.4 benefited from an uptick in the commodities markets, together with the turnaround in the Peruvian market, during the six month period. This followed a second half in 2015 when uncertainty as to whether the country would be reclassified by MSCI Indexers weighed heavily on its stocks and the recent resolution of political uncertainty with the election of Pedro Pablo Kuczynski as the country's president.

Brazil

Smiles SA,5 a Brazilian company, performed commendably in the first half of 2016. The company provides value-added operations to "air mile" programs in Latin America. The company has benefited both from being a Brazilian real-based stock, and from the country's recent recovery.

2Q Performance Detractors

China

Chinese internet companies JD.com6 and Baidu Inc.7 were among the strategy's worst performers for the quarter. JD.com, an e-commerce company, disclosed some superficially negative data points regarding top-line sales which caused further multiple contraction. However, we believe the valuations do not fully reflect the considerable growth opportunities in the e-commerce sector in China and we are inclined to remain patient. Baidu suffered from regulatory issues surrounding advertising in the healthcare sector. The company was forced to cut back on revenue from this lucrative sector until resolution becomes clearer, hurting earnings.

Having been forced to change its business model, Hong Kong-listed, China-based Boer Power Holdings Ltd.,8 which provides electrical distribution solutions, faced increased business risk in our opinion. The company's leverage increased as it took on higher levels of accounts receivable. Although we have reduced our exposure to the company until the outlook becomes more predictable, we believe that it will continue to be a beneficiary of the development of a smarter grid in China.

CAR Inc.,9 based in Hong Kong, 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. The management remains focused, however, on the very valuable core rental business.

Taiwan

Catcher Technology10 is one of the leaders in the high-end supply chain to the smart phone industry. The shares and earnings were both softer for the quarter in line with reduced sales in the sector overall and concerns over its metal casing that was supposed to be used in future smartphones.

Many Areas of Superior, Sustained Growth

We are constructive on the continuing outperformance of emerging markets in a global context. We continue to implement our philosophy of structural growth at a reasonable price. We find that there are many areas of superior, sustained growth that are essentially non-cyclical in nature and that should provide reliable opportunities for well-managed companies to exploit. In some places, demographics are very positive, and consumer preferences and labor skills continue to evolve quickly. Other countries are taking seriously the structural reforms and skills investment necessary to advance their economies from the middle income level.

Services and Financial Sectors Stand Out

We continue to be very excited by the services and financial sectors. Within these, we are interested in participating in companies where strong, innovative management teams are able to capitalize on dynamic change and extract real value, including e-commerce, internet services, healthcare, travel, and education, and very specific, consumer-focused, financial services business models.

Taking pockets of reliable structural growth in the emerging markets as a starting point, and then adding to these the expectation of a continued benign U.S. dollar environment, we believe should lead to decent relative returns in this growth challenged world. Volatility in commodities may help, or hurt, our relative performance at the margin, quarter by quarter. But, over the medium- to longer-term horizon, we continue to believe we are able to access superior non-cyclical, repeatable, risk-adjusted returns for our investors.

New Discoveries Merit Investments

We continue to discover, and invest in, great companies with strong competitive advantages. As we always point out, for periods of time, countries and sectors may drift in and out of favor with investors and cause us bouts of underperformance. However, great companies – regardless of their home country – usually have strong cash flows to invest consistently in their businesses, and compound long-term structural trends despite short-term periods of underperformance against either a benchmark or cyclical sectors. We remain disciplined during these periods and add to positions where valuations guide us, but we do not chase short-term trends or short-term shifts in investor preference.

Download Commentary PDF with Fund specific information and performance  

For a complete listing of the holdings in VanEck Emerging Markets Fund (the "Fund") as of 6/30/16, please click on this PDF. Please note that these are not recommendations to buy or sell any security.

 

Post Disclosure  

1Yes Bank Limited represented 2.94% of the Fund's net assets as of 6/30/16.  

2Axis Bank represented 2.12% of the Fund's net assets as of 6/30/16.

3Tencent Holdings represented 3.11% of the Fund's net assets as of 6/30/16.

4Credicorp Ltd. represented 2.38% of the Fund's net assets as of 6/30/16.

5Smiles SA represented 1.10% of the Fund's net assets as of 6/30/16.

6JD.com represented 2.92% of the Fund's net assets as of 6/30/16.

7Baidu Inc. represented 1.75% of the Fund's net assets as of 6/30/16.

8China-based Boer Power Holdings Ltd. represented 0.30% of the Fund's net assets as of 6/30/16.

9CAR Inc. represented 1.19% of the Fund's net assets as of 6/30/16.

10Catcher Technology represented 1.41% of the Fund's net assets as of 6/30/16.  

All indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the strategy. An index’s performance is not illustrative of the strategy’s performance. Indices are not securities in which investments can be made. 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. The MSCI Emerging Markets Investable Market Index (IMI) captures large, mid and small cap representation across 23 Emerging Markets (EM) countries. With 2,628 constituents, the index covers approximately 99% of the free float-adjusted market capitalization in each country. MSCI All Country World Index (ACWI) captures large and mid cap representation across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries. With 2,483 constituents, the index covers approximately 85% of the global investable equity opportunity set.

 

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Rate Expectations Drive Emerging Markets Debt Rally http://www.vaneck.com/blogs/emerging-markets/rate-expectations-drive-emerging-markets-debt-rally-july-2016/ Van Eck Blogs 7/20/2016 12:00:00 AM Global emerging markets ("EM") debt, both hard and local currency, rebounded strongly in June after a significant retracement in May. One of the main drivers behind the resumption of the EM debt rally was yet another shift in interest rate expectations, following a very weak U.S. employment release on June 3. The U.K. Brexit vote on June 23 was an even more significant event, one that placed a very large exclamation point on the renewed expectations for "lower for longer."

Negative Rates Intensify the Hunt for Yield

As unpredictable as the Brexit decision was, the fact that the resulting selloff in risk markets reversed so quickly, yet rates continued to fall, was equally difficult to forecast. The net result has been that by early July, some $11.5 trillion in bonds were trading at negative rates, with 58% of the Barclays US Aggregate Bond Index1 trading below 1%. Thus, the hunt for yield continued as aggressively as ever. Given the impact that the more hawkish tone struck by the Federal Open Market Committee members had on debt markets in May, the rapidity of the shift back to extremely dovish expectations is somewhat unsettling and leaves one wondering how quickly expectations can swing back the other way.

Current Conditions Support Emerging Markets Debt

In the near term, the precarious position of European banks – a situation that has persisted but has moved in and out of focus over the last four years – in combination with a variety of risks to global growth prospects will likely keep the hawks at bay. While global growth statistics remain within muted expectations, EM debt and equity could remain the beneficiaries of additional capital flows for some time. The inflows to EM debt funds to date in 2016 are quite small relative to what left EM debt funds in 2015.

Under current conditions, we expect to see an acceleration of inflows during the second half of the year. Valuations, positive real rates of interest, and EM central banks with (conventional) policy flexibility are all supportive of the case for EM. The risks are many, including further growth deceleration and a reversal in the commodity price recovery. On the flip side, a rate shock, as unlikely as it may seem at the moment, could cause a sharp reversal in flows to various debt asset classes, including EM.

Brexit's Impact Hardest for Central and Eastern Europe

Within emerging markets, the Brexit impact, predictably, was felt most poignantly in Central and Eastern Europe. These countries have the highest dependence on Britain and the EU for trade. Romania, Poland, and Hungary were the laggards in the local currency space, while high beta countries such as Brazil, South Africa, and Colombia posted total returns (from both local interest rates and foreign currency movements) of between 10% and 15% in June alone. Despite recovering 1.8% in June, Mexico's local debt is the only major market with a negative return year-to-date return (-2%) for the first half of 2016, all due to persistent weakness in the peso. In hard currency markets, Venezuelan debt continued to recover, returning more than 12% in June. Brazilian, South African, and Colombian sovereign and corporate U.S. dollar-denominated bonds were among the top performers as well, particularly sovereign bonds with returns in excess of 5%. That being said, overall in June, credit spreads on hard currency EM debt were only marginally tighter (virtually unchanged in the corporate markets). Duration and the U.S. Treasury rally were very much the drivers of return.

10-Year Local Currency Sovereign Bond Yields (%)
as of June 30, 2016

Source: FactSet.

 

Download EM Debt Monitor PDF with Fund specific information and performance  

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IGEM IGEM EM Investment Grade + BB Rated USD Sovereign Bond ETF
IHY International High Yield Bond ETF
 
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EMBAX Unconstrained Emerging Markets Bond Fund: Class A

Post Disclosure  

1The Barclays US Aggregate Bond Index is a broad-based benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency).

All data as of 6/30/2016. Source of all data: FactSet, Barclays, and J.P. Morgan.

Duration is a measure of the sensitivity of the price of a fixed-income investment to a change in interest rates.

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

Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a fund. An index's performance is not illustrative of a fund's performance. Indices are not securities in which investments can be made.

Please note that Van Eck Securities Corporation offers investment products that invest in the asset class(es) included in this commentary. 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. Securities may be subject to call risk, which may result in having to reinvest the proceeds at lower interest rates, resulting in a decline in income. International investing involves additional risks which include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Changes in currency exchange rates may negatively impact the Fund's return. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict and social instability.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will generally decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.

 

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Munis: High Drama on the High Wire http://www.vaneck.com/blogs/muni-nation/high-drama-high-wire-july-2016/ Thus far in 2016, the municipal bond market has continued to thrive despite headline drama. Jim Colby explains why munis have expertly navigated this "high wire" walk.

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Van Eck Blogs 7/19/2016 12:00:00 AM For months, if not for years, the municipal market has been walking the "high wire" of confidence and performance, all while certain high profile issuers (Stockton, Detroit, and Puerto Rico) and external events filled the headlines with decidedly unflattering commentary and predictions. It seems that friends and fans of the muni asset class need to be reminded that their tax-free investment class continued, predominantly, to perform well in 2016. I believe that this, substantially, remains the case.

Positive Muni Performance in the First Half of 2016

As shown below, munis continued to offer attractive returns relative to other assets: the performance of the broad Barclays Municipal Bond Index was a positive 4.33%, and muni high yields were also strong with a 7.98% return, as measured by the Barclays High-Yield Municipal Bond Index. Munis outperformed Treasuries, investment grade corporates, and U.S. equities, all while providing the added benefit of federally tax-free yields. During this period, issuers, perhaps emboldened by the near historically low rate environment, came to market with over $200 billion in new bonds - a higher volume than a year ago.

Munis Offered Attractive Returns in the First Half of 2016
January 1, 2016 – June 30, 2016

Sources: Barclays and Bloomberg as of June 30, 2016. Treasuries are represented by the Barclays U.S. Treasury Index; investment-grade corporates by the Barclays US 1-5 Year Corporate Index; high yield corporates by the Barclays US Corporate High Yield Index; broad municipal bonds by the Barclays Municipal Bond Index; and high yield municipal bonds by the Barclays High Yield Municipal Index. Index performance shown is not representative of the performance of any specific investment. It is not possible to invest directly in an index. Past performance is no guarantee of future results.

Munis Continue to Thrive Amid Headline Drama

The backdrop drama narrative, which provided a springboard for the market to improve in the first half of 2016, centered on the uneven economic performance of our economy, which resulted in a hesitant Federal Reserve initiating no rate increases. Further, worldwide instability brought on by acts of terrorism and a most surprising Brexit vote in the United Kingdom, led to sharp rallies in U.S. Treasuries, with municipals following this lead.

At the same time, the drama that played out in the hallways of San Juan and Washington, which resulted in the signing of the PROMESA legislation (the Puerto Rico Oversight, Management, and Economic Stability Act) effectively creating a "stay" in politico-economic activities on the island, set the stage for a default of significant proportions of the Commonwealth's 15 issuers of tax-exempt securities. Yet the muni market continues (as I have suggested in prior posts) to avert its eyes from these recent negative events to generally deliver both reliable income streams and returns that compare favorably to many other asset classes. This might be the most underappreciated feature of municipals that investors seem to rediscover over and over again.

Munis Retain Their Popular Profile

The high wire walk that the muni market seems to have expertly navigated is likely to continue for the foreseeable future, in my opinion. With some sovereign yields in Europe in negative territory and foreign interest in munis stimulating demand, the asset class overall has retained its popular profile and is focused on the other end of the wire without concern for the roiling waters below.

 

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XMPT CEF Municipal Income ETF

 

Post Specific Disclosures

The Barclays High Yield Municipal Index covers the high yield portion of the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. The Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt bonds with a maturity of at least one year. The Barclays US 1-5 Year Corporate Index includes US dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between 1 and 5 years. The Barclays US Corporate High Yield Index represents the universe of fixed rate, non-investment grade debt. Eurobonds and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded but, Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue zeroes, step-up coupon structures, 144-As and pay-in-kind bonds (PIKs, as of October 1, 2009) are also included. The index includes corporate sectors. The corporate sectors are Industrial, Utility, and Finance, encompassing both US and non-US Corporations. The Barclays US Treasury Index represents the US Treasury component of the US Government index. The S&P 500® Index consists of 500 widely held common stocks covering industrial, utility, financial, and transportation sector; as an Index, it is unmanaged and is not a security in which investments can be made.

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Investment Grade Emerging Markets Bonds: Higher Yield, Balanced Risk http://www.vaneck.com/blogs/etfs/investment-grade-emerging-markets-bond-higher-yield-balanced-risk-july-2016/ Emerging markets bonds is an asset class where investors often look for higher yields, and this year they have attracted special interest.

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Van Eck Blogs 7/18/2016 12:00:00 AM

Authored by William Sokol, Product Manager, ETFs

Given the current exceptionally low interest rates in the U.S. and negative rates in other developed markets, investors are increasingly searching beyond global core fixed income asset classes for higher yields.

Emerging markets (EM) bonds is one asset class where investors often look for higher yields, and this year they have attracted special interest. Several tailwinds have helped the asset class thus far in 2016, including continued low interest rates in the U.S., a rebound in commodity prices, and expectations of relatively higher emerging markets economic growth versus developed economies. Furthermore, valuations were considered by many to be attractive at the beginning of 2016, following a few challenging years for the asset class.

Investors Should Weigh Higher Yields with Emerging Markets Risks

As with any investment in the emerging markets, investors must balance the additional yield which can be achieved with emerging markets bonds with incremental risks. These are primarily political and market related risks that can increase volatility. In addition, recent downgrades by credit rating agencies reflect increased credit risk in the broad emerging markets universe.

But emerging markets represent a diverse group of countries, and individually they carry varying levels of risk. Because of this, income-seeking investors may find opportunities by isolating the higher quality segment that exists within the emerging markets universe.

A potential solution for credit-conscious investors is to focus on the higher quality, investment grade subset of the broad U.S. dollar-denominated emerging markets universe, which accounts for about 54% of the market.1 This segment provides higher yields versus U.S. corporate investment grade bonds, allowing for additional income potential without additional credit risks. Also, U.S.-based investors limit the currency risk associated with emerging market local currencies, by investing in hard currency bonds.

A Compelling Yield Comparison
as of June 30, 2016

 
Source: IG EM Sovereigns represented by the investment grade subset of the J.P. Morgan EMBI Global Diversified Index. IG U.S. Corporates represented by the Barclays U.S. Corporate Bond Index. Global Core Bonds represented by the Barclays Global Aggregate Bond Index.

Investors may also want to consider a small allocation to BB rated emerging markets countries. These higher-rated high yield issuers provide incremental yield while also allowing investors to maintain exposure to "fallen angel" countries (whose credit ratings have dropped below investment grade) such as Russia and Brazil, which are among the largest emerging markets issuers. Along with the potential yield pickup, improving credit fundamentals may contribute positively to returns over time.

Complement Your Global Bond Portfolio

Adding U.S. dollar-denominated investment grade emerging markets bonds to a global bond portfolio can add yield and diversification, without a significant increase in credit and currency risk.

VanEck VectorsTM EM Investment Grade + BB Rated USD Sovereign Bond ETF ( IGEM) (the "Fund") provides access to the higher rated subset of the broad U.S. dollar-denominated emerging markets sovereign bond universe.

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Gold Bull Market Gains Momentum http://www.vaneck.com/blogs/gold-and-precious-metals/gold-bull-market-gains-momentum-july-2016/ Several macroeconomic surprises raised global financial risks in June, and propelled gold. On June 24, the day following the historic Brexit decision, gold reached a new two-year high of $1,359 per ounce. Gold finished up 8.8% in June.

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Van Eck Blogs 7/14/2016 12:00:00 AM

For the month ending June 30, 2016

Brexit Decision Boosts Gold

In June, several macroeconomic surprises around the globe raised financial risks, and propelled gold to new, near-term highs. On June 24, the day following the historic Brexit decision, gold soared to new two-year highs, reaching an intraday peak of $1,359 per ounce. Gold finished the month at $1,322.20 for a $106.87 (8.8%) per ounce gain. As has been the case all year, gold stocks reacted strongly to the move in gold bullion. The NYSE Arca Gold Miners Index (GDMNTR)1 advanced 22.7%, while the MVIS Global Junior Gold Miners Index (MVGDXJTR)2 gained 26.1%. Also, silver showed strong momentum gaining 17.0% in June to close the month at $18.71 per ounce, its highest level since September 2014.

Prior to Brexit, two earlier events in June supported gold. On June 3, the U.S. Department of Labor's May jobs report fell far short of expectations, continuing a pattern of declining job growth that began in March. The odds of a U.S. Federal Reserve rate increase tanked along with the U.S. dollar and gold advanced $34 per ounce to $1,244 per ounce. This allowed the metal to continue to establish a firm base above the technically important $1,200 level. On June 16, the Bank of Japan refrained from adding stimulus, disappointing markets that have become conditioned to expect economic life support from central banks. The Nikkei 225 Stock Average3 fell 3.1% and gold soared to a new intraday high for the year of $1,315 per ounce.

U.K.'s Brexit Move Defied Market Expectations

The United Kingdom's ("U.K.") decision on June 23 defied market expectations in passing the “Brexit” referendum to leave the European Union (EU). The financial and geopolitical ramifications of this were felt across financial markets, including stocks, bonds, and currencies. The U.K. and EU now has two years to work out the conditions of their divorce, and history has shown that few divorces end harmoniously. The level of uncertainty is high, and outcomes that damage growth and trade are easier to imagine than a win-win scenario. The ultimate risk in the longer term is the viability of the EU and the possibility that other countries may seek to exit or dismantle it. We hope for a more positive outcome and that Brexit acts as: 1) a wake-up call for the EU to become a more streamlined enabler of growth, rather than, in our view, the stifling super-state it has become, and; 2) a policy catalyst for the U.K. to again become a leader in trade and commerce that countries seek to emulate.

Gold Investors are Being Proactive, Rather Than Reactive

Throughout June, strong investment demand continued, as demonstrated by inflows into gold bullion exchange traded products (ETPs). Inflows have not been this strong since 2009 when investors sought out bullion after the subprime credit crisis. A key difference in today's market is that investors are being proactive rather than reactive. Many are seeing the looming potential for another financial crisis and making a strategic allocation to bullion as a hedge against systemic risk.

Our Gold Bull Market Conviction Strengthens

Last year we commented on the depth and duration of the gold bear market being on par with the worst in history and we began to adjust our strategy in anticipation of a turnaround. This year we have highlighted the strength and resilience of the gold market. In our last monthly update, we gained the conviction to declare a new bull market. Given the events of the first half, it is not hard to imagine a robust market for the remainder of the year. We believe gold will test the $1,400 per ounce level in the second half of 2016 and we do not believe it is likely to end there.

In addition to EU uncertainties on the back of Brexit, there are many other reasons we believe gold is reentering a secular bull market:

Monetary Policies – Unconventional monetary policies are not working as planned, causing central banks to resort to even more radical and unproven tactics with unknown consequences. According to a Fitch Ratings report, there is now over $11 trillion worth of sovereign debt with negative yields. The European Central Bank (ECB) started buying high yield corporate (junk) bonds on June 8.

Fiscal Policies – Global non-financial debt-to-GDP ratios have risen to new highs. In the U.S., total non-financial debt/GDP has reached 250%, helped by $1.2 trillion in student loans, many of which may never be repaid. China has total debt of approximately 225% of GDP, with corporate debt alone comprising an astounding 145% of GDP.

Economic Malaise – Global growth has been unable to muster strength, even with massive central bank stimulus and cheap energy provided by the historic crash in oil prices.

Currency Turbulence – No government wants a strong currency and Brexit has caused unwanted volatility that may bring destabilizing intervention.

U.S. Elections – At this time, our view is that there appears to be no good outcome in the upcoming presidential election. A Clinton victory is likely to bring a continuation of Obama policies that have resulted in a weak economy, rising debt, weak productivity, lack of business formation, and divisive politics. A Trump victory brings uncertainty and the potential for destabilizing policies if his rhetoric on trade, immigration, and debt service are pursued.

Low Returns – The six-year bull market in U.S. stocks appears to be over. The S&P 500® Index4 has struggled since reaching an all-time high in June 2015. Bonds no longer provide safe and steady returns. Investors may seek alternatives to help preserve wealth.

All of these developments can create risks for mainstream investments that potentially drive investors to gold as a currency hedge, store of wealth, or for insurance against financial and geopolitical turmoil. We are not promoting gloom and doom; however, as gold advocates, our role is to point out potential risks to an investment portfolio. Unfortunately, it seems that risks abound as a result of a financial system that has become overburdened with government intervention that stifles enterprise and free markets.

What to Expect for Gold in Second Half

If the fundamentals are supportive of a gold bull market, where might we expect the gold price to go in the future? For that we look at certain price chart patterns. Markets usually trend higher or lower over periods measured in months or years. The trends are defined by a sequence of higher highs and higher lows in a bull market, and lower highs and lower lows in a bear market. With the gold move following Brexit, a new gold trend may be emerging (Chart A). This trend has broken the 2013 – 2015 bear market trend; its trajectory is similar to the post-crisis trend from 2008 – 2011. In fact, some of the drivers, such as central bank intervention, increasing debt, and EU turmoil are the same. This indicates that gold has completed a mid-cycle correction and is resuming the secular bull market that began in 2001.

Chart A: Emergence of New Gold Price Trend
Gold Bullion Prices, 2008 to 2016

Emergence of New Gold Price Trend

Source: Bloomberg, VanEck Research.

Gold Stocks Still Have Upside

For an idea of where gold stocks might be heading, we use a plot of gold versus the GDMNTR Index. Chart B shows the relationship of gold stocks to gold bullion since 2012, which is roughly the time in which managements at many gold firms turned their companies around to become more efficient and focused on returns. The correlation5 statistic of 0.97 is a near perfect 1.00, which shows the strong relationship between gold and gold stocks.

Chart B: Gold Bullion versus Gold Shares (GDMNTR)
2012 to 2016 (Weekly Close)

Gold Bullion versus Gold Shares (GDMNTR)

Source: Bloomberg, VanEck Research.

In the first half of 2016 gold advanced $260 per ounce or 24.6%. The GDMNTR has gained 102.6% over the same period, leading many investors to question whether gold stocks have any upside left. While we do not expect such heady gains going forward, given the tight relationship between gold and gold stocks, we can use this trendline to estimate potential stock gains at higher gold prices. If gold were to advance another $260 (19.7%) from the June 2016 close, it would reach $1,582 per ounce. A trendline plot at $1,582 gives a GDMNTR value of 1,135, an additional 47% gain from the June close of 769. This beta, or leverage, to the gold price is a result of the strong cash generation that comes from higher gold prices.

Valuations are Important: P/CF Averages are Still Below Peak

It is also important to consider valuations. The performance of gold stocks has resulted in a strong increase in price-to-cash flow (P/CF) in 2016, as shown in Chart C. However, gold stocks became oversold in the recent bear market, driving valuations to historic lows. The strong stock gains in 2016 have yet to return gold stocks to their long-term P/CF averages, and they remain far below peak valuations.

Chart C: Price-to-Cash Flow of Senior- and Mid-Tier Producers, 2006 to 2016

Price to Cash Flow of Senior and Mid-Tier Producers

Source: Bloomberg, RBC Capital Markets.

Download Commentary PDF with Fund specific information and performance »


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Brexit Creates Mid-Summer Opportunities http://www.vaneck.com/blogs/moat-investing/brexit-creates-mid-summer-opportunities-moats-july-2016/ Van Eck Blogs 7/13/2016 12:00:00 AM

For the Month Ending June 30, 2016

Performance Overview

U.S. moat-rated companies have posted impressive performance thus far in 2016, but their wide performance gap tightened in June amid the recent Brexit-induced global turmoil. For the first month this year, the U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR) trailed the S&P 500® Index (-1.99% vs. 0.26%) in June but maintained its relative outperformance year-to-date (12.78% vs. 3.84%). International moats fared similarly in June with the Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN) lagging the MSCI All Country World Index ex USA (-4.68% vs. -1.53%). While Brexit took a toll on global equity prices, the U.K.'s decision to leave the European Union has heightened the importance of investing in U.S. and international moat companies that possess sustainable competitive advantages at attractive prices, like those that Morningstar seeks to identify.

U.S. Domestic Moats: Brexit Effects and the Microsoft-LinkedIn Connect

The Brexit decision that came at the end of June erased hard-earned early-month MOAT returns. In particular, large financial sector companies such as State Street Corporation (STT US), Bank of New York Mellon Corporation (BK US) and U.S. Bancorp (USB US), experienced the greatest spillover effect of Brexit. The performance of healthcare companies continued to be mixed. While Cerner Corporation (CERN US), Ely Lilly and Company (LLY US), and Amerisource Bergen Corporation (ABC US) contributed positively, biotech giants such as Gilead (GLD US), Amgen (AMGN US), and Biogen (BIIB US) detracted from performance. Notable within information technology sector, Microsoft's (MSFT US) announcement to acquire LinkedIn (LNKD US) boosted the performance of the professional networking site.

International Moats: Opportunities in Several Countries

As expected, the Brexit decision had a greater impact on international moat companies in June, and overall, negative outweighed positive performance. U.K. financials lead the negative performance group followed by Hong Kong, French, and Australian financial, consumer discretionary, and information technology sector companies. On a positive note, the materials and utilities sectors helped to offset the negative effects of Brexit. Companies from Singapore, Japan, New Zealand, and Germany were among the positive contributors to performance.



(%) Month Ending 6/30/16

Domestic Equity Markets

International Equity Markets

(%) Month Ending 6/30/16

Morningstar
Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers
Constituent Ticker Total Return
LinkedIn Corporation Class A
LNKD US
38.64
Cerner Corporation
CERN US
8.82
Eli Lilly and Company
LLY US
6.62
AmerisourceBergen Corporation
ABC US
4.78
Starbucks Corporation
SBUX US 3.27

Bottom 5 Index Performers
Constituent Ticker Total Return
Bank of New York Mellon Corporation
BK US
-7.63
CBRE Group, Inc. Class A
CBG US
-11.29
State Street Corporation
STT US
-13.94
Biogen Inc.
BIIB US
-16.54
Jones Lang LaSalle Incorporated
JLL US
-17.32

View MOAT's current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Top 5 Index Performers
Constituent Ticker Total Return
CapitaLand Commercial Trust CCT SP 8.55
Symrise AG SY1 GR 8.22
Safran SA SAF FP 5.69
SoftBank Group Corp. 9984 JP 5.52
CapitaLand Limited CAPL SP 5.03

Bottom 5 Index Performers
Constituent Ticker Total Return
BNP Paribas SA Class A BNP FP -16.40
KBC Groupe SA KBC BB -17.63
Kingfisher Plc KGF LN -19.34
Henderson Group plc HGG LN -27.72
Lloyds Banking Group plc LLOY LN -31.06

View MOTI's current constituents

As of 6/17/16

Morningstar
Wide Moat Focus Index (MWMFTR)

Index Additions
Added Constituent Ticker
Polaris Inds Inc. PII US
AmerisourceBergen Corp. ABC US
Tiffany & Co. TIF US
Stericycle Inc. SRCL US
VF Corp. VFC US
Wells Fargo & Co. WFC US
Berkshire Hathaway Class B BRK.B US
Twenty-First Century Fox Inx. FOXA US
Harley-Davidson Inc. HOG US
United Technologies Corp. UTX US
Starbucks Corp. SBUX US
Microsoft Corp. MSFT US
Emerson Electric Corp. EMR US
American Express Co. AXP US
Salesforce.com CRM US
Time Warner inc. TWX US
Lilly Eli & Co. LLY US
Western Union Co. WU US
Compass Minerals Intl. CMP US
Cerner Corp. CERN US
Amazon.com Inc. AMZN US

Index Deletions
Deleted Constituent Ticker
St. Jude Medical STJ 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
Mgm China Holdings Ltd. China
Bayerische Motoren Werke BMW Germany
National Australia Bank Australia
Crown Resorts Ltd. Australia
Platinum Asset Management Ltd. Australia
Westpac Banking Corp. Australia
Carnival Plc. United Kingdom
Wynn Macau Ltd. Hong Kong
Wipro Ltd. India
Linde Ag. Germany
Kering Ord. France
Tata Motors Ltd. India
Amp Ltd. Australia
Commonwealth Bank of Australia Australia
Power Financial Corp. Canada
London Stock Exchange Group United Kingdom
United Overseas Bank Ltd. Singapore
Nordea Bank Ab. Sweden
Svenska Gandelsbanken Ab. Sweden
Safran Sa. France
Softbank Group Corp. Japan
Computershare Ltd. Australia
Seven & I Holdings Co. Ltd. Japan
Petrofac Ltd. United Kingdom
Capitaland Mall Trust United Singapore

Index Deletions
Deleted Constituent Country
Bank of Nova Scotia Halifax Canada
Toronto-Dominion Bank Canada
CI Financial Corp Canada
HSBC Holdings Plc. United Kingdom
Centrica United Kingdom
UBS Group Ag. Switzerland
Novartis Ag. Switzerland
Swatch Group. AG. B Switzerland
Richemont, Cie Financiere A Br. Switzerland
Loof Holdings Ltd. Australia
Ainsworth Game Technology Ltd. Australia
China Merchants Bank Co. Ltd. China
China Construction Bank Corp. China
BOC Hong Kong Holdings Ltd. China
China Mobile Ltd. China
China Telecom Corporation Ltd. China
China State Construction International Holdings Ltd. China
Dongfeng Motor Group Co. China
Credit Agricole SA. France
Technip SA. France
Mobile Telesystems PJSC Russia
Embraer SA. Brazil
Grifols SA. Spain
Sun Hung Kai Properties Ltd. Hong Kong
Contact Energy Ltd. New Zealand

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



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Fallen Angels Boosted by Bond Buyback Premiums http://www.vaneck.com/blogs/etfs/fallen-angels-boosted-bond-buyback-premiums-july-2016/ Van Eck Blogs 7/8/2016 12:00:00 AM

Authored by Meredith Larson, Product Manager, ETFs

Fallen angel bonds, high yield bonds originally issued with investment grade credit ratings, are generally known for offering potential value. A big source of this value has been the tendency of fallen angels to be oversold, to below what may be considered fair value, leading up to their downgrade to high yield.

However, a less obvious source of value for fallen angels can arise when the underlying corporation engages in a bond buyback, typically in the form of a public tender. Bond buybacks are a form of “liability management” that can help companies tidy up their balance sheets, improve their credit standings and ratings, and attract and retain investors. Companies use buybacks either to retire debt at a discount or to reduce costs simply by buying back a higher yielding bond and then issuing a new bond at a lower interest rate.

How Buybacks Add Value

Companies typically establish a tender offer price that is a premium to a bond's current price in order to entice investors to sell. As of June 30th, 11 fallen angel companies had issued tender offers year to date, boosting their bonds' prices by 5%, on average, between the day prior to and the day after the tender offer. Mainly from basic industry and energy sector issuers, five of the 11 firms were 2016 fallen angel entrants: Ensco, Encana, Noble Holdings, Anglo American Capital, and Southwestern Energy Company.

As shown in the bar chart below, bonds with tender offers contributed +243 basis points (bps) to the 16.18% year-to-date return of the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA), as of June 30th. By contrast, the BofA Merrill Lynch US High Yield Index (H0A0) returned 9.32%, of which just +57 bps can be attributed to bonds with tender offers in 2016.

YTD Return Contribution from Bonds with Tender Offers
As of June 30, 2016

 
Source: FactSet. Past performance is no guarantee of future performance. Contribution is presented for the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA) versus BofA Merrill Lynch US High Yield Index (H0A0) for the broad high yield bond market. Figures are gross of fees, non-transaction based and therefore estimates only.

A greater proportion of the H0FA Index than the H0A0 Index has been impacted by bond buybacks. As of June 30th, 10.5% of the H0FA index's market value was comprised of bonds that had issued tender offers year to date, versus the broad high yield bond market's 3.3% (H0A0). One major difference for fallen angel investors is that the debt issued to finance buybacks does not qualify for the H0FA index, since the new bonds would typically be issued as high yield. As such, fallen angel investors are not financing the buyback by buying new debt.

Companies recognize the value in buying back bonds for a variety of reasons; for investors it signals both the companies' willingness and ability to meet their debt obligations. For fallen angels, bond buybacks have served as another source of value so far this year. We believe bond buybacks offer another compelling reason for investors to look at the potential of this asset class.

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Spin-Off in the Spotlight: Associated Capital Group (NYSE: AC) http://www.vaneck.com/blogs/etfs/spin-off-associated-capital-group-july-2016/ Van Eck Blogs 7/1/2016 12:00:00 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: Associated Capital Group, Inc. (NYSE: AC)
Parent Company:
Gabelli Asset Management (NYSE: GBL)  

Spin-Off Date: December 1, 2015
GSPIN Index Inclusion Date: April 1, 2016

Associated Capital Group, Inc. ("Associated Capital"; NYSE: AC) was first added to the Horizon Kinetics Global Spin-Off Index (the "Index") on April 1, 2016, after being spun off from Gabelli Asset Management ("GAMCO"; NYSE: GBL) in November 2015. The company has two divisions: institutional research, which is a mature business with low growth prospects, and alternative investments, which is a potentially high-growth operation.

The Associated Capital spin-off was conceived as a way to liberate the alternative investment operations from GAMCO and provide it with the opportunity for unfettered growth. This division managed $1.1 billion of client assets in merger arbitrage and event-driven value strategies as of March 31, 2016. Although this constituted less than 3% of GAMCO’s total assets under management (AUM) at the time of the spin-off, the division was growing, as the remainder of GAMCO was facing redemptions. Had the alternative investment division become successful as a part of GAMCO, its value might have been diluted. As a separate, publicly-traded entity, however, this should no longer be the case.

AUM and Net Income Growing, Despite Operating Losses

Associated Capital is still immature in that current revenues have been insufficient to cover operating expenses. The company has progressively increased its AUM, but it has still produced operating losses, although its net income has been slightly positive as a result of investment gains and interest income. For this reason, the company’s shares cannot be said to be undervalued based on traditional valuation measurements such as its price-to-earnings multiple. Instead, the investment might be better understood from a risk versus return perspective.

The company was capitalized with a large amount of liquid assets, including cash, common stock, and mutual funds at the time of the spin-off. In total, there were $813 million of assets on its balance sheet (as of 3/31/2016), of which cash and other marketable investments accounted for $616 million, or about 75% of the total. Thus, it is clear that GAMCO infused Associated Capital with enough assets to sustain the company until it can grow its AUM to the point of self-sufficiency. With operating losses of $15-$20 million per year, the company’s cash balance alone ($203 million) could fund such losses for more than a decade.

Associated Capital’s adjusted book value was approximately $40 per share as of March 31, 2016, meaning that at current prices, the company trades well below 1x book value. Although ongoing losses might erode shareholders’ equity, these losses have been small to date; therefore, it can be argued that the investment risk is limited, as an investor would likely be protected from a meaningful loss given the company’s ample balance sheet assets.

Promising Growth Potential

Investment management services is a business with high operating leverage. In principle, the marginal cost of managing an additional dollar of AUM is, for all practical purposes, nil. When an investment firm increases its assets from $1 billion to $5 billion, expenses do not increase fivefold, although incentive compensation within the firm typically rises. Consequently, we believe that Associated Capital’s earnings have the potential to rise rapidly even if AUM growth is modest; this is especially so, since it is eligible to earn performance fees. As Associated Capital’s AUM is just $1.1 billion (as of 3/31/16), we believe that its growth potential is considerable.

View Current SPUN Fund Holdings  

View Current GSPIN Index Holdings  

 

 
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China A-Shares Denied MSCI Green Light http://www.vaneck.com/blogs/etfs/china-a-shares-fail-from-msci-june-2016/ On June 14, in a surprise decision to many investors, MSCI again denied mainland Chinese equities (China A-shares) a seat at the global indexing table, excluding A-shares from its benchmark MSCI Emerging Markets Index.

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Van Eck Blogs 6/30/2016 12:00:00 AM

Authored by James Duffy, Product Manager, VanEck Vectors ETFs

On Tuesday, June 14, MSCI, the world's largest indexing firm, once again refused China A-shares a seat at the global indexing table ( read MSCI's press release). With its decision, MSCI sent a clear message that it believes that Chinese A-shares still do not offer investors enough accessibility, liquidity, and transparent ownership to be included in the MSCI Emerging Markets Index.

The result is that China, currently the second largest economy, is still being viewed by some as a regional rather than a global equity player. While this was a blow to Chinese regulators, international markets did not react significantly to the decision. What is at stake? Given that nearly $1.5 trillion in global assets currently track the MSCI Emerging Markets Index, including China A-shares in the Index could potentially funnel billions of dollars into the mainland Chinese stocks.

China's Measures for Inclusion Fall Short

The outcome of MSCI's decision came as a surprise to many. For the past year, the Chinese Securities Regulatory Commission (CSRC) has been working with MSCI decision makers to achieve inclusion of China A-shares in the Index. Although positive developments have been made toward opening China's capital markets, they may not have been enough for this round.

According to MSCI, its decision was largely driven by feedback received from market participants during MSCI's consultation period. MSCI officials had identified critical issues that needed to be addressed by the Chinese regulators for inclusion in the Index, including clarification on beneficial ownership of investments, further liberalization of the quota allocation process and capital mobility restrictions, voluntary stock suspensions, and pre-approval requirements by the Shanghai and Shenzhen stock exchanges, in MSCI's view.

Chinese Regulators Make Progress

The general consensus is that while progress has been made by Chinese regulators, these changes either fall short of what is needed or that participants will need more time to assess the effectiveness of the changes. MSCI did leave open the possibility of adding A-shares outside of its regular review cycle, but only if significant changes were made. MSCI also stressed that if and/or when an inclusion of China A-shares is announced, implementation would not occur for at least 12 months. However, given that "additional time needed to assess the effectiveness" has been cited multiple times as part of the feedback, we believe that an off-cycle addition is unlikely.

Looking ahead, this may mean that it could take until June 2018 at the earliest for A-shares to be included, even partially, in the MSCI Emerging Markets Index. As MSCI has stated consistently, the process is likely to happen gradually, with the first step reflecting a partial 5% A-shares inclusion as shown in the pie charts below.

MSCI Emerging Markets Index
Country Weights - Actual

Source: MSCI, as of June 10, 2016.
MSCI Emerging Markets Index
Country Weights - Hypothetical
Partial (5%) A-Shares Inclusion
Source: MSCI, as of June 10, 2016.
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Munis: Expect More from Your Munis http://www.vaneck.com/blogs/muni-nation/expect-more-from-munis-june-2016/ At VanEck, we believe investors should expect more from their municipal investments. Our suite of municipal bond ETFs was built precisely with this in mind.

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Van Eck Blogs 6/23/2016 12:00:00 AM Municipal bond performance has been impressive year-to-date in 2016. Muni bonds have provided a haven from the volatility in the general stock market. In addition to recent performance, we'd like to note that the municipal bond market also offers a diverse set of individual opportunities that may appeal to investors looking for more customized exposure.

At VanEck, we believe investors should expect more from their municipal investments. Our suite of municipal bond ETFs was built precisely with this in mind. The graph below shows the striking range of opportunities the suite offers – from short-duration to high credit quality, and from long-duration to high-yield.

Our innovative suite of seven municipal income ETFs offers investors the ability to exercise control over their portfolio yield, duration, and credit exposure at different points in the interest rate cycle.

VanEck Municipal Income ETFs by Yield and Duration
as of June 20, 2016


Click here for standardized performance and performance current to the most recent month-end.
Source: VanEck Research. As of June 20, 2016. The performance data quoted is past performance which is no guarantee of future results and current performance may be lower or higher than the performance quoted. Investment returns and ETF share values will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end is available by calling 800.826.2333 or by visiting vaneck.com/etfs. Modified Duration measures a bond's sensitivity to interest rate changes that reflects the change in a bond's price given a change in yield. 30-Day SEC Yield is a standard calculation developed by the Securities and Exchange Commission that allows for fairer comparisons 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 a Fund's expenses for the period. In the absence of expense waivers or reimbursements, the 30-Day SEC Yield for XMPT would have been 4.71%.

Yield Curve-Focused

Our investment grade, AMT-free, municipal ETF product offerings seek to track indices that reflect a unique segmentation of the municipal yield curve: Short (years 1-6: AMT-Free Short Municipal Index ETF - SMB); Intermediate (years 6-17: AMT-Free Intermediate Municipal Index ETF - ITM); and Long (years 17-30: AMT-Free Long Municipal Index ETF - MLN). These indices have maturity segments that are longer than those traditionally used by some asset managers. We believe this may allow investors to maximize the potential yield available in each part of the yield curve.

Credit-Focused

Our credit-focused municipal ETF product offerings seek to track indices that include both the highest credit quality available in the municipal asset class (pre-refunded: Pre-Refunded Municipal Bond ETF - PRB) and municipal high yield – short (years 1-12: Short High-Yield Municipal Index ETF - SHYD) and all maturity (years 1-30+: High-Yield Municipal Index ETF - HYD). The high yield indices include an investment grade component to help enhance liquidity.

Smart Beta

Our smart beta municipal ETF (CEF Municipal Income ETF - XMPT) seeks to track an index that includes closed-end funds that hold municipal bonds (CEFs).

We believe that, with their yield curve, credit and smart beta focuses, our suite of municipal income ETFs provide investors with a way to access the potential opportunities within municipal fixed income and to "get" more from their munis.

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Attractive Yields and Value in High Yield Emerging Markets Bonds http://www.vaneck.com/blogs/etfs/attractive-yields-value-high-yield-emerging-markets-bonds-june-2016/ High yield emerging markets corporate bonds have had a strong start to 2016. They offer unique benefits to investors and can provide an income-producing complement to an investment in emerging markets equities.

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Van Eck Blogs 6/22/2016 12:00:00 AM

Authored by William Sokol, Product Manager, ETFs

Strong Relative Performance

High yield emerging markets corporate bonds have had a strong start to the year, outperforming emerging markets equities with a 7.75% year-to-date return at the end of May.

Longer term, the asset class has returned on average 7.40% per annum over the past 10 years (for the period ending 5/31/2016), outperforming both U.S. high yield corporates and emerging markets equities. Given this attractive long-term performance, it's worth taking a closer look at the potential value that this asset class can provide.

Performance Comparison: Average Annual Total Returns as of 5/31/2016

Asset Class YTD % 1 YR % 3 YR % 5 YR % 10 YR %
HY Emerging Markets Corporate Bonds 7.75 2.33 3.07 4.72 7.40
HY U.S. Corporate Bonds 8.15 -0.92 2.89 5.26 7.28
Emerging Markets Equity 2.32 -17.63 -4.95 -4.83 3.11
Source: Morningstar and Bloomberg; see definitions below. Past performance is not a guarantee of future results. Index returns are not Fund returns and do not reflect any management fees or brokerage expenses. HYEM performance current to the most recent month end is available here.

Attractive Characteristics

The high yield emerging markets bond sector, as measured by the BofA Merrill Lynch Diversified High Yield US Emerging Markets Corporate Plus Index, has grown tremendously in the past 10 years, from a market value of $33 billion in 2006 to approximately $346 billion today. Although emerging markets corporate issuers may issue bonds denominated in local currencies, the vast majority of high yield emerging markets bonds are U.S. dollar denominated (and are the focus here), which significantly reduces the currency risk to U.S. investors.

At the end of May, the sector was yielding 8.42%. That was approximately 1% more than U.S. high yield (7.43%), while also having a lower duration (3.80 versus 4.33), a higher average credit rating, and a historically lower average default rate.

Why Higher Yields?

Emerging markets corporate issuers have traditionally had to pay more for financing versus their similarly rated U.S. market counterparts due to the additional risks generally associated with emerging markets investing. For example, the average spread of BB rated emerging markets bonds was 58 basis points higher than those of U.S. bonds falling into the same ratings bucket, as of May 31, 2016. For B rated bonds, that spread differential was nearly 200 basis points.

High Yield Emerging Markets Bonds Provide Higher Spreads Per Rating Versus U.S. High Yield (as of 5/31/16)

Source: BofA Merrill Lynch.

Hidden Value

Certain emerging markets corporate issuers may have credit ratings that reflect higher risk profiles than their corporate fundamentals alone would suggest, and pay higher yields than similar issuers based in developed markets. Why? Because a local sovereign credit rating can be a significant determinant of the credit rating on a corporate issuer's foreign currency bonds. The risk that a national government may impose restrictions limiting an issuer's ability to convert local currency into foreign currency to fulfill its external debt obligations is taken into account by rating agencies. This risk is generally higher for emerging markets countries, and therefore this "rating ceiling" can have a meaningful impact on an emerging markets corporate issuer's credit rating. This can create value for investors, who can potentially earn a higher yield relative to the underlying corporate risk they are taking.

The yield provided by high yield emerging markets bonds reflects both the potential risks and the value that the asset class can provide. High yield emerging markets bonds can provide an income-producing complement to an investment in emerging markets equities, and can also provide issuer and regional diversification alongside a domestic high yield allocation.

High yield emerging markets bonds can be accessed through VanEck VectorsTM Emerging Markets High Yield Bond ETF (HYEM).

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Vietnam: An Important Asia-Pacific Player http://www.vaneck.com/blogs/etfs/vietnam-important-asia-pacific-player/ The importance of Vietnam has not been lost on President Barack Obama…. Over the past decade, Vietnam has become an increasingly significant player in the Asia-Pacific region.

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Van Eck Blogs 6/17/2016 12:00:00 AM

Authored by James Duffy, Product Manager, VanEck Vectors ETFs

The importance of Vietnam has not been lost on President Barack Obama. With his three-day mission in late May, Obama represented only the third U.S. president to visit Vietnam since the end of U.S. involvement in 1973. (Presidents William Clinton and George W. Bush visited exactly six years apart in November 2000 and 2006, respectively.)

Obama's goal of upgrading U.S.-Vietnamese relations reflects a desire to geopolitically offset China's growing strength in the region, and to tap into an emerging power whose rapidly expanding middle class could help expand the market for U.S. goods.

Possible Counterbalance to China

Over the past decade, Vietnam has become an increasingly significant player in the Asia-Pacific region. Vietnam potentially serves an important counterbalance to proximate Chinese territorial claims, particularly in the South China Sea. This may be the primary reason why President Obama lifted the U.S. embargo on the sale of military equipment to the country on May 23.

Vietnam's economy has experienced significant growth, with the country's annual GDP growth rate averaging 6.49%1 from 2000 to 2015. On a quarterly basis, it reached an all-time high of 8.46% in the fourth quarter of 2007. And a record low of 3.14% in the first quarter of 2009.2

Growing Economy Targets Services and Industry

The Vietnamese government is firmly focused on fostering economic growth. In April, Vietnam's National Assembly agreed upon an ambitious five-year socio-economic development plan taking it up to 2020,3 despite a recent drought and a fall-off in first quarter GDP. One of the nine economic indicators to be assigned a target for 2020 was the contribution to GDP from the industry and services sectors. Accounting for 68% of GDP in 2015 (services at 40% and industry at 28%), the target for 2020 is a combined total of 80%.4

Culture of Business Entrepreneurship

Vietnam boasts a very young population, with 41% under 25-years old.5 Much of the country's future growth will likely need to come from successful business entrepreneurship. Although the Vietnamese are already well known for their entrepreneurship, the success rate for new enterprises will need to be greatly improved. For example, in Q1'16, although more than 23,000 new businesses were started, 22,000 companies either suspended operations or went bankrupt.6

The Vietnam stock market has experienced growth from 2007-2015, as seen in the below chart. This trend may continue as the Ministry of Finance is seeking to reduce costs for investors and provide access to capital for aspiring companies7 by combining the small-cap-oriented Hanoi stock exchange with its larger sibling based in Ho Chi Minh City.8

Vietnam Stock Market Capitalization
2007-2015

Source: Bloomberg.

The Vietnam market can be accessed through VanEck VectorsTM Vietnam ETF (VNM), the first U.S.-listed ETF focused exclusively on Vietnam and provides investors a convenient way to customize their international exposure.

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May Acquisitions Help U.S. Moats http://www.vaneck.com/blogs/moat-investing/may-acquisitions-help-us-moats-june-2016/ Strong relative performance in May helped U.S. moat-rated companies continued to impress in 2016. M&A activity and the strong showing of healthcare companies were key themes.

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Van Eck Blogs 6/16/2016 12:00:00 AM

For the Month Ending May 31, 2016

Performance Overview

U.S. moat-rated companies continued to impress in 2016 with another strong relative performance month in May. The U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR) topped the S&P 500® Index (2.69% vs. 1.80%) for the month and maintained its relative performance year-to-date (15.07% vs. 3.57%). By contrast international moats fared less well in May with the Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN) lagging the MSCI All Country World Index ex USA (-2.09% vs. -1.69%).

U.S. Domestic Moats: May M&A

News of Bayer's (BAYN GR) bid to buy wide moat agrichemical giant Monsanto Company (MON US) boosted shares of MON US late in the month. This came on the heels of Abbott Laboratories' (ABT US) announcement of its intent to buy wide moat St. Jude Medical (STJ US) which propelled the stock performance of STJ US in April. Healthcare companies continued their strong performance for MWMFTR in May led by McKesson Corp (MCK US) and Allergan (AGN US). The industrials sector was the leading detractor for the month with notable poor performance from rail companies CSX Corp (CSX US) and Norfolk Southern Corp (NSC US).

International Moats: Financials in Flux

As with U.S. moats in May, internationally focused MGEUMFUN's exposure to healthcare companies helped boost performance. However, the Index was unable to overcome the negative performance contributions from industrials and financials companies, ending the month down 2.09%. Canadian banks struggled in May as many have been forced to deal with credit losses related to the oil & gas industry. Overall, construction firm China State Construction International Holdings Limited was the poorest Index performer in May.

Special Update: Morningstar Index Enhancements

As previously announced, Morningstar will implement enhancements to the index methodology for MWMFTR and MGEUMFUN effective June 20, 2016. The indices will continue to be built on Morningstar's equity research which identifies sustainable competitive advantages at attractive valuations, but will aim to reduce turnover, broaden diversification, and mitigate unintended sector concentration.

Read more about Morningstar's index methodology enhancements »



(%) Month Ending 5/31/16

Domestic Equity Markets

International Equity Markets

(%) Month Ending 5/31/16

Morningstar
Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers
Constituent Ticker Total Return
Monsanto Company
MON US
20.06
McKesson Corporation
MCK US
9.13
LinkedIn Corporation Class A
LNKD US
8.93
Allergan plc
AGN US
8.86
Biogen Inc.
BIIB US 5.36

Bottom 5 Index Performers
Constituent Ticker Total Return
MasterCard Incorporated Class A
MA US
-1.12
Gilead Sciences, Inc.
GILD US
-1.30
CSX Corporation
CSX US
-2.40
Walt Disney Company
DIS US
-3.91
Norfolk Southern Corporation
NSC US
-6.09

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 7.57
Henderson Group plc HGG LN 7.36
Sands China Ltd. 1928 HK 7.04
Lloyds Banking Group plc LLOY LN 6.69
KBC Groupe SA KBC BB 5.48

Bottom 5 Index Performers
Constituent Ticker Total Return
Centrica plc CNA LN -11.52
Compagnie Financiere Richemont SA CFR VX -11.52
IOOF Holdings Ltd IFL AU -12.40
Embraer S.A. EMBR3 BZ -12.44
China State Construction International Holdings Limited 3311 HK -18.02

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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Steel: U.S. Strong Despite Global Oversupply http://www.vaneck.com/blogs/natural-resources/steel-us-strong-despite-global-oversupply-june-2016/ Although the global steel industry may be in a slump, the U.S steel industry shows strong promise and has performed well thus far in 2016. Senior Analyst Charl Malan explores why.

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Van Eck Blogs 6/14/2016 12:00:00 AM

Overview: The U.S. steel industry has been a developing, positive theme in 2016. Steel impacts the industrial metals components of VanEck's actively and passively managed natural resources strategies. As of March 31, 2016, steel-related companies accounted for approximately $250 million of the firm's assets under management.

The global steel industry is oversupplied and is facing significant headwinds. 2015 was arguably a turbulent year for the industry, given these major negatives: China's economic slowdown, falling prices, and a glut of foreign steel imports into the U.S. (mainly from China).

Despite the negative view for the global steel industry, we believe that the U.S. steel industry has bottomed and unique investment opportunities exist. Thus far in 2016, the U.S. steel industry has performed well, and, we believe, there are further compelling upside opportunities. In short, we see these positive signs: (1) a continuation of a strengthening U.S steel price environment (Chart A); (2) fundamentally better operating and financial conditions via improved capacity utilization (Chart B); and (3) the potential for an industry-wide multiple rerating, which has not occurred in a long time.

Chart A: U.S. Steel Prices Rebound in 2016 ($/ton)

U.S. Steel Prices Show Rebound in 2016 Source: CRU, Morgan Stanley Research. HRC represents "hot rolled coil"; CRC is "cold rolled coil"; and HDG is "hot dipped galvanized steel." All represent types of steel. Data as of 4/30/2016.

Chart B: U.S. Steel Industry Operating Conditions/Rates (% Capacity Utilization)

U.S. Steel Industry Operating Conditions/Rates Source: AISI, Morgan Stanley. Capacity utilization is a metric used to measure the rate at which potential output levels are being met or used; this chart demonstrates improvement thus far in 2016. Data as of 4/30/2016.

Flood of Supply from China

The global steel industry is oversupplied, with about 33% idle spare capacity. During the period from 2012 to 2015, global steel production increased from 1,554 million metric tons (mmt) per annum to 1,667 mmt per annum, a 113 mmt (or 7.3%) jump, of which 94 mmt came from new capacity in China.

The magnitude of this increase in global supply is best understood when stacked against demand. The U.S. is the world's third largest consumer of steel, with a 120 mmt to 130 mmt per annum market, while the European Union is the second largest market at 140 mmt to 150 mmt per annum. (China is both the world's largest consumer and producer.)

China's Overcapacity Problem

China's demand for steel began to wane just at the time that the country began aggressively increasing its domestic production. The net result was that steel once destined for the Chinese domestic market found its way onto the export market with Chinese exports increasing from 42 mmt per annum in 2012 to 100 mmt per annum in 2015 (see Chart C).

Chart C: China's Net Steel Exports

China's Net Steel Exports Source: VanEck, Bloomberg. Data as of 4/30/2016.

Predictably, the increase in Chinese steel export volumes depressed international steel export prices. This placed significant price pressure on domestic steel prices in countries that are large importers of steel, such as the U.S.

U.S. Steel Prices' 2015 Collapse

At the end of 2015, steel (hot rolled coil) exports from China traded at $250/ton and imports into the U.S. reached record highs of 30% of demand, compared with a more normalized level of 18% to 20%. With cheaper imported steel flooding the U.S. market, domestic prices collapsed from $480/ton to around $370/ton (-23%) between July 2015 and January 2016.

These low prices (last seen during the 2008/2009 global financial crisis) threw the U.S. steel industry into a crisis of reduced orders, idle mills, and significant layoffs. To protect itself, the industry turned to trade protection measures to help combat low-priced imports. The Leveling the Playing Field Act, passed in 2015, seeks to maintain a fair marketplace for U.S. steelmakers as it restores and strengthens anti-dumping rules and countervailing duties.

As a result, in March 2016 the U.S. Department of Commerce announced that both government subsidies and dumping were occurring and accordingly levied tariffs in the range of 282% to 493%. These are more than enough to lock out Chinese steel from the U.S. market.

Upside Potential for U.S. Steel Prices

Looking out post the implementation of these policies, we expect current U.S. domestic steel prices to have additional upside. We believe that the price of domestic steel could improve because: (1) the removal of "dumped and government subsidized" steel from the domestic market will normalize the mix between domestic supply and imports; (2) inventories will be drawn down; and (3) upward pressure on raw material prices, such as coking coal and iron ore, will continue.

However, looking ahead to 2017, we do expect the market to soften as higher prices translate into increased supply either from the U.S. domestic market (U.S. steel utilization rate is around 74%) or from increased imports. Finally, the strong automotive and non-residential markets alone are not sufficient to offset a potential increase in U.S domestic supply and so a resurgence in demand from other industries, such as the energy industry, will be required.

Trade Protection Taking Shape

In conclusion, although the U.S steel industry has performed well to date in 2016, we believe the opportunity has more near-term upside potential as the enforcement of all trade protection laws is still in its early stages. As authorities eventually implement these policies for steel, it would not be surprising to see additional trade protection announcements being made covering other key U.S. commodities.


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Setting the Stage for the Next Gold Bull Market http://www.vaneck.com/blogs/gold-and-precious-metals/setting-stage-next-bull-market-june-2016/ Gold markets fluctuated in May on changing U.S. interest rate expectations, and both gold bullion and gold shares suffered. The Fed's less aggressive stance on rates may help gold remain above $1,200 per ounce.

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Van Eck Blogs 6/13/2016 12:00:00 AM

For the month ending May 31, 2016

The gold market moved to the beat of the Federal Reserve's (the "Fed") rate hike signal drumming in May. At the beginning of the month, the probabilities of a rate increase, as implied by the federal funds futures markets1, were 12% for an increase in June and 26% for a July increase. That dropped to 4% for June and 19% for July by May 16. On May 18, the market interpreted the minutes from the Federal Open Market Committee (the "FOMC") April meeting as being more hawkish than anticipated and market expectations of rate increases in June and July jumped to 32% and 47%, respectively. Gold traded down for nine consecutive sessions following the release of the FOMC's minutes. Gold dropped to an intra-day low of $1,199 per ounce on May 30, and ended the month at $1,215 per ounce for a loss of 6.0% or $77.66.

U.S. Economic Data Mixed

The U.S. dollar, which historically has a strong negative correlation2 with the gold price, also reflected the market's assessment of a rate hike this summer, with the U.S. Dollar Index (DXY)3 ending May up 3% for the month. The change in market sentiment regarding upcoming Fed rate decisions was primarily driven by comments from Fed Chair Janet Yellen and other Fed officials. Meanwhile, U.S. economic data releases continued to be mixed, and, in our view, do not paint a clear picture of the U.S. economy that would favor further tightening in the near term. Positive April economic data included retail sales and existing and new home sales coming in above expectations, and an increase in the ISM Manufacturing Index4 reading for May that was widely expected to be declining. In contrast, employment data and construction spending were below expectations while the University of Michigan Sentiment Index5, Consumer Confidence Index6, and manufacturing activity in Chicago and Dallas for May were all weaker than expected.

Disappointing May Jobs Report the Most Impactful

But the most impactful, in our opinion, economic data was the May jobs report announced by the U.S. Department of Labor on June 3. Reported figures were massively below expectations, showing the lowest number of workers added in six years. While market chatter before the report's release may have suggested the Fed had everyone convinced of a summer hike, a hike was not priced in for June, as evidenced by the 20% implied probability. The chance of a July hike was only at 53.6%. Immediately after the jobs report, those probabilities dropped to 4% and 29% respectively, the DXY Index fell (down 1.7%) and gold rallied (up 2.8% or $33 per ounce), closing at $1,244 per ounce on June 3.

With gold falling in May, gold stocks underperformed. The NYSE Arca Gold Miners Index (GDMNTR)7 fell 11.9%, and the MVIS Global Junior Gold Miners Index (MVGDXJTR)8 dropped 11.5% during the month, trimming gains for the year to 65% and 76% respectively, as of May 31, compared to gold's gain of 14.5%.

Gold ETPs Have Increased 27% in 2016

Of note, the amount of gold held by global gold bullion exchange traded products (ETPs) increased by an additional 4.8% during the month of May. Holdings of global gold ETPs have increased almost 27% this year to an estimated 59.5 million ounces of gold, still well below the 2012 peak of more than 84 million ounces.

We have been of the opinion that the Fed may not be as aggressive as previously guided, and that rising rates in 2016 could be a significant impediment to the U.S. economy. The June 3 jobs report missed expectations by a wide margin. In May, the U.S. added just 38,000 workers, compared to the median of 160,000 as forecasted by Bloomberg. Job gains for prior months were downgraded as well. This indicates a weakening labor market and reduces the odds of Fed rate increases in the coming months.

Gold Entering Early Stages of a New Bull Market

We believe this is another important inflection point for gold that suggests the early stages of a new bull market. The gold price has been consolidating in the $1,200 to $1,300 per ounce range since early March, hitting a low of nearly $1,200 per ounce on May 30. It now appears as if gold is poised to remain above the technically and psychologically important $1,200 per ounce level. While it is not uncommon for the gold price to struggle in the summer months, we believe gold is forming a new base. We expect to see higher gold prices as the year progresses.

Gold Price Monthly Return Average, 1971-2015 and 2016

Gold Price Monthly Return AverageSource: Bloomberg, Scotiabank GBM

Gold Companies Transitioning with Higher Cash Flows

We met the management of approximately 20 gold companies during the month, which allowed us to get a good sense of what's happening in the sector. The main takeaway is that while companies are still focused on efficiencies, cost savings, and operating improvements to help maximize cash flow, higher gold prices this year have shaped the conversation around what to do with these new cash levels.

For some companies, paying down debt still remains a priority. For firms currently building new mines, the higher cash flows provide a welcome cushion and remove market concerns over financing. Many companies also expect dividends to resume and/or increase as free cash flow grows. But for most companies, higher cash flows, at a time when balance sheets are in good shape and costs are under control, will likely bring back the opportunity to add future growth.

Companies Shifting Focus Toward Growth and Profitability

Valuations are still relatively low, so there is opportunity to buy assets. Exploration spending, which had been significantly reduced over the last couple of years, should also pick up again, allowing companies to add resources and reserves and increasing their chances of making new discoveries. Projects that have been shelved will be revisited as financing becomes available. We met with management teams that, despite the higher gold price and increased cash flows that come with it, remain firmly committed to growing profitability and returns rather than production. We heard more than once in our discussions that a new ounce of production is only good and will only be added if it improves or maintains the existing per ounce profitability of the company. Companies are measuring growth in free cash flow per share, for example, rather than production volumes.

This is very encouraging to us. Company initiatives have slowly and cautiously started to shift from mere survival to thriving. "Caution" is the key word here. As they embark on what may be the next gold bull market, we believe gold companies need to continue to demonstrate a rigorous capital allocation strategy that focuses on value creation for shareholders and positions the gold mining equity sector in the investable universe of the broader market.

Download Commentary PDF with Fund specific information and performance »


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MSCI to China: Let Us In and We'll Let You In http://www.vaneck.com/blogs/etfs/msci-china-let-us-in-well-let-you-in-june-2016/

Tomorrow MSCI will announce the results of their annual classification review and the highly anticipated decision on the inclusion of China A-shares within its flagship Emerging Markets Index. A decision to include A-shares would mark a major milestone for China's mainland equity markets.

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Van Eck Blogs 6/13/2016 12:00:00 AM

Authored by James Duffy, Product Manager, VanEck Vectors ETFs

Chinese regulators have realized that mainland equity markets need to be more accommodating, transparent, and, in the case of Morgan Stanley Capital International (MSCI), more open. Inclusion of China A-shares in MSCI's Emerging Markets Index, a benchmark with an estimated $1.5 trillion tracking it, may be pivotal in encouraging new investment in the country.

In 2014, MSCI first considered including China A-shares in its Emerging Market Index. At that time MSCI, in consultation with clients, opted not to include them, citing "remaining investability constraints linked to the Qualified Foreign Institutional Investment (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) quota systems".1

MSCI Collaborated with China to Foster Inclusion

In 2015, despite having made "substantial progress toward the opening of the Chinese equity market to institutional investors",2 MSCI felt there was additional liberalization that needed to take place. Once again, it chose not to include China. MSCI did, however, form a collaborative working group with the China Securities Regulatory Commission (CSRC) in the hopes of resolving the remaining issues.

Since the beginning of 2016, China has taken steps to meet MSCI's requirements for accessibility and transparency. In February, QFII quotas were increased from $1 billion to $5 billion and lock-up periods were shortened from one year to three months. This was followed more recently by rules restricting trading halts in stocks. Trading halts have been a major concern for MSCI and investors alike following the sharp selloff that began in the summer of 2015. Under the new rules, a stock can halt trading for up to three months for "major asset restructuring", and up to one month during "private placement".3

China Has Instituted Many Positive Changes

The changes made so far this year, along with the anticipated expansion of the Shanghai-Hong Kong Stock Connect program to include the Shenzhen Stock Exchange, have some investors speculating that this could be the year that China finally gets a spot in the MSCI Emerging Markets Index. In a recent report, Goldman Sachs estimated that there was a 70% likelihood that MSCI would add China A-shares to its flagship benchmark.4 Any inclusion of A-shares would likely be phased in over time with an initial allocation expected to be around 5%.5

As China transitions from a manufacturing-based economy to a services-based economy, being included in the premier emerging markets benchmark will likely be welcomed news to investors.

MSCI Emerging Markets Index - Country Weights
as of May 31, 2016

 

Source: MSCI.

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Munis: Supply Dynamics http://www.vaneck.com/blogs/muni-nation/supply-dynamics-june-2016/ Yields on municipal bonds have dropped and the muni yield curve has flattened. This has had a positive impact on performance. Why? Jim believes one reason may be lack of supply.

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Van Eck Blogs 6/9/2016 12:00:00 AM Muni yields have dropped and the yield curve has flattened. Why? One reason is lack of supply.

But why the lack of supply? Supply is commonly defined as new issuance to finance public purpose projects around the country. Issuance itself is subject to a number of factors, not least of which is predictable seasonality. Generally speaking, at the end of the second quarter issuance tends to intensify as municipalities approach their fiscal year ends, predominantly at the end of June. In July and August, there is a natural lull as people take vacations and the market receives less attention. Finally, in the last quarter of the year, the pace of issuance generally picks up again as bankers seek to book deals before the year ends.

But seasonality really only constitutes "noise" over the underlying supply "signal", and that signal remains weak. Since the global financial crisis and the subsequent recession, municipalities remain wary of increasing their citizens' tax burdens. Property values have been restated, leading to lower tax bases, with some companies relocating while others have gone out of business, resulting in lost jobs. Uncertain revenue streams have prevented expansion of capital programs at many local levels, hence this has resulted in far less supply than one might anticipate given what current low interest rates could support. Demand for munis, by contrast, has remained robust. We entered 2016 coming off the back of two strong years in 2014 and 2015, and investors comfortable with, if not reliant upon, steady income from the muni space. And in the face of persistent uncertainty in both the domestic U.S. and international markets, munis have continued to provide investors with low correlation to other asset classes, and strong credit quality, in addition to positive performance for the past three years according to the Barclays muni bond indices.1

This is clearly illustrated by muni fund flows versus issuance over the past three years, as well as year-to-date 2016.

Municipal Bond Fund Flows

Source: Morningstar. All muni mutual funds and ETFs as classified by Morningstar. As of 4/30/16.


Municipal Bond New Issuance

Source: MSRB. As of 4/30/16.

One way of addressing the supply issue, would be for Congress to launch a national infrastructure financing program akin to the Build America Bond (BAB) program launched by President Obama in February 2009 in the wake of the global financial crisis. Such a move would serve not only to provide much needed, and, in some cases vital, infrastructure improvement, but also, through fiscal policy, to take the onus for stimulating growth from the Federal Reserve alone. In addition, while sidestepping any need for municipalities themselves to raise taxes, it could, like BAB, have an immediate effect.

Post Specific Disclosures

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

Correlation, in the world of finance, is a statistical measure of how two securities move in relation to each other.

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Spring Takeover Bids a Boon http://www.vaneck.com/blogs/moat-investing/spring-takeover-bids-boon-june-2016/ Strategic mergers and acquisitions (M&A) can be attractive investment themes for moat companies, and this spring the Morningstar® Wide Moat Focus Index (MWMFTR) has seen a flurry of activity from the healthcare sector.

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Van Eck Blogs 6/8/2016 12:00:00 AM

Stock selection, a cornerstone of the moat investment philosophy, has driven much of the recent success of the Morningstar® Wide Moat Focus IndexSM (MWMFTR), which has gained over 15% YTD as of May 31, 2016. Of late, consolidation has been king and we've seen increased M&A activity.

M&A Activity Can Strengthen Moats

The concept of an economic moat refers to how likely a company is to keep competitors at bay for an extended period of time. Simply put, moat investing comes down to identifying companies that are able to stay one step ahead of the competition. Economic moats are often part of the strategic rationale for M&A transactions and post-acquisition success can be an important factor in moat ratings.

Strategic M&A can be attractive investment themes for moat companies — not only potential takeover targets but possible acquirers as well. Bolstered future return on capital and increased market share have the potential to strengthen these companies' economic moats and highlights the derived value from their acquisition strategies.

M&A Deals in the Works

M&A in general has been a prevalent theme in MWMFTR this spring. In April, Abbott Laboratories (ABT US) announced its intent to acquire St. Jude Medical, Inc. (STJ US) for $25 million, positioning the two to capture a larger market share position within the cardiovascular device market. The deal is expected to close in the coming fourth quarter. St. Jude was first added to MWMFTR on March 21, 2016. It was the big winner among domestic moat-rated companies for the month of April. (Read more on April's results in A Star Spangled April for Moats.)

In another announcement, German chemical and pharmaceutical company Bayer AG (BAYN DE), currently the number two crop chemical producer in the world, made an unsolicited takeover offer for Monsanto Company (MON US), the world's leading seed company. While currently facing a multitude of hurdles, the deal, if completed, would mark the largest-ever German takeover of a foreign company.1 A constituent in MWMFTR since it was added to the index on September 21, 2015, shares of MON soared immediately following reports of the buyout approach.

M&A doesn't always end in fist bumps and high fives, however. In April, U.S. drug maker Pfizer Inc. (PFE US) terminated its agreement to acquire Botox maker Allergan Plc (AGN US) on the heels of a new tax ruling by the U.S. Department of Treasury targeting its anticipated tax benefits. The announcement sent AGN US' price falling. However, investors will need to sit tight to see how AGN's $40.5 billion sale of its generic drug unit to Teva Pharmaceutical Industries Ltd (TEVA US) shakes out.

St Jude, Monsanto, and Allergan are all holdings of MWMFTR and VanEck Vectors Morningstar Wide Moat ETF (MOAT®). As of May 31, 2016, they represented 6.51%, 5.75%, and 3.69% of the Fund's net assets, respectively. Their pre- and post-deal-announcement fair values can be seen in the table below.

Click here for more details on MOAT holdings.

Morningstar Valuation Analysis

Acquisition Target Pre-Acquisition Announcement Fair Value Estimate Current Fair Value Estimate Proposed Acquisition Price per Share
St. Jude Medical $71 $85 $85
Monsanto Company $120 $120 $122
  Pfizer Merger Scenario Fair Value Estimate Standalone Fair Value Estimate Including Teva Acquisition
Allergan Plc $430 $370
Data as of May 20, 2016. Source: Morningstar.

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China’s “New Economy” Leshi Makes Vital Acquisition http://www.vaneck.com/blogs/etfs/chinas-new-economy-leshi-makes-vital-acquisition-june-2016/ Leshi is a great example of a company driving China's New Economy. Dubbed "the Netflix of China", Leshi plans to acquire Le Vision Pictures which will expand its business into film production and the "big screen".

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Van Eck Blogs 6/2/2016 12:00:00 AM

Authored by James Duffy, Product Manager, VanEck Vectors ETFs

Dubbed "the Netflix of China", Leshi Internet Information & Technology Corporation was the first online video firm to go public in China. On May 9, 2016, Leshi announced its plans to acquire Le Vision Pictures, which will help further expand its business into film production and the "big screen". Leshi is a great example of how the tech service industry is helping to drive China's New Economy (characterized by China's transition from an investment-driven to a consumer-led economy).

China's economic growth woes aside, its transition to the New Economy frames an opportunity for the country's consumer-led stocks. Companies like Leshi are capitalizing on potential opportunities both to gain market share and increase earnings. As shown in the chart below, New Economy companies listed on China's domestic A-share markets outperformed their old economy counterparts in 2015, experiencing an increase in earnings per share year-over-year.1

China's New Economy Outperforms Old Economy

Earnings Per Share for A-Share Companies with Reported 2015 Earnings (RMB Per Share)

China's New Economy Outperforms Old Economy

Source: Financial Times, as of March 29, 2016.

Leshi to Expand Offerings to Young Consumer Demographic

In a few short years, Leshi has grown from the first publicly listed online video provider to the second-largest company listed on Shenzhen's tech-friendly ChiNext board with a capitalization of Rmb109 billion.2 For the first quarter of 2016, Leshi declared a 117% rise in operating revenue year-over-year and a net profit increase of over 20% for the same time period.3

Leshi's deal to acquire 100% of Le Vision Pictures, its film production and distribution affiliate within parent LeEco, has the potential to greatly expand Leshi's reach both inside and outside of China. Currently engaged in mobile television and internet video production, the deal allows Leshi to supplement its online services with big screen film.

Le Vision Expands Leshi's Reach to Hollywood

Le Vision Pictures is one of the largest film production and distribution companies in China. With success financing and distributing Hollywood imports into China (such as The Expendables 2 & 3), the company is currently growing its presence in Hollywood. It recently partnered with Legendary East and Universal Pictures on The Great Wall, an upcoming American-Chinese fiction film starring Matt Damon and Andy Lau.4

With the acquisition of Le Vision Pictures, Leshi is positioned to further its foothold as a leading player in the online content market, one that will likely resonate with China's younger consumer demographic. Perhaps China's tech-forward service industry will continue to foster a growing number of startups that will help to stake its claim as New Economy China.

The new economy China market can be accessed through VanEck Vectors ChinaAMC SME-ChiNext ETF (CNXT). As of May 31, 2016, Leshi comprised 4.04% of (CNXT).


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Munis: Flattening Yield Curve Supports Performance http://www.vaneck.com/blogs/muni-nation/flattening-yield-curve-supports-performance-may-2016/

Jim explores how muni performance has been helped by the flattening yield curve, and explains why he views the municipal yield curve structure as a proxy for the overall market.

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Van Eck Blogs 5/25/2016 12:00:00 AM Most of you who have been readers of Muni Nation know that I often mention the muni yield curve and use it as a reference and a point of comparison to other asset classes to identify, and make clear, opportunities.

In and of itself, the yield curve represents the estimation now of what is anticipated to be a fair return for a bond of the highest credit quality, issued to mature in each successive year, to a standard final maturity of 30 years. There is both a subjective as well as an objective component imbedded in the creation of these annual rates, expressed as the yield curve. But, most importantly, the yield curve is used as a benchmark from which the value (spread) of other bonds of similar maturity, but different credit quality, is derived.

Interestingly, taken alone, the yield curve itself can change as the outlook for the economy morphs or, for example, when the Federal Reserve (Fed) forcibly adjusts the federal funds rate.

So, why this short academic exercise?

December 2015 was the last time the Fed raised rates, and in a Muni Nation post from last December, I discussed what we anticipate to happen in a rising rate scenario. Since that post, it is useful to note, as demonstrated by the graph below, that indeed the municipal bond curve has flattened between 1 and 30 years some 39 basis points despite no further Fed rate increases. The anticipatory nature of this change has helped to generate total returns of the Barclays Long Municipal Bond Index of 4.24% compared to the Barclays Municipal Bond Index of 2.80% year-to-date through May 20, predominantly due to the strength of demand for long bonds.

The municipal yield curve structure is itself a proxy for the overall market, reflecting changes in supply and demand as well as influences of economic activity and Fed policy. The curve has flattened and returns are positive. The only question is: What do the remaining 7 months hold in store for our muni portfolios? Much of this may depend on whether the Fed takes any rate action or not. Either way, we will be sure to revisit this at year end.

Muni Yield Curve Flattening January - May 2016 Helped Generate Positive Returns for Munis

Source: BofA Merrill Lynch.

Post Specific Disclosures

Yield to Worst measures the lowest of either yield-to-maturity or yield-to-call date on every possible call date.

The Barclays Long Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt bonds with a maturity of at least 22 years or more. The Barclays 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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Alternative Energy: A Transformative Storage Boom? Part 2. http://www.vaneck.com/blogs/natural-resources/transformative-storage-boom-part-2-may-2016/ Exploring the growing opportunities in solar alternative energy and the need for increased battery storage, as California leads the U.S. in what may become widespread adoption.

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Van Eck Blogs 5/24/2016 12:00:00 AM

Written by Veronica Zhang, this is part two of a two-part series that explores the growing opportunities in alternative energy and battery storage. Read Part 1.

California: A Model Fit for Storage

The challenge to meet two-way grid functionality is most pressing in California, which is on track to meet its goal of generating 33% of electricity from renewables in 2020. The oft-cited "Duck Curve" forecasts the topology of electricity demand that conventional power utilities must meet in California as the state becomes more renewable-dependent. This illustrates the magnitude of the inflection in expected conventional electric demand when solar contributes the majority of its supply during daylight hours and, conversely, when solar "shuts off" when the sun sets. This phenomenon is magnified in the winter months (the sun sets before the evening peak load), as well as during outages and natural disasters, all factors that would likely increase the state's vulnerability to price spikes and power disruptions. The seasonal volatility and potential for over/undergeneration as we approach the 2020 scenario calls for a solution to normalize demand, as the current state of the grid is not equipped to fluctuate so dramatically to meet demand. The answer from a cost and reliability perspective: battery storage.

Indicative Hourly Conventional Electric Utility Demand

hourly-electric-utility-demand-chart-may-2016Source: CAISO. California's Duck Curve: Illustrative trajectory of grid electricity demand as more homeowners switch to solar, thus not needing to tap the grid at hours at which the sun is strongest. As California achieves higher penetration each year, grid demand continues to fall, exacerbating the slope of demand ramp-up when the sun "shuts off" and grid turns on. This phenomenon is named after the resemblance to the profile of said water fowl.

The Need for Bigger, Better, Cheaper Batteries

The technology behind battery storage for the grid initially emerged from batteries used in laptops, consumer electronics, and electric vehicles (EV), with declining input prices and improving technology driving the adaption into larger-scale formats. There is currently extensive debate on the particular chemistry of the "optimal" grid battery (it differs from that of EV batteries, which must be light, dense and compact as they are installed in vehicles, versus the storage battery, which can be larger and remains stationary). While absolute capital costs are important, the crucial element here is the levelized cost of electricity (LCOE), which measures the all-in cost of electricity produced by a given source, and is a metric that regulators use to compare different methods of electricity generation.

Quick Math: Traditional lithium ion batteries have at max 1,000 cycles (full charge to full discharge), with a degrading tail end after a few hundred cycles. Assuming 90% efficiency over its lifetime, a $100/kWh battery would equate to $0.11/kWh electricity storage ($100 divided by 1,000 cycles @ 90% efficiency). For scope, retail electricity in the U.S. averages ~$0.12/kWh.

Tesla: Pioneering the Cost Curve

Tesla's 10kWh PowerWall battery retails for $3,500, or $350/kWh. This looks expensive and uneconomical relative to the LCOE math, but it is worth noting that the product is testing a niche market and the manufacturing itself has significant room for cost reduction when production becomes mainstream. Tesla projects battery costs to drop to $100/kWh by 2020, a target seconded by General Motors (GM), which predicts hitting the $100/kWh mark by 2021.

Similar to the decline in the cost of solar photovoltaic/PV (which includes price of polysilicon, installation costs, and sales/customer acquisition costs) of 50% in just five years, the same is expected of battery storage system price declines (lithium metal, increasing density per gram, and manufacturing in scale). The LCOE of combined solar and storage, while not a means to go fully "off-grid" permanently, is headed in a direction competitive with traditional power generation.

grid-only-electricity-chart-may-2016Source: RMI. Long-term outlook: Illustrative graph charting the difference between grid-only electricity at 3% annual escalator (top line), combination of grid +solar (middle line), and grid +solar + battery (bottom line). The first scenario is self-explanatory. The second reflects savings from solar, which has lower LCOE than traditional power generation, but still relies on the grid during evening hours and, thus, pays grid pricing when utilized. The third scenario, where electricity is predominantly supplied by solar and battery with grid access during outages and unforeseen events, reflects how customer insulation from utility price increases could be achieved. The cluster of states and their estimated electricity prices in 2050 are scattered around the bottom line, with state-by-state variance driven by the number of sunshine hours per day.

This is Only the Beginning for Storage

The debate on how to change the way we power our lives is a continuing one, although the conclusions are far more in favor of alternative energy and battery storage than ever before. Not limited only to an economic rationale, the unmeasured benefits on the environmental impact of replacing coal with the sun is another incentive spurring the change. The storage industry, while still nascent in implementation and from an investment perspective, is developing rapidly due to a need to complete the formula for the argument for solar, and why it should be here to stay.


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EM Bond Credit Ratings Downgrades Call for Diversification http://www.vaneck.com/blogs/etfs/em-bond-credit-downgrades-call-for-diversification-may-2016/ Although many EM countries have benefited from improved bond credit rating over the past two decades, this trend has stalled since 2013. Diversification within an allocation to EM bonds can help investors navigate this environment.

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Van Eck Blogs 5/20/2016 12:00:00 AM

Authored by William Sokol, Product Manager, ETFs

EM Bond Creditworthiness Has Improved

Over much of the past two decades, many emerging markets (EM) countries have benefited from a number of factors that have generally led to improved credit ratings. Until a few years ago, strong growth in China and rising commodity prices helped drive economic growth among many raw materials exporters. Central bank monetary stimulus in many developed countries led to capital flows into EM countries, helping to finance growth and keep borrowing costs low. Perhaps most important in explaining this long-term trend of improving creditworthiness are the structural reforms which many countries implemented after the financial crises of the 1980s and 1990s. Adoption of floating exchange rates and an increased ability to issue debt in local currencies has helped reduce the impact of external shocks on many EM economies.

But Has the Improvement Trend Stalled?

Since 2013, the long-term improvement in EM credit ratings appears to have stalled. This change is illustrated by the evolution in the credit rating composition of the J.P. Morgan EMBI Global Diversified Index,1 which tracks the U.S. dollar denominated EM sovereign and quasi-sovereign bond market. The investment-grade-rated portion of the Index reached a peak of 66% in 2013, versus 45% ten years prior and only 14% in 1997. However, this figure has been declining since 2013, with the high yield portion of the Index reaching 46% at the end of April.2  

Investment Grade and High Yield Rating Breakdown
of the J.P. Morgan EMBI Global Diversified Index
1997 to April 2016

 
Source: J.P. Morgan. Past performance is no guarantee of future results and may be lower or higher than current performance.

 

A spate of downgrades in recent years has included some notable losses of investment grade status by certain countries. For example, Brazil experienced downgrades as a result of economic contraction, deteriorating fiscal health, and political gridlock. Russia's high dependence on oil and gas to help finance economic growth and government expenditures, and the impact of Western imposed sanctions, resulted in downgrades beginning in 2014. South Africa now finds itself facing the possibility of losing its investment grade status as it struggles with low growth and high public debt levels.

Positive Credit Stories Can Still be Found

The story, however, is not all doom and gloom. A number of EM countries have seen an improvement in their credit ratings in recent years. For example, effective economic reforms in Peru and the Philippines have had a positive impact on the fiscal health of these countries, which led to rating upgrades. Hungary's credit rating has benefitted from economic growth and the government's commitment to managing debt levels and spending, which may help it to regain investment grade status. In Indonesia, policy effectiveness and a relatively healthy balance sheet have led to expectations of a possible upgrade this year, which may result in an investment grade rating from all three major rating agencies.

Diversify within EM Bonds

The diverging credit ratings among EM countries, and the fundamental drivers of these changes, serve as a reminder of the importance of diversification within an allocation to EM bonds. By diversifying across countries, sectors, currencies, and credit quality, investors can gain exposure to the full spectrum of EM debt. For example, the local currency debt universe is skewed toward higher rated issuers because countries with larger local bond markets also generally have greater economic stability and borrower rights. Therefore, this market can help investors reduce credit risk relative to the broad hard currency EM sovereign bond market while taking on exposure to local currencies.

Potential for Higher Yields and Increased Diversification

Over the long term, an allocation to EM bonds can potentially provide both yield enhancement and diversification benefits within a broader portfolio. EM bond yields have risen since early 2013, reflecting the market's assessment of creditworthiness, and may offer a yield premium versus developed bond market yields. Low correlation3 with other asset classes, including core fixed income sectors, may improve a portfolio's diversification.

Investors can access bonds issued by emerging market governments and denominated in local currencies with the VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC). Investors seeking to invest beyond sovereigns can gain access to high yield bonds issued by EM corporate issuers through the VanEck Vectors Emerging Markets High Yield Bond ETF (HYEM). Alternatively, investors seeking diversified exposure to the broad EM debt universe across both sectors and currencies can do so through the VanEck Vectors Emerging Markets Aggregate Bond ETF (EMAG).


 
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Alternative Energy: A Transformative Storage Boom? Part 1. http://www.vaneck.com/blogs/natural-resources/transformative-storage-boom-part-1-may-2016/ Exploring the growing opportunities in solar alternative energy and the need for increased battery storage, as California leads the U.S. in what may become widespread adoption. 

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Van Eck Blogs 5/18/2016 12:00:00 AM

This is part one of a two-part series by Analyst Zhang that explores the growing opportunities in alternative energy and battery storage.  

Alternative Energy: A Transformative Storage Boom?

The convergence of solar electricity ("solar") and battery storage may approach a tipping point in widespread adoption over the next ten years, as cost curves and improving technology make implementation more economic for homeowners.

Over the past decade, residential solar demand has grown tenfold, yet still comprises less than 2% of electricity generation in the U.S. This low level of penetration is not spread evenly across the country, with certain "pro-solar" states (both geographically and politically) commanding the vast majority of growth.

California and Hawaii Lead U.S. Solar Adoption

Congress recently renewed the solar investment tax credit (ITC) and many industry sources forecast this level of penetration to increase steadily over the next five years, growing from 7GW (gigawatts) in 2015 to 18GW in 2020. We look to states such as California and Hawaii, which led the U.S. in solar electricity adoption (51% and 7%, respectively), and of which solar comprises 7% and 15% of their respective electricity generation, as prime models for a renewables-driven future.

Total U.S. Solar Demand  

 
Source: SEIA, Solar Energy Industries Association.

 

Cumulative U.S. Solar Demand by State  

 
Source: GTM Research.

 

At this rate of expansion, a key question remains as to whether the U.S. electrical grid will be able to handle the rapid adoption of solar, and how quickly. Utilities have built the nation's electric grid for one-way power flow: from utility to home. The current policy of net metering, which allows consumers with solar panels to "sell" power back to the grid, requires substantial investment from utilities into the transmission system (smart meters, intelligent switches) to help create a more reliable and robust network.

Modernizing the Electric Grid

This all comes at a sizeable cost. The American Society of Civil Engineers estimates that utilities will spend over $20 billion annually over the next several years on the maintenance of aging infrastructure. Spending in recent years has only been targeted on hardening the system against weather-related outages, not in preparing the grid for two-way flow.

These costs are naturally passed on to customers (half of a customer's electricity bill is for transmission and distribution (T&D) charges, which include the cost borne by utilities for operating, maintaining, and upgrading the grid), and explains, in part, the increase in electricity prices over the past decade, despite falling power generation fuel costs, such as natural gas. Industry experts estimate the cost of modernizing the national grid will cost more than $475 billion over the next 20 years, which translates to twice the current spend on T&D.

In Part 2, we will explore the need for a more flexible and modern grid and how this is likely to spur growth and innovation in the form of battery storage.


 
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Munis: Keep the Pedal to the Metal http://www.vaneck.com/blogs/muni-nation/keep-the-pedal-to-the-metal-may-2016/ Jim shares what he considers the optimal municipal bond strategy at this time, based on the muni market's positive year-to-date performance and the key fundamentals that support it.

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Van Eck Blogs 5/17/2016 12:00:00 AM Those of you who recall the CB (citizens band) radio craze of the 1970s may recognize the following expression the era spawned: "Keep the pedal to the metal." Its fundamental meaning — push ahead with determination — comes to mind as I consider what I believe is the optimal municipal bond strategy at this time.

Following recent and very thoughtful guest contributions to Muni Nation, I thought it's time I provide my outlook for the remainder of the second quarter. Firstly, I think it is important to take note of the municipal market's performance thus far in 2016 (through April 29). Returns were positive each of the last four months; the market is up 2.42% year-to-date1. The eight consecutive months of cash inflows into muni funds that helped fuel these gains highlight the key fundamentals supporting this market: a modest increase in new bond supply, the historically low default rate2 underlying the majority of issues, and the taxable equivalent yields compared to many taxable alternatives.

Comparative Index Yields (Nominal vs. Taxable Equivalent Muni)
As of 5/1/16

Source: Barclays. For illustrative purposes only. Index performance is not indicative of fund performance. Past performance is no guarantee of future performance. Municipal index yields reflect taxable equivalent yields, based on the highest U.S. Federal income tax rate of 39.6%. If an investor were in a lower tax bracket, the yields would have been lower.

Additionally, I believe that yields should hold at or near current levels even in the unlikely event that the Federal Reserve pushes interest rates higher before the end of the year. I would continue to expect munis to deliver relatively favorable returns.

Invoking the title of this piece, I suggest again: keep the pedal to the metal. Municipals can continue to form an important part of an investor's core strategy in the near future. Investors should not deviate from employing municipal bonds, both tactically and strategically, in their portfolios. Stay the course.

Post Specific Disclosures

1Source: Barclays. Based on the Barclays Municipal Bond Index. The index is considered representative of the broad market for investment grade, tax-exempt bonds with a maturity of at least one year.

2Source: Moody's Investors Services.

Yield to Worst measures the lowest of either yield-to-maturity or yield-to-call date on every possible call date.

Taxable equivalent yields are used by investors to compare yields on taxable and tax-exempt securities after accounting for federal income taxes. TEY represents the yield a taxable bond investment would have to earn in order to match, after deducting federal income taxes, the yield available on a tax-exempt municipal bond investment. TEY = Tax-Free Municipal Bond Yield/(1 -Tax Rate).

The graph displays the yields of the Barclays Municipal Bond Index and Barclays High-Yield Municipal Index on a tax-equivalent return basis and compares such yields to other asset classes as represented by the indexes described below. 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. Prices of bonds change in response to factors such as interest rates and issuer's credit worthiness, among others.

The Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt bonds with a maturity of at least one year. The Barclays High-Yield Municipal Bond Index is considered representative of the broad market for below investment grade, tax-exempt bonds with a maturity of at least one year. The Barclays U.S. Corporate Bond Index is considered representative of the broad market for investment grade U.S. corporate bonds with a maturity of at least one year. The Barclays U.S. Treasury Index is considered representative of public obligations of the U.S. Treasury with a remaining maturity of at least one year.

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Navigating the Oil Market's Rebalancing http://www.vaneck.com/blogs/natural-resources/navigating-the-oil-markets-rebalancing-may-2016/ Despite the volatile environment for oil, there are oil/gas exploration and production companies that are surviving and thriving. Identifying them is an important part of our process.

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

Watch Video Video - Navigating the Oil Market's Rebalancing  

Shawn Reynolds, Portfolio Manager

Watch Now  


 

Oil Market's Shifting Supply and Demand Fundamentals

TOM BUTCHER: Shawn, thus far in 2016, have supply and demand fundamentals in the oil market shifted as you expected them to?

SHAWN REYNOLDS: We believe that there is no doubt that the oil market's supply and demand fundamentals are coming into place and will tighten through the end of the year. However, we think the timing is unclear in terms of how fast or slow this will happen, but we are likely to see tightening later in the year. The biggest surprise has been the depth of the changes at hand, which have created a sense that tightening might happen quicker than expected; but in our opinion, tightening is certainly going to last for some time.

When we talk about the depth of changes, we refer to the rig counts here in the U.S., which have fallen 78%. That is unprecedented in the time that we have been counting rigs drilling in the U.S., which began in the 1970s. We also look at activity levels and investment levels overseas.

Declining Rig Counts Across the Globe
U.S. Count Down 78%
 

 

Source: Bloomberg, as of March 2016.

If we look more closely at integrated oil companies and consider that they cut capital investment plans by 25% in 2015, and are expected to cut another 25% in 2016, we again find that there has been no precedent. These developments have never been experienced in the history of the modern oil industry. While things are more or less playing out as we expected, there are certainly some surprises. They may be taking place slowly now, during the first part of the year, but they will likely speed up and endure for some time in terms of upside price correction.

BUTCHER: What might be some of the long-term effects of those capital investment cuts on the integrated oil companies?

Big Oil Projects Postponed or Canceled

REYNOLDS: It has been staggering to observe the reactions from the integrated companies. Obviously, many headlines focus on U.S. oil shale and the rig count reduction of 78%. If you dig into the volumes that are connected with these two major changes taking place, the E&P (exploration and production) companies and the integrated oil companies will not experience equivalent impact. The potential impact on the integrated oil companies will be significantly larger and longer term.

What do these reductions in capital investments entail? They mean big projects being canceled or postponed. If you add it all up, we're looking at somewhere between 6-13 million barrels a day of projects being postponed or canceled. These projects were slated to take place between 2014 and 2020 and now they are off the shelf until post 2020, if at all.

We are seeing big projects being canceled by individual companies. For example, Petrobras [Brazil's Petróleo Brasileiro S.A], or Royal Dutch Shell [Netherlands], or Chevron [U.S.], or Total [France]. Every single one of these multi-national companies is canceling major projects. For example, the French company Total has not approved any major projects in 2014 or 2015 and will likely not approve anything in 2016; and it has nothing on the docket for 2017. Royal Dutch Shell hasn't approved anything since 2013, except for one project in the deepwater Gulf of Mexico.

Integrated Cos. Likely to Suffer Multi-Year Declines in Production

This activity is unprecedented, and we believe it sets up a situation where the oil production of integrated companies, which has grown slowly over the years but is still growing, will begin to decline. We expect a multi-year decline that may not begin until later in 2016 or perhaps early 2017. By late 2017, and certainly for several years thereafter, we are likely to see a very methodical decline in overall supply. This will heavily impact the overall oil market.

BUTCHER: For oil and gas exploration and production companies, what characteristics have enabled the successful ones to survive?

Geology, Technology, and a Healthy Balance Sheet are Critical

REYNOLDS: There are companies that are surviving and thriving. Identifying these strong companies is an important part of our process. We have always looked for a special set of characteristics that allows important and steady structural growth.

What specifically do we look for? We spend time identifying companies with the right acreage and the right geology. That's something we do every day. We look at individual oil well results, and try to figure out what are the sweet spots for a given location. Sometimes consensus is that everybody knows exactly where the sweet spot is; but if you're off by a few miles or a few counties, it can make a significant difference in who actually has the best rock. Therefore, we spend a great deal of time looking for the companies with the best rock. That is number one.

Technology Should be Part of the Company’s DNA

Number two is technology. The shale phenomenon in the U.S. is all about evolutionary technology and taking it step-by-step, tweaking small aspects of the technology in order to increase reserve bases, increase production rates, lower costs, and raise returns. We are always looking for companies that incorporate this process as part of its DNA or culture, and not something they're just pulling off the shelf to try because it worked for someone else. It is the scientific culture at the heart of a company that is key in making shale production economic and taking it to the next step in terms of adding unexpected amounts of reserves.

Balance Sheet Strength Fosters Innovation

Number three is does the company have the balance sheet, the financial wherewithal to try different ideas? Obviously, if you are squeezed on your cash flow or your balance sheet is stretched, you are not willing or able to try different technologies or methods. You are not likely to risk trying something different and potentially see it fail, only to end up with a dry hole. That kind of outcome is really unacceptable, especially in this environment. But if you do have a strong balance sheet, you're willing to try something new. We have always looked for this profile, and it is especially important in this environment. Last summer, balance sheets became even more critical, not only in terms of flexibility and the ability to try new technologies, but also in terms of simple survival. Can the company survive tough times when the price of oil is low?

The three characteristics we have always considered are the acid base or the geology, technology, and the balance sheet. This approach has paid dividends during this downturn and certainly in the early part of this year.

BUTCHER: Thank you.

 
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Gold Extends its Strength in April http://www.vaneck.com/blogs/gold-and-precious-metals/gold-extends-strength-in-april-may-2016/ The gold market continues to strengthen. In April the gold price broke out of its consolidating pattern to reach its 2016 high of $1,296 per ounce; YTD gold has gained 21.9%.

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Van Eck Blogs 5/11/2016 12:00:00 AM

For the month ended April 30, 2016

Gold Up 5% in April, Climbing 22% YTD

The gold market has moved from a position of strength to one of even greater strength. The gold price entered a consolidation in March but never traded below $1,200 per ounce. Late in April the gold price broke out of its consolidating pattern to reach its 2016 high of $1,296 per ounce and ended April at $1,292.99 per ounce for a gain of $60.28 (4.9%). On May 2 gold traded above $1,300 per ounce for the first time since January 2015. We believe that an increasing sense of financial risk and U.S. dollar weakness are driving investment demand for gold. When commenting on the global economy in a Bloomberg interview on April 5, International Monetary Fund (IMF) President Lagarde indicated that downside risks have increased and "we don't see much by way of upside." Gold moved to its high for the month following the Commerce Department's April 28 release of weaker-than-expected first quarter U.S. GDP growth of just 0.5% annualized. Markets seemed confounded by the strength exhibited by the Japanese Yen (JPY) and the Euro (EUR), despite negative rate policies in both regions. As a result, the U.S. Dollar Index (DXY)1 declined 1.7% in April and fell to a 15-month low on May 2.

A Notable Surge for Silver

This year's bull market in precious metals gained in breadth as silver kicked into gear in April. Like gold, silver is a monetary metal but it had been lagging gold's performance. In fact, the gold/silver ratio reached a long-term high of 83.2 on March 1. Strong inflows into silver bullion exchange traded products (ETPs) in March and April enabled silver's year-to-date performance to surpass gold on April 14. For the year, silver is up 28.7%, while gold has gained 21.9% and the gold/silver ratio ended the month at 72.4. We regard silver as a leveraged proxy for gold and wouldn't be surprised to see the gold/silver ratio continue to fall further towards its long-term average of around 60.

Another sign of the strength of the current market is the performance of gold stocks. On April 8 the NYSE Arca Gold Miners Index (GDMNTR)2 surpassed its previous high for the year and never looked back, advancing 28.1% in April. Many of the larger producers announced favorable first quarter results in April, which boosted the performance of gold equities.

Our patience was tested in the first quarter by the underperformance of many of the junior producers and developers in our portfolio. The junior gold stocks had been lagging but our perseverance has appeared to pay off. The MVIS Global Junior Gold Miners Index (MVGDXJTR)3 gained 36.8% in April and had lagged the GDMNTR until April 8 but is now outperforming the GDMNTR by 11.7% for the year. The MVGDXJTR caught up with the GDMNTR for the year by outperforming in March with an 8.6% gain.

Market Outlook: Are Gold Stocks Overbrought?

We identified several reasons for this year's spectacular rise in gold stocks, which has caused gold stocks (GDMNTR) to gain 87.4% and the juniors (MVGDXJTR) to gain 99.1% year-to-date (YTD):

  • Positive changes in sentiment and investment demand for gold.
  • Companies have successfully slashed costs, cut debt, gained efficiencies, and generated cash.
  • Mean reversion in a sector that had been oversold during the worst bear market in history.
  • Elimination of short selling pressure that had been weighing on gold and gold stocks since they crashed in 2013.
  • Limited liquidity in a relatively small sector with a global market cap of just $260 billion.

Gold Still Below 2011 Levels, But Earnings Power is Stronger

These heady gains suggest to us that gold stocks have become overbought. We expect there will probably be a correction at some point this year, however, given the current impressive strength and breadth of the market, we believe positioning the portfolio for a correction could put it at risk of missing further upside. Seasonal patterns have been absent in the gold market for the past several years, possibly due to the overwhelming selling pressure that prevailed. Without such intense selling, we may again see seasonal patterns from Asia and India lead to some weakness in the summer months but strengthening in the fall and extending into the new year. We remain cognizant that GDMNTR is still down 61% from its 2011 highs, which translates to a 159% gain needed to return to 2011 levels. The gold price was much higher in 2011 as well, topping at $1,921 per ounce, but we think the earnings power of the gold sector is greater now than it was back then. We estimate that a $100 (roughly 8%) move in the gold price from $1,300 to $1,400 per ounce would result in a 38% increase in free cash flow for the majors in our research universe, while the mid-tier producers would see a 68% increase in free cash.

Gold Supported by Negative Sentiment Toward Central Bank Policies

The $217 per ounce (23%) increase in the gold price since the U.S. Federal Reserve (the "Fed") hiked interest rates in mid-December wasn't caused by a crash or panic in the financial markets. There hasn't been a systemic crisis and in fact, global conditions today aren't that different than six months ago when gold struggled near its lows. In our view, the fundamental change that has enabled gold to perform well since the Fed's rate announcement is a change in investors' view of central banks. The U.S. dollar has weakened mainly because the market no longer anticipates a series of Fed rate increases. Investors are realizing that central bank policies lack efficacy and have run their course without accomplishing their intended results. In general, central banks appear to be rapidly running out of options to help stimulate economies. In fact, rather than helping, quantitative easing, zero rates, and negative rates have created distortions in capital allocation, leading to the mispricing of assets and currencies, wealth inequality, and possibly other harmful, unintended consequences on the financial system.

Governments Failing to Stimulate Economic Growth

We think the solution to most of the world's problems hinges on re-establishing robust economic growth. A major reason that central bank policies haven't been able to foster as much growth as desired is that fiscal and regulatory policies are working against them. Governments around the world have increased debt to unheard of levels to raise capital to spend on projects, programs, and entitlements that generate a fraction of the jobs and growth that the same capital may have generated through private sector channels.

The popular perception that the banks were responsible for the subprime crisis has resulted in fines and regulatory burdens that hamper the formation of capital at the center of the financial system. The "wolf" character in the 2013 movie "The Wolf of Wall Street" ran a boiler room on Long Island that was unrelated to investment banks on Wall Street. The 2015 film "The Big Short," an Academy Award nominee for Best Motion Picture, puts the blame for the financial crisis squarely on the banks. It makes barely any mention of the Government Sponsored Enterprises' (GSEs such as Fannie Mae and Freddie Mac4) role in sponsoring subprime loans or the long-running government policies under the Clinton and Bush Administrations that enabled high risk borrowers to own homes despite their inability to service a mortgage. The tone was set in 2009 when President Obama labeled bankers as "fat cats." While banks certainly played a part, the government played the lead, in our opinion. Unfortunately, these misperceptions and misplaced blame have guided policy, leading to a financial system that is probably weaker than it was before the crisis. We believe that the economy is clearly weaker.

Regulatory Burdens Punish the Private Sector

In addition, regulations that burden the private sector have also increased. According to The Wall Street Journal, the Obama Administration is on track to issue 439 major regulations in its 8 years in office, more than the Bush Administration's 358 or Clinton's 361. Heaping on more and more regulations only serves to stifle business formation, profitability, and innovation.

A similar tipping point has been reached with tax policies. Some companies have been re-domiciling away from the United States to avoid tax rates that are among the highest in the world. Instead of revising and simplifying the tax code to address the problem, the U.S. Treasury implemented new regulations that force U.S. corporations to remain in the U.S., placing them at a disadvantage to their global peers.

The UN is a Sobering Example of a Governmental Institution

How often do we see leaders in government promote policies that help make business more productive, efficient, or profitable? As to where we are heading, we look to possibly the most monolithic governmental institution in the world. An article published in The Wall Street Journal and written by a retiring United Nations ("UN") assistant secretary general for field support articulated a sentiment worth sharing. After relocating to the New York headquarters of the UN, he became disheartened, remarking: "If you lock a team of evil geniuses in a laboratory, they could not design a bureaucracy so maddeningly complex, requiring so much effort but in the end incapable of delivering the intended result. The system is a black hole into which disappear countless tax dollars and human aspirations, never to be seen again."

Environment of Uncertainly Supports Gold Investments

We believe this is the sentiment that gold investors feel when they see central banks resort to more radical monetary policies in an attempt to spur economies bogged down by taxes, regulations, and bureaucracy. Moreover, there are social policies that incentivize people not to work and foreign policies that have resulted in chaos. The investment demand evidenced by the strong inflows into the bullion ETPs this year suggests that many investors are making a strategic investment in gold to diversify and prepare their portfolios for the uncertainty of a financial system that may become increasingly dysfunctional.

Download Commentary PDF with Fund specific information and performance»

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A Star-Spangled April for Moats http://www.vaneck.com/blogs/moat-investing/star-spangled-april-for-moats-may-2016/

April was another strong month for moat investing. The U.S.-focused Morningstar® Wide Moat Focus IndexSM continued to outperform the S&P 500® Index, and though the Morningstar® Global ex-US Moat Focus IndexSM trailed broad international markets, it still managed to outperform them year-to-date.

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Van Eck Blogs 5/10/2016 12:07:43 PM

For the Month Ending April 30, 2016

Performance Overview

Moat-rated companies continued their strong start to 2016 in April. U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR) topped the S&P 500® Index (5.20% vs. 0.39%) in April and widened the gap in relative performance year-to-date (12.05% vs. 1.74%). On the international front, Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN) lagged the MSCI All Country World Index ex USA in April (1.43% vs. 2.63%), but maintained relative outperformance year-to-date (4.09% vs. 2.25%).

U.S. Domestic Moats: Healthcare Rotation Pays Off

St. Jude Medical, Inc. (STJ US) was the big winner among domestic moat-rated companies in April. Late in the month Abbott Laboratories (ABT US) announced its intent to buy STJ US in a deal that is expected to close in the coming fourth quarter. As part of its quarterly review, the MWMFTR Index rotated into several healthcare companies, including STJ US. According to Morningstar, the healthcare sector offered a number of attractive valuation opportunities in March, some of which contributed to MWMFTR's strong performance in April. Drug manufacturer Allergan plc (AGN US), however, provided no such boost to results. A U.S. Department of Treasury tax ruling squashed any hope for its planned merger with Pfizer, pushing AGN US lower for the month.

International Moats: Oh, Canada

MGEUMFUN's exposure to financials companies, particularly Canadian banks, contributed to positive performance in April. Only three of the 24 financials companies in the Index posted negative returns last month. Additionally, Russian operator Mobile Telesystems (MTSS RM) has been on a roll since announcing solid fourth quarter results in March. Strains on performance came largely from some of the Index's consumer discretionary constituents, such as Macau gaming firm Sands China (1928 HK) and Chinese car manufacturer Dongfeng Motor Group Co. (489 HK).

Shooting for the Stars

VanEck Vectors Morningstar Wide Moat ETF (MOAT), which seeks to track MWMFTR, received a 5-star Morningstar Rating as of April 30, 2016.

Overall Morningstar Rating among 1,374 large blend funds as of April 30, 2016.



(%) Month Ending 4/30/16

Domestic Equity Markets

International Equity Markets

(%) Month Ending 4/30/16

Morningstar
Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers
Constituent Ticker Total Return
St. Jude Medical, Inc.
STJ
38.55
Bank of New York Mellon Corporation
BK
9.72
LinkedIn Corporation Class A
LNKD
9.58
Norfolk Southern Corporation
NSC
8.24
Express Scripts Holding Company
ESRX 7.34

Bottom 5 Index Performers
Constituent Ticker Total Return
Varian Medical Systems, Inc.
VAR
1.45
Visa Inc. Class A
V
0.99
Jones Lang LaSalle Incorporated
JLL
-1.83
Gilead Sciences, Inc.
GILD
-3.97
Allergan plc
AGN
-19.20

View MOAT's current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Top 5 Index Performers
Constituent Ticker Total Return
National Bank of Canada NA CN 8.97
Mobile TeleSystems PJSC MTSS RM 8.92
KBC Groupe SA KBC BB 8.70
Bank of Nova Scotia BNS CN 8.28
Bank of Montreal BMO CN 8.12

Bottom 5 Index Performers
Constituent Ticker Total Return
Royal Philips NV PHIA NA -3.65
China Telecom Corp. Ltd. Class H 728 HK -5.86
Embraer S.A. EMBR3 BZ -11.42
Dongfeng Motor Group Co., Ltd. Class H 489 HK -11.99
Sands China Ltd. 1928 HK -12.03

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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Munis: The Compelling Case for Closed-End Municipal Bond Funds http://www.vaneck.com/blogs/muni-nation/the-compelling-case-for-closed-end-municipal-bond-funds-may-2016/ ]]> Van Eck Blogs 5/10/2016 12:00:00 AM In my opinion, municipal bond closed-end funds (CEFs) are an attractive investment opportunity at this time. They are actively managed and offer exposure to many well-known managers with strong track records. They also provide access to potentially high yielding securities, such as private placements and structured securities, that are not otherwise readily available to many investors.

The VanEck Vectors CEF Municipal Income ETF (XMPT) is an efficient way to access CEFs and the potential benefits I believe they offer. XMPT seeks to track the S-Network Municipal Bond Closed-End Fund Index (CEFMX). XMPT and CEFMX nicely illustrate some of the primary reasons why I find CEFs so very compelling:

  • Tax-exempt yields
  • Extensive diversification characteristics
  • Narrowing discounts
  • Ability to benefit from leverage
  • Favorable market environment

Tax-Exempt Yields1

CEFMX derives its yield advantage by allocating 86% of its total weighting to leveraged CEFs. Additionally, the rules governing the index assign a higher weighting to CEFs selling at discounts to their Net Asset Values (NAVs). As of March 31, 2016, the components of the index traded at an average discount of 3.90% and provided a yield of 5.5%. This index’s yield is the pre-tax equivalent of 9.11% for investors subject to the maximum federal tax rate of 39.6% and the pre-tax equivalent of 7.64% for those subject to the federal AMT (alternative minimum tax rate of 28%).

Extensive Diversification Characteristics

Many buyers of CEFs are not diversified enough in my opinion and don’t have the necessary time to extensively research individual CEFs. As a fund of funds, XMPT provides diversification by asset class, manager, and number of issues.

Narrowing Discounts1

CEFMX had positive absolute and relative returns as it increased 5.40% for the quarter ended March 2016 while the S&P National AMT-Free Municipal Bond Index was up only 1.58%. CEFMX is also up 10.60% over the past 12 months compared to a 3.93% increase in the S&P National AMT-Free Municipal Bond Index. Part of the recent positive returns result from a narrowing of the discount on the underlying CEFs.

S-Network Municipal Bond Closed-End Fund Index: Discount/Premium
As of 3/31/2016

 

Source: Bloomberg. As of 3/31/2016. Indices are unmanaged and are not securities in which an investment can be made. See index descriptions at the end. Past performance is not indicative of future results.

The weighted discount for the index was 3.90% as of March 31, 2016, compared with 6.27% at the end of the previous quarter. This discount is now more in line with historical norms and has narrowed as the equity markets recovered in the past quarter. Discounts on CEFs tend to widen in volatile equity markets and the average discount of CEFMX was higher over the last two years in weaker markets for its underlying municipals bonds. Unless there are major sell-offs in either the equity or municipal bond markets, I expect to see not much risk in discounts widening in the near future.

Potential to Benefit from Leverage1

Municipal CEFs also have unique structures that allow them to leverage their holdings by borrowing at low tax-exempt money market rates to buy additional long-term bonds. Given today’s steep yield curve and oversold municipal bond market, this leverage substantially enhances yield. Leverage increases the risks of declining asset values in a rising rate environment but the leverage on most CEFs is limited to 34% of assets. Leveraged CEFs also hold high quality bonds since they are used for collateral on their own borrowings, which seek to maintain AAA ratings.2

Favorable Market Environment1

Moreover, I believe the underlying market for municipal bonds looks favorable. Federal spending cuts are not likely to affect municipal credits and the U.S. economy continues to grow at a moderate rate, which is also good for municipals. In addition, the recent tax rate increase for the wealthiest Americans and the likelihood of further rate hikes or losses of deductions help support the market for municipal bonds. However, as the market outlook appears better, CEFs investing in municipal bonds continue to sell at discounts to their NAVs. These discounts in turn increase the yield an investor gets at the market price.

In the near term, I do not expect the risk of significant increases in short-term rates diminishing the yield advantage of leveraged CEFs. The Federal Reserve has raised term rates but appears to be in no rush for another increase. Most leveraged municipal CEFs are over-earning their current dividend payouts and are continuing to build levels of undistributed net investment income, which can provide a cushion to protect against future dividend cuts. As long as we are in a zone of higher relative yield and low risk of future CEF dividend cuts, I believe current valuations (discounts) make investing in municipal CEFs particularly attractive.

Not only do XMPT and CEFMX participate in the inherent CEF features described above, I also think they possess uniquely favorable features due to the value approach of the CEFMX index. The 83 CEFs contained in CEFMX are selected and weighted using a proprietary rules-based methodology. The index uses a value approach to take advantage of pricing inefficiencies related to CEFs trading at discounts to their NAVs. Unlike most ETF indices, which are market-cap weighted, CEFMX weights initially by NAV so as not to give a greater weight to CEFs selling at richer valuations. It then tiers CEFs to overweight CEFs selling at higher discounts and underweight CEFs selling at lower discounts or premiums. This value approach tends to increase the allocation to undervalued CEFs during quarterly rebalancing and reduce exposure to more richly valued CEFs. On average, CEFMX has had a discount of 2% to 4% relative to its overall universe and its holdings are primarily high quality investment grade municipal bonds since its inception on 6/11/2011.

Learn more about XMPT and CEFMX.

Post Disclosure

Source: All data from S-Network as of 3/31/16, unless otherwise noted. Diversification does not assure a profit nor protect against loss. The use of leverage may magnify both gains and loss.

1 Index performance is not representative of fund performance. Click here for XMPT’s standardized performance, 30-day SEC yield, and expenses.

2 The S&P rating scale is as follows, from excellent (high grade) to poor (including default): AAA to D, with intermediate ratings offered at each level between AA and CCC. Anything lower than a BBB rating is considered a non-investment-grade or high-yield bond.

S-Network Municipal Bond Closed-End Fund Index (CEFMXTR): The index is comprised of municipal bond closed-end funds listed in the United States that are principally engaged in asset management processes designed to produce federally tax-exempt annual yield. S-Network Municipal Bond Closed-End Fund Index is calculated and maintained by S-Network Global Indexes, Inc. S-Network does not sponsor, endorse, or promote XMPT and bears no liability with respect to XMPT or any security. S&P National AMT-Free Municipal Bond Index (SPMUNUST): The S&P National AMT-Free Municipal Bond Index is a broad, comprehensive, market value-weighted index designed to measure the performance of the investment-grade tax-exempt U.S. municipal bond market. Bonds issued by U.S. territories, including Puerto Rico, are excluded from this index.

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Spin-Off in the Spotlight: The Chemours Company (NYSE: CC) http://www.vaneck.com/blogs/etfs/spin-off-chemours-company-may-2016/ Chemours (NYSE: CC) spun off from E.I. du Pont de Nemours and Co. (NYSE: DD) in July 2015, and as an independent company, it is now exercising considerable discretion over its expenses and is positioning for profitable growth going forward.

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Van Eck Blogs 5/4/2016 12:00:00 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: The Chemours Company (NYSE: CC)
Parent Company:
E.I. du Pont de Nemours and Co. (NYSE: DD)  

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

The Chemours Company (NYSE: CC) was first added to the Horizon Kinetics Global Spin-Off Index ("Index") on October 1, 2015, approximately three months after the company was first spun off from E.I. du Pont de Nemours and Co. (NYSE: DD). Chemours is a leading global provider of performance chemicals through three reporting businesses: the Titanium Technologies division (the number one global producer of titanium dioxide), the Fluoroproducts division (the number one global producer of fluorochemicals and fluoropolymers), and the Chemical Solutions division (the number one producer of sodium cyanide in the Americas). All three businesses are believed to be relatively stable and mature. Parent company DuPont retained the faster growing, higher margin products that have yet to be commoditized. Chemours also assumed $3.9 billion of debt in the transaction, relative to $200 million in cash.

Chemours was officially spun off from DuPont in July 2015. Shortly after going solo, the company faced significant challenges, including a weak market for commodities and what many perceived to be a relatively high debt burden. Selling pressure caused Chemours shares to decline more than 50% in its first three months of trading. However, now that Chemours is an independent company, it has begun to exercise considerable discretion over its expense structure and is positioning itself for potential profitable growth going forward. (Please note that given the timing of the spin-off and the Index's rebalance schedule, Chemours' share price decline did not impact the Index.)

As stated in its 2015 year-end earnings release, Chemours was able to achieve $100 million in cost savings in 2015 and the company believes that it has the potential to achieve an additional $200 million in savings by the end of 2016. Furthermore, Chemours believes that by the end of 2017 it can increase EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) by a total of $500 million, of which $350 million is expected to come from reducing structural costs and $150 million from market share growth in existing products. Given that the company earned $573 million in adjusted EBITDA in 2015, a year in which it faced shrinking demand and depressed pricing for its products, these growth projections indicate that Chemours could potentially double its EBITDA over the next two years, should pricing for its products recover. Such earnings could be used to reduce the company's $3.9 billion of debt or be reinvested for future growth. Either option has the potential to generate significant value for Chemours shareholders given that the market capitalization of the company currently stands at only $1.3 billion.

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 VanEck 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.

SPUNVanEck 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   5.91%
Net Expense Ratio1   0.55%
Distribution Frequency Annually
Index Ticker GSPIN  
Index Rebalancing Quarterly
 
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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, VanEck 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 However, due to market action, ETF shares may trade a premium or discount. It's also important to remember that ETFs, are subject to the same risks as the underlying securities.

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.
The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate. An investor's shares, when redeemed, may be lower or higher than the performance data quoted. Current performance may be lower or higher than the performance data quoted.

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. Also ETF's may cost more or sell for less than their net asset value.

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.
The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate. An investor's shares, when redeemed, may be lower or higher than the performance data quoted. Current performance may be lower or higher than the performance data quoted.

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 VanEck 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 VanEck 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. Investors must consider that due to market action, ETF shares may trade a premium or discount. (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 VanEck 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 VanEck 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 VanEck 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 VanEck Vectors® Russia ETF (RSX®) and Russian small-cap companies through the VanEck 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 MV 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 Outperformed Majority of Peers

VanEck Vectors® Fallen Angel High Yield Bond ETF (ANGL), which seeks to track the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA), outperformed the majority of actively managed high yield bond funds over multiple time horizons since its April 2012 inception.4


Chart 2. Performance Relative to Peer Group
VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL) vs. Morningstar Active High Yield Bond Universe
VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL)
Source: Morningstar. Data as of March 31, 2016.
This chart is for illustrative purposes only. The performance data quoted represents past performance. Past performance is not a guarantee of future results. Performance information for the Fund reflects temporary waivers of expenses and/or fees. Had the Fund incurred all expenses, investment returns would have been reduced. Investment return and value of the shares of the Fund will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Fund returns reflect dividends and capital gains distributions. Performance current to the most recent month end is available by calling 800.826.2333 or on vaneck.com/etfs. VanEck 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.

VanEck Vectors® Fallen Angel High Yield Bond ETF received a five-star rating from Morningstar, as of March 31, 2016.5 ANGL was rated against 646 funds in Morningstar's high yield bond category over the last three years, based on total returns. Past performance is no guarantee of future results. Additional resources and information on VanEck 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 VanEck 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 VanEck Emerging Markets Fund net assets, as of 3/31/16. See holdings for more details.
2 AvivaSA represented 0.48% of VanEck 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, VanEck 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.