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  • Guided Allocation

    Cautiously Optimistic

    David Schassler ,Portfolio Manager
    August 16, 2018
     

    VanEck NDR Managed Allocation Fund (NDRMX) tactically adjusts its asset class exposures each month across global stocks, U.S. fixed income, and cash. It utilizes an objective, data-driven process driven by macroeconomic, fundamental, and technical indicators developed by Ned Davis Research ("NDR"). The Fund invests based on the weight-of-the-evidence of its objective indicators, removing human emotion and decision making from the investment process. The expanded PDF version of this commentary can be downloaded here.

    Weight-of-the-Evidence Summary

    Recovering technical indicators and investor sentiment lead to moderately bullish positioning in August.

    • Technical indicators, in aggregate, point to higher stock prices
    • Sentiment reached extreme pessimism, creating an opportunity for investors
    • Stocks remain expensive
    • Macroeconomic global growth is strong but has been slowing
    • The U.S. Federal Reserve leads other central banks in raising interest rates, but the monetary environment remains accommodative

    Performance and Positioning

    The VanEck NDR Managed Allocation Fund (the “Fund”) returned +1.63% versus +1.84% for its benchmark of 60% global stocks (MSCI All Country World Index) and 40% bonds (Bloomberg Barclays US Aggregate Bond Index) in July.*

    Global stocks had a strong month with a return of +3.02% versus a +0.02% return for bonds. The Fund’s asset class positioning did not have an impact on relative performance in July because we were neutral on stocks relative to bonds.

    This month, we increased our stock allocation from 61% to 76% and decreased our bond allocation from 38% to 23%. Our regional equity positioning continues to favor the U.S. Within the U.S., we continue to favor large-cap over small-cap stocks, with a moderate bias towards growth.

    Average Annual Total Returns (%) as of July 31, 2018

    Total Returns (%) as of July 31, 2018
      1 Mo YTD 1 Year Since Inception
    Class A: NAV
    (Inception 5/11/16)
    1.63 -0.17 5.27 8.97
    Class A: Maximum 5.75% load -4.22 -5.92 -0.79 6.10
    60% MSCI ACWI/
    40% BbgBarc US Agg.
    1.84 1.18 6.55 9.35
    Morningstar Tactical Allocation
    Category (average)1
    1.42 0.40 5.67 7.73

    Total Returns (%) as of June 30, 2018
      1 Mo YTD 1 Year Since Inception
    Class A: NAV
    (Inception 5/11/16)
    -0.45 -1.77 5.02 8.51
    Class A: Maximum 5.75% load -6.16 -7.43 -1.03 5.55
    60% MSCI ACWI/
    40% BbgBarc US Agg.
    -0.35 -0.65 6.58 8.78
    Morningstar Tactical Allocation
    Category (average)1
    -0.43 -1.00 5.85 7.34

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

    Returns less than a year are not annualized.

    Expenses: Class A: Gross 2.33%; Net 1.39%. Expenses are capped contractually until 05/01/19 at 1.15% for Class A. Caps excluding acquired fund fees and expenses, interest, trading, dividends, and interest payment of securities sold short, taxes, and extraordinary expenses.

    Weight-of-the-Evidence

    We had the pleasure of participating in the recent Ned Davis Research Investment Conference in Boston. Kudos to the folks at NDR for hosting a great event! The highlight of the event was a lunch chat with Senior Investment Strategist Ned Davis and Byron Wien, Vice Chairman - Private Wealth Solutions Group at Blackstone. While there were conflicting views, some bullish, some bearish, all were thoughtful and interesting.

    In the Fund, we recently changed from moderately bullish. Let’s review why:

    Most technical indicators point to higher stock prices. Global breadth, price momentum, stock/price mean reversion, and stock/bond mean reversion indicators are all bullish. The only technical indicator that is bearish is seasonality due to historical market weakness mid-summer. Below is a composite of the technical indicators that determine the stock/bond allocation. The current reading is 80 and readings above 60 are bullish.

    Technicals Point to Higher Stock Prices (NDR Stock/Bond Technical Composite)

    Technicals Point to Higher Stock Prices (NDR Stock/Bond Technical Composite)

    Source: Ned Davis Research. Data as of July 31, 2018. Past performance is no guarantee of future results. Chart is for illustrative purposes only. Copyright 2018. Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers, refer to www.ndr.com/vendorinfo/.

    The macroeconomic and fundamental indicators, in aggregate, are signaling potential opportunities in stocks, but that caution is needed. The bullish signals include U.S. sentiment recovering from extreme pessimism, the cyclical sectors continuing to lead the defensive sectors, and monetary policy contracting but remaining accommodative. However, stretched valuations and slowing economic growth are a concern.

    A useful measure of economic activity is Purchasing Managers Index (“PMI”) data. PMIs measure the economic health of the manufacturing and service sectors. The diagram below shows changes in global PMIs, over the past three months, as of July 31. Right now, as you can see from the chart, PMI data in many countries are contracting. This signals us to be cautious.

    According to PMI Data, Many Countries Contracting (Global PMIs as of July 31, 2018)

    Global PMI Data Shows Many Countries Contracting (as of July 31, 2018)

    Source: Ned Davis Research. Data as of July 31, 2018. Past performance is no guarantee of future results. Chart is for illustrative purposes only. Copyright 2018. Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers, refer to www.ndr.com/vendorinfo/.

    Our increased equity position, up moderately from 61% to 76%, reflects both our optimism that the stock rally continues and the caution that comes from being in the late stage of the economic cycle. The evidence, led primarily by the technical indicators, in aggregate, favors higher stock prices and we are therefore moderately overweight stocks.

    July Performance Review

    Global stocks had a strong month with a return of +3.02% versus a +0.02% return for bonds. The Fund’s asset class positioning did not have an impact on relative performance in July because we were neutral on stocks relative to bonds. The relative performance of the Fund’s regional equity positioning was mixed. The largest regional equity contributors to and detractors from performance were the U.S. and Europe ex. U.K., respectively. We were overweight U.S. stocks, which helped as they outperformed, with a return of +3.32% (measured by the Russell 3000 Index). However, our underweight exposure to Europe ex. U.K. detracted. The MSCI Europe ex. U.K. Index returned an impressive +4.11%. Within the U.S., we were overweight large-cap growth and large-cap value, and neutral small-cap growth and small-cap value. Large-cap stocks (Russell 1000 Index) outperformed small-cap stocks (Russell 2000 Index) and value (Russell 3000 Value Index) outperformed growth (Russell 3000 Growth Index).

    NDR Indicator Summary, August 2018

    Macro/Fundamental Technical Overall
    Stocks, Bonds, or Cash
    Stocks (vs. Bonds) Neutral Bullish Bullish
    Bonds (vs. Cash) Bullish Bullish Bullish
    • Composite is moderately bullish on stocks vs. bonds, and bullish on bonds vs. cash
    • Technical indicators, in aggregate, point to higher stock prices
    • Sentiment reached extreme pessimism, creating an opportunity for investors
    • Stocks remain expensive
    • Macroeconomic global growth is strong but has been slowing
    • The U.S. Federal Reserve leads other central banks in raising interest rates, but the monetary environment remains accommodative
    Global Regional Equity
    U.S. Bearish Bullish Bullish
    Canada Bullish Bullish Bullish
    U.K. Bearish Bearish Bearish
    Europe ex. U.K. Bearish Bearish Bearish
    Japan Neutral Bearish Bearish
    Pacific ex. Japan Bearish Bearish Bearish
    Emerging Markets Neutral Bearish Neutral
    • U.S. bullishness driven by price action; macro/fundamental are bearish
    • U.K. technical indicator readings continue to degrade
    • Europe ex. U.K. technical indicators are improving
    • EM technical indicators have become more bearish
    • Japan technicals improved, but macro/fundamental declined
    • Pacific ex. Japan technical and macro/fundamental are more bearish
    U.S. Cap & Style
    Large-Cap Bullish Neutral Bullish
    Small-Cap Bearish Neutral Bearish
    Growth Bearish Bullish Bullish
    Value Bullish Bearish Bearish
    • Large-Cap overweight driven by macro indicators
    • Technicals continue to favor growth stocks, while macro/fundamental favor value stocks

     

    Asset Class Positioning vs. Neutral Allocation, August 2018

    Asset Class Positioning vs. Neutral Allocation, August 2018

    Source: VanEck. Data as of August 2018.