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  • Guided Allocation

    Déjà vu? It’s Starting to Feel Like February

    David Schassler ,Portfolio Manager
    October 17, 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

    Weight-of-the-evidence points to higher stock prices.

    • While most technical indicators are bullish, declining global market breadth signals caution
    • Indicators are signaling increased risk in fixed income assets
    • U.S. sentiment remains optimistic, while global sentiment remains pessimistic
    • 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 -0.10% versus +0.03% for its benchmark of 60% global stocks (MSCI All Country World Index) and 40% bonds (Bloomberg Barclays US Aggregate Bond Index) in September.*

    Global stocks outperformed U.S. bonds last month, +0.48% vs. -0.64%, and the Fund’s overweight exposure to stocks (78%) helped performance. Performance across equity regions was mixed. The Fund benefited from its overweight exposure to Japan and the U.S. However, overweight exposures to the Emerging Markets and Europe ex. U.K., and an underweight exposure to the U.K., weighed on performance.

    The current asset class weightings are 78% in stocks, 20% in bonds, and 2% in cash. The Fund added a cash allocation by reducing its bond allocation due to degrading bond technical indicator readings. The Fund’s largest regional equity overweight positions are in the U.S. and Europe ex. U.K. Within the U.S., the Fund is overweight both large-cap growth and large-cap value.

    Average Annual Total Returns (%) as of September 30, 2018

    Total Returns (%) as of Sep. 30, 2018
      1 Mo YTD 1 Year Since Inception
    Class A: NAV
    (Inception 5/11/16)
    -0.10 0.85 4.90 8.77
    Class A: Maximum 5.75% load -5.86 -4.95 -1.12 6.12
    60% MSCI ACWI/
    40% BbgBarc US Agg.
    0.03 1.97 5.68 9.02
    Morningstar Tactical Allocation
    Category (average)1
    -0.25 1.76 5.57 8.01

    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

    Déjà vu? Investors are getting flashbacks to February of this year. At that time, interest rates rose faster than anticipated and spooked the markets. This resulted in the CBOE SPX VIX Index (“the VIX”) spiking to 37 and a 10% correction in the S&P 500 Index. And now, here we are. It is October and interest rates are moving up quickly. The U.S. government 10-year yield started the month at 3.08% and hit a recent high of 3.23%. The stock market has responded so far with a fit of volatility. The VIX has jumped from 12 to 28 and the S&P 500 Index is down over 6%. The recent price action is consistent with the warning signals from rising correlations between stocks and bonds, and the country breadth indicator used in the Fund. Increased market risks are to be expected as the bull market matures. Right now, the evidence still favors stocks!

    Joe Kalish, Chief Global Macro Strategist at Ned Davis Research, recently published a piece titled, “The U.S. Economic Cycle: Why There’s More to Go.” Below are a couple of charts from that document that nicely support the case for continued growth.

    NDR Economic Timing Model Signals Strong Growth and High Probability of Continued Expansion

    NDR Economic Timing Model

    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/.

    NDR Recession Model Estimates a 1% Chance that Economy Currently in Recession

    NDR Recession Model

    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 Fund’s asset class positioning reflects both optimism that the stock rally continues and caution on fixed income assets. As always, the indicators determine the allocations. The Fund will remain adaptive by adjusting exposures based on the risks in the market.

    NDR Indicator Summary, October 2018

      Macro/Fundamental Technical Overall
    Stocks, Bonds, or Cash      
    Stocks (vs. Bonds) Neutral Bullish Bullish
    Bonds (vs. Cash) Neutral Bearish Neutral
    • Composite is bullish on stocks vs. bonds and neutral on bonds vs. cash
    • Technical indicators for bonds are bearish favoring cash
    • U.S. stocks continue to trade near all-time highs
    • The U.S. Federal Reserve continues to lead other central banks in raising interest rates, but the monetary environment remains accommodative
     
    Global Regional Equity      
    U.S. Neutral Bullish Bullish
    Canada Bullish Bearish Neutral
    U.K. Neutral Bearish Bearish
    Europe ex. U.K. Bearish Bullish Neutral
    Japan Bearish Neutral Neutral
    Pacific ex. Japan Bearish Bearish Bearish
    Emerging Markets Neutral Bearish Bearish
    • U.S. bullishness driven by price action
    • U.K. macro/fundamental indicator reading improved to neutral but remains bearish
    • Europe ex. U.K. overall indicator improved from bearish to neutral
    • EM macro/fundamental indicators degraded from bullish to neutral and remain bearish overall
    • Japan technical indicators have improved while the macro/fundamental indicators have declined
    • Pacific ex. Japan technical and macro/fundamental remain unchanged
     
    U.S. Cap & Style      
    Large-Cap Bullish Bullish Bullish
    Small-Cap Bearish Bearish Bearish
    Growth Bearish Bullish Neutral
    Value Bullish Bearish Neutral
    • Large-Cap overweight driven by macro/fundamental and technical indicators
    • Technical indicators bullish growth vs. value, while macro/fundamental favor value stocks

     

    Asset Class Positioning vs. Neutral Allocation, October 2018

    Asset Class Positioning vs. Neutral Allocation, October 2018

    Source: VanEck. Data as of October 2018.

    The neutral allocation, which is provided by Ned Davis Research, Inc., represents the starting point of the Fund’s model absent an alternative recommendation once the model takes into consideration the indicators that yield the global tactical allocation model. These are not recommendations to buy or sell any security.