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  • Guided Allocation

    On The Defensive

    David Schassler, Portfolio Manager
    July 25, 2019

    The VanEck Vectors® Real Asset Allocation ETF (RAAX®) uses a data-driven, rules-based process that leverages over 50 indicators (technical, macroeconomic and fundamental, commodity price, and sentiment) to allocate across 12 individual real asset segments in five broad real asset sectors. These objective indicators identify the segments with positive expected returns. Then, using correlation and volatility, an optimization process determines the weight to these segments with the goal of creating a portfolio with maximum diversification while reducing risk. The expanded PDF version of this commentary can be downloaded here.


    The VanEck Vectors Real Asset Allocation ETF (RAAX) returned 5.80% in June. By comparison, its blended benchmark returned 5.47% and the Bloomberg Commodity Index returned 2.69%. RAAX’s largest investments were in gold bullion, global infrastructure, REITs, diversified commodities and gold equities. Its investments in gold bullion returned 7.96%, global infrastructure returned 5.13%, REITs returned 1.54%, diversified commodities returned 3.61% and gold equities returned 18.39%.

    RAAX is now allocated 21% to gold bullion and 79% to U.S. Treasury bills based on a plethora of bearish risk factors. Since its inception, this is now the second “event” that has caused us to become this defensive. An “event” is defined as a risk-off scenario that can last as short as one month or, in the case of more meaningful drawdowns, many months. As always, RAAX will continue to monitor the risks and adjust its allocations accordingly.

    Average Annual Total Returns (%) as of June 30, 2019
      1 Mo YTD 1 Year Life
    RAAX (NAV) 5.80 2.94 -0.10 1.56
    RAAX (Share Price) 5.84 2.94 -0.41 1.66
    Blended Real Asset Index* 5.47 11.69 0.49 2.40

    Average Annual Total Returns (%) as of March 31, 2019
      1 Mo YTD 1 Year Life
    RAAX (NAV) 1.04 1.73 -- 0.72
    RAAX (Share Price) 1.04 1.69 -- 0.80
    Blended Real Asset Index* 0.76 10.46 -- 1.81


    The table presents past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect temporary contractual fee waivers and/or expense reimbursements. Had the ETF incurred all expenses and fees, investment returns would have been reduced. Investment returns and ETF share values will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. ETF returns assume that distributions have been reinvested in the Fund at “Net Asset Value” (NAV). NAV is determined at the close of each business day, and represents the dollar value of one share of the fund; it is calculated by taking the total assets of the fund, subtracting total liabilities, and dividing by the total number of shares outstanding. The NAV is not necessarily the same as the ETF’s intraday trading value. VanEck Vectors ETF investors should not expect to buy or sell shares at NAV.

    Returns less than a year are not annualized.

    Expenses: Gross 1.04%; Net 0.64%. Expenses are capped contractually at 0.55% through February 1, 2020. Expenses are based on estimated amounts for the current fiscal year. Cap exclude certain expenses, such as interest, acquired fund fees and expenses, and trading expenses.

    A Deeper Dive

    Below is the overall real asset risk score composite. A score of 0 represents the lowest risk level and a score of 100 represents the highest risk level. A score of 60 or higher will result in our most defensive posture. It’s now at 83!

    Overall Risk Score

    Overall Risk Score

    To better understand what is driving the risk score, you must look at the underlying factors being measured. These include real asset price trends, commodity price trends, realized volatility, economic activity and investor sentiment.

    Below is the real asset economic composite. It includes key supply and demand factors that drive real asset prices. It has been bearish since the end of May. Periods of economic weakness are typically associated with higher volatility and subsequent market declines.

    Economic Trend Risk Score

    Economic Trend Risk

    Momentum in real assets is bearish. This is typically a sign of elevated risk in real assets. As you can see from the chart below, price trends turned bearish in June.

    Price Trend Risk Score

    Price Trend Risk

    Volatility is a factor that we watch closely. Typically, periods of extreme volatility result in falling prices. The composite below demonstrates that volatility is not extreme.

    Price Volatility Risk Score

    Price Volatility

    RAAX’s sentiment indicators seek to measures overbought market conditions, which typically make real asset prices vulnerable to corrections. The chart below demonstrates that, in aggregate, real asset prices are overbought.

    Investor Sentiment Risk Score

    Ivestor Sentiment Risk Score

    And finally, the last risk factor incorporated into the risk score is commodity prices. Commodity prices are used because they often directly or indirectly impact real asset prices. This chart shows that commodity price trends are bearish.

    Commodity Price Risk Score

    Commodity Price Risk Score

    To summarize, risk in real assets is high. Four of the five risk factors that we follow—price trends, economic activity, investor sentiment and commodity prices—are now bearish. RAAX will remain adaptive to the risks in the market and look to reinvest in a diversified mix of real assets once the risk subsides.

    Real Asset Class Allocations

    Real Asset Segment Jul-19 Jun-19 Change from Previous Month
    Cash 80% 0% 80% Increase
    Coal Equities 0% 0% 0% No Change
    Steel Equities 0% 0% 0% No Change
    Global Metals & Mining Equities 0% 0% 0% No Change
    Agribusiness Equities 0% 0% 0% No Change
    Gold Bullion 20% 21% -1% Decrease
    Unconventional Oil & Gas Equities 0% 4% -4% Decrease
    Oil Service Equities 0% 5% -5% Decrease
    MLPs 0% 6% -6% Decrease
    Gold Equities 0% 6% -6% Decrease
    Diversified Commodities 0% 18% -18% Decrease
    REITs 0% 20% -20% Decrease
    Global Infrastructure 0% 20% -20% Decrease


    Please note that the information herein represents the opinion of the author, 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.

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    The Blended Real Assets Index consists of an equally weighted blend of the returns of Bloomberg Commodity Index, S&P Real Assets Equity Index, and VanEck® Natural Resources Index. Equal weightings are reset monthly. The S&P Real Assets Equity Index measures the performance of equity real return strategies that invest in listed global property, infrastructure, natural resources, and timber and forestry companies. The VanEck Natural Resources Index is a rules-based index intended to give investors a means of tracking the overall performance of a global universe of listed companies engaged in the production and distribution of commodities and commodity-related products and services. Sector weights are set annually based on estimates of global natural resources consumption, and stock weights within sectors are based on market capitalization, float-adjusted and modified to conform to various asset diversification requirements. The S&P 500® Index (S&P 500) consists of 500 widely held common stocks, covering four broad sectors (industrials, utilities, financial and transportation).

    The S&P Real Assets Equity Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright© 2019 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

    The Solactive MLP & Energy Infrastructure Index tracks the performance of MLPs and energy infrastructure corporations. The MVIS U.S. Listed Oil Services 25 Index is intended to track the overall performance of U.S.-listed companies involved in oil services to the upstream oil sector, which include oil equipment, oil services, or oil drilling. The Dow Jones Equity All REIT Index, designed to measure all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. The NYSE Arca Gold Miners Index is a modified market capitalization- weighted index composed of publicly traded companies involved primarily in the mining for gold. The Index is calculated and maintained by the New York Stock Exchange. The S&P® North American Natural Resources Sector Index: a modified capitalization-weighted index which includes companies involved in the following categories: extractive industries, energy companies, owners and operators of timber tracts, forestry services, producers of pulp and paper, and owners of plantations. The S&P® GSCI Total Return Index: is a world production-weighted commodity index comprised of liquid, exchange-traded futures contracts and is often used as a benchmark for world commodity prices.

    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 the Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.

    An investment in the Fund may be subject to risks which include, among others, in fund of funds risk which may subject the Fund to investing in commodities, gold, natural resources companies, MLPs, real estate sector, infrastructure, equities securities, small- and medium-capitalization companies, foreign securities, emerging market issuers, foreign currency, credit, high yield securities, interest rate, call and concentration risks, all of which may adversely affect the Fund. The Fund may also be subject to affiliated fund, U.S. Treasury Bills, subsidiary investment, commodity regulatory (with respect to investments in the Subsidiary), tax (with respect to investments in the Subsidiary), liquidity, gap, cash transactions, high portfolio turnover, model and data, management, operational, authorized participant concentration, no guarantee of active trading market, trading issues, market, fund shares trading, premium/discount and liquidity of fund shares, non-diversified and ETPs risks. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund’s returns. Small- and medium-capitalization companies may be subject to elevated risks.

    Diversification does not assure a profit or protect against a loss.

    Fund shares are not individually redeemable and will be issued and redeemed at their net asset value (NAV) only through certain authorized broker-dealers in large, specified blocks of shares called “creation units” and otherwise can be bought and sold only through exchange trading. Shares may trade at a premium or discount to their NAV in the secondary market. You will incur brokerage expenses when trading Fund shares in the secondary market. Past performance is no guarantee of future results.

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