• Guided Allocation

    Technically Speaking, U.S. on Top

    David Schassler, Portfolio Manager
    September 20, 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.

    • Almost all of the technical indicators are bullish
    • The trend in sentiment remains bullish
    • 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 +1.13% versus +0.76% for its benchmark of 60% global stocks (MSCI All Country World Index) and 40% bonds (Bloomberg Barclays US Aggregate Bond Index) in August.*

    Global stocks and U.S. bonds had strong months, returning +0.79% and +0.64%, respectively. The Fund benefited from its overweight stock exposure, more specifically, its overweight exposure to the U.S. U.S. stocks, as measured by the Russell 3000 Index, led the markets higher with an impressive return of +3.51%.

    The Fund’s positioning changed very little this month and remains overweight stocks with a 77% allocation. The largest regional equity allocation is to the U.S. (48% vs. 33% for the neutral allocation). Within the U.S., we continue to favor large-cap over small-cap, with a moderate bias towards value.

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

    Total Returns (%) as of Aug. 31, 2018
      1 Mo YTD 1 Year Since Inception
    Class A: NAV
    (Inception 5/11/16)
    1.13 0.96 6.00 9.15
    Class A: Maximum 5.75% load -4.70 -4.86 -0.10 6.39
    60% MSCI ACWI/
    40% BbgBarc US Agg.
    0.76 2.25 6.69 9.30
    Morningstar Tactical Allocation
    Category (average)1
    1.41 2.03 7.06 8.09

    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

    As of now, technical trends in the market remain strong. 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 in the late-summer. Below is the NDR Stock/Bond Technical Composite.

    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 August 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/.

    While it’s strong now, the model will become less bullish on stocks if the international markets continue to weaken. Global country participation is measured in the model by the NDR Global Breadth Indicator. It measures the percentage of countries trading either above or below their intermediate-term moving average. As you can see below, breadth is strong but quickly declining.

    Breadth Currently Strong But Declining (NDR Global Breadth Indicator)

    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/.

    We remain bullish on the U.S., and the Fund’s overweight positioning is based primarily on the technical indicators. The technical reading in the U.S., relative to the other equity regions, is very bullish. This is not at all surprising given the recent strength of the U.S. markets. However, the macroeconomic and fundamental indicators are mixed. Risks in the U.S. that are being measured by the model include the flattening of the yield curve in the U.S. (the spread between 10-year and 2-year Treasury yields), relative growth-adjusted valuations, and investor sentiment.

    The Fund’s 77% equity position continues to reflect the optimism in the continuation of the stock rally, but also 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 therefore leads to the moderately overweight stock weighting.

    August Performance Review

    U.S. stocks, measured by the Russell 3000 Index, were up +3.51% in August! And, growth continues to lead the way. U.S. growth stocks, as measured by the Russell 3000 Growth Index, returned +5.53%. Bonds also saw positive returns in August and finsihed the month up +0.64%. Outside of the U.S., the equity performance picture was not nearly as rosy. Removing the U.S. from global stock returns, as measured by the MSCI All Country World Index ex. U.S., resulted in a dismal return of -2.09%. Currently, the U.S. accounts for approximately 56% of the market capitalization of the global stock market. Nearly all regions besides the U.S. declined in August, led by the U.K. (-4.18%) and the Emerging Markets (-2.67%). In fact, the only other MSCI region besides the U.S. to see a positive return in August was Japan with a modest return of +0.23%. Within the U.S., both small-cap and large-cap stocks had a strong month with small-cap stocks outperforming (+4.31% vs. 3.45%).

    NDR Indicator Summary, September 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 Neutral 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 Bullish Bearish Neutral
    • U.S. bullishness driven by price action; macro/fundamental are bearish
    • U.K. technical indicator readings degraded
    • Europe ex. U.K. technical indicators improved
    • EM macro/fundamental indicators changed from neutral to bullish
    • Japan technical indicators declined
    • Pacific ex. Japan technical and macro/fundamental remain very bearish
    U.S. Cap & Style
    Large-Cap Bullish Bullish Bullish
    Small-Cap Bearish Bearish Bearish
    Growth Bearish Neutral Bearish
    Value Bullish Neutral Bullish
    • Large-Cap overweight driven by macro/fundamental and technical indicators
    • Technical indicators are neutral on growth vs. value, while macro/fundamental favor value stocks

     

    Asset Class Positioning vs. Neutral Allocation, September 2018

    Asset Class Positioning vs. Neutral Allocation, September 2018

    Source: VanEck. Data as of September 2018.