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Van Eck Mutual Funds
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The fourth quarter and calendar year 2013 proved to be exceptional for the returns of domestic equities. The S&P 500® Index returned 10.51% in the fourth quarter and 2013 was the best calendar year on record for the Index since 1997 with a return of 32.39%. A significant factor leading equity prices higher was the U.S. Federal Reserve’s Asset Purchase Program, used in conjunction with other monetary policies, designed to support asset prices and employment. The chart below illustrates the massive expansion of the Federal Reserve’s balance sheet, through the purchase of Treasury bonds and Agency Mortgage-Backed Securities, in relation to the S&P 500® Index.
The stimulus program employed by the Federal Reserve appears to have succeeded in suppressing interest rates across the curve for U.S. Treasury issuances. The yield of the U.S. Government 10-year Treasury note reached a calendar-year low of 1.63% in May and finished the year at 3.03%. While yields continue to remain extraordinarily low on an absolute basis, relative to historical averages, the magnitude of the change in interest rates over the year as a whole shed light on the duration risk of fixed income and other interest rate sensitive investments.
For the quarter, the Fund’s aggregate allocation to long/short equity strategies returned 7.51% and outperformed the HFRX Equity Hedged Index, which returned 4.19%. The largest contributor to performance within the strategy, and for the Fund, was the sub-adviser RiverPark Advisors, LLC (9.98% of Fund net assets*), with a return of 9.36%. Our other long/short equity sub-adviser, Millrace Asset Group, Inc. (9.96% of Fund net assets*) generated a return of 5.67%. The Fund’s allocation to global macro strategies returned 6.78% compared to the HRFX Macro Index, which returned 0.92%. The Fund’s aggregate allocation to event-driven strategies returned 4.00% compared to a return of 2.70% for the HRFX Event Driven Index.
The Fund’s aggregate allocation to yield focused strategies returned 2.48%, relative to a return of 1.12% for the HFRX Fixed Income Credit Index. The Fund’s largest contributor to performance within the yield focused allocation was Horizon Asset Management LLC (11.04% of Fund net assets*), with a return of 4.51%.
The sub-adviser that lagged the most during the period was SW Asset Management, LLC (11.06% of Fund net assets*). SW underperformed due to price depreciation on various Central and South American debt issuances. The Fund’s tactical allocation (11.05% of Fund net assets*) returned 4.52%.
*All weightings as of December 31, 2013.
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Founder & Co-Portfolio Manager, Tiburon Capital Management LLC
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Director of Manager Research, Multi-Manager Alternatives Investment Team
In general, “hedge-style” strategies are advanced investment techniques that may, among other things, attempt to reduce risk and enhance returns. Typically, “hedge-style” investments have been structured as private investment vehicles known as hedge funds. Recently, however, these strategies have begun to appear in mutual fund structures as well.
At Van Eck, we group hedge-style strategies into five broad categories:
Seeks to exploit price differences in identical, related or similar securities on different markets or in different forms so as to minimize overall market risk. Strategies may include convertible arbitrage, fixed income or interest rate arbitrage, pairs trading and merger arbitrage.
Seeks to exploit market trends and inefficiencies in equity markets. Strategies may include equity market neutral, long-only, long/short equity and short-only.
Fixed Income (Long/Short)
Seeks to exploit market trends and inefficiencies in fixed income markets. Strategies may include long-only, long/short fixed income and distressed securities.
Seeks to exploit broad market trends in equities, interest rates or commodity prices. Strategies may include emerging markets, special situations and managed futures.
Seeks to control/adjust the beta and volatility of the Fund. Selected securities, typically ETFs, are allocated (both long and short) to keep the Fund's exposures in line with the targets set by the investment committee. "Cash" refers to cash and/or cash equivalents.
Unless otherwise stated, portfolio facts and statistics are shown for Class A shares; other classes may have different characteristics.
†NAV: Unless you are eligible for a waiver, the public offering price you pay when you buy Class A shares of the Fund is the Net Asset Value (NAV) of the shares plus an initial sales charge. The initial sales charge varies depending upon the size of your purchase. No sales charge is imposed where Class A shares are issued to you pursuant to the automatic investment of income dividends or capital gains distributions. It is the responsibility of the financial intermediary to ensure that the investor obtains the proper “breakpoint” discount. Class C, Class I and Class Y do not have an initial sales charge; however, Class C does charge a contingent deferred redemption charge. See the prospectus and summary prospectus for more information.
1Expenses are calculated for the 12-month period ending 12/31/13: Class A: Gross 3.60% and Net 3.60%; Class C: Gross 43.64% and Net 4.29%; Class I: Gross 3.46% and Net 3.25%; and Class Y: Gross 3.74% and Net 3.27%. Expenses are capped contractually through 05/01/14 at 2.40% for Class A; 3.15% for Class C; 1.95% for Class I; and 2.00% for Class Y. Caps exclude certain expenses such as acquired fund fees and expenses, interest expense, trading expenses, dividends and interest payments on securities sold short, taxes and extraordinary expenses.
2The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe, and includes convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage strategies. The S&P® 500 Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sectors. All indices are unmanaged 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 Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
The views and opinions expressed are those of Van Eck Global. Fund manager commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. Any discussion of specific securities mentioned in the commentaries is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary.
You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program rather than a complete program. Because the Fund implements a fund-of-funds strategy, an investor in the Fund will bear the operating expenses of the “Underlying Funds” in which the Fund invests. The total expenses borne by an investor in the Fund will be higher than if the investor invested directly in the Underlying Funds, and the returns may therefore be lower. The Fund, the Sub-Advisers and the Underlying Funds may use aggressive investment strategies, including absolute return strategies, which are riskier than those used by typical mutual funds. If the Fund and Sub-Advisers are unsuccessful in applying these investment strategies, the Fund and you may lose more money than if you had invested in another fund that did not invest aggressively. The Fund is subject to risks associated with the Sub-Advisers making trading decisions independently, investing in other investment companies, using a particular style or set of styles, basing investment decisions on historical relationships and correlations, trading frequently, using leverage, making short sales, being non-diversified and investing in securities with low correlation to the market. The use of leverage may magnify losses. The Fund is also subject to risks associated with investments in foreign markets, emerging market securities, small cap companies, debt securities, derivatives, commodity-linked instruments, illiquid securities, asset-backed securities and CMOs. Please see the prospectus and summary prospectus for information on these as well as other risk considerations.
Investing involves risk, including possible loss of principal. An investor should consider investment objectives, risks, charges and expenses of the investment company carefully before investing. The prospectus and summary prospectus contain this and other information. Please read them carefully before investing.
Not FDIC Insured — No Bank Guarantee — May Lose Value
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