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  • Guided Allocation

    Fragile Market Supports Stock Underweight

    David Schassler, Portfolio Manager
    October 21, 2019
     

    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

    The VanEck NDR Managed Allocation Fund (the “Fund”) returned 0.18% vs. 1.08% for its blended 60/40 benchmark in September. The Fund underperformed last month, primarily due to its underweight exposure to stocks and overweight exposure to bonds. In September, the MSCI All Country World Index returned 2.10% and the Barclays US Aggregate Bond Index returned -0.53%. The Fund also had a bias towards the U.S. over international equities, which did not help, as the Russell 3000 Index returned 1.76% and the MSCI EAFE Index returned 2.87%.

    Going into October, the Fund maintained its moderate underweight position in stocks and overweight position in bonds. Globally, the Fund reduced its exposure to the U.S. in favor of Japan and Europe. Within the U.S., it reduced its exposure to growth in favor of value.

    It appears as though the market’s condition remains fragile. Slowing economic activity and earnings growth, the trade war with China, Brexit and uncertainties on the future direction of monetary policy are weighing heavily. The indicators in the Ned Davis Research (NDR) model continue to measure a period of heightened risk. Therefore, the Fund will remain underweight stocks and continue to reevaluate its positioning as new data points become available.

    Average Annual Total Returns (%) as of September 30, 2019
      1 Mo YTD 1 Year 3 Year Since Inception
    Class A: NAV
    (Inception 5/11/16)
    0.18 5.95 -3.49 4.05 5.00
    Class A: Maximum 5.75% load -5.57 -0.14 -9.03 2.01 3.19
    60% MSCI ACWI/
    40% Bloomberg Barclays US1
    1.08 13.61 5.60 7.48 7.98
    Morningstar Tactical Allocation
    Category (average)2
    0.35 9.95 -0.36 5.01 5.58


    Average Annual Total Returns (%) as of June 30, 2019
      1 Mo YTD 1 Year 3 Year Since Inception
    Class A: NAV
    (Inception 5/11/16)
    2.82 5.88 -0.97 5.05 5.39
    Class A: Maximum 5.75% load -3.10 -0.21 -6.68 3.00 3.42
    60% MSCI ACWI/
    40% Bloomberg Barclays US1
    4.46 12.49 7.31 8.33 8.31
    Morningstar Tactical Allocation
    Category (average)2
    3.97 9.22 1.66 5.35 5.63

    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). An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made. 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 1.83%; Net 1.36%. Expenses are capped contractually until 05/01/20 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

    Global stocks are struggling to outperform bonds. The indicator below measures the strength of the equity markets and the bond markets. A non-performing stock market and a bond market rising due to expectations of lower future interest rates does not inspire confidence for the future..

    120-Day Relative Stock/Bond Momentum (as of September 30, 2019)

    VENDR_MO120_BLG_2019.10.jpg

    Copyright 2019 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/.


    Global high yield spreads are starting to widen. Historically, this has indicated that default risk in the market is rising; therefore, it is likely a good time to exercise caution when investing in risky assets.

    Global High Yield: Short-Term vs. Long-Term Moving Average (as of September 30, 2019)

    VENDR_GBA_HY_BLG_2019.10.jpg

    Copyright 2019 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/.


    Signs of life in value stocks suggest that the reign of growth leadership may be coming to an end.
    Below is the NDR Growth vs. Value Composite. The technical indicators are reacting to the recent strength in prices.

    Growth vs. Value Composite (as of September 30, 2019)

    VENDR_Growth_v_Value_BLG_2019.10.jpg

    Copyright 2019 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/.


    Relative technical strength has improved significantly in Japanese stocks.
    Japan’s relative strength is benefiting from recent relative weakness in the U.S. and other equity regions.

    NDR Global Regional Equity Model (as September 30, 2019)

      September 30, 2019 August 30, 2019 July 31, 2019
     U.S. Composite 79.2  91.7 91.7
     Europe ex. U.K. Composite 45.8 33.3 45.8
     Emerging Markets Composite 30.4 38.7 20.2
     U.K. Composite 30.0 21.7 26.7
     Japan Composite 65.7 20.7 27.9
     Pacific ex. Japan Composite 40.8 50.8 65.8
     Canada Composite 30.8 40.8 32.5

    Copyright 2019 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 unstable investment landscape is being observed in many aspects of the market. In light of all the risks mentioned in this and recent commentaries, we believe that the underweight position is prudent. As always, the Fund will remain focused on the data and, if necessary, adjust its exposures as market conditions change.

    NDR Indicator Summary, October 2019

      Macro/Fundamental Technical Overall
     Stocks, Bonds, or Cash      
     Stocks (vs. Bonds) Bearish  Neutral Bearish
     Bonds (vs. Cash) Bullish Bullish Bullish
     
     Global Regional Equity      
     U.S. Bullish  Neutral Bullish
     Canada Bearish Neutral Bearish
     U.K. Neutral Bearish Bearish
     Europe ex. U.K. Bearish Bullish Bearish
     Japan Neutral Bullish Bullish
     Pacific ex. Japan Neutral Neutral Neutral
     Emerging Markets Bearish Bearish Bearish
     
     U.S. Cap & Style      
     Large-Cap Bullish Bullish Bullish
     Small-Cap Bearish Bearish Bearish
     Growth Bearish Neutral Neutral
     Value Bullish Neutral Neutral


    Asset Class Positioning vs. Neutral Allocation, October 2019

    VENDR_AllocationVsNeutral_BLG_2019.10.jpg

    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.

    IMPORTANT DISCLOSURES

    *All weighting comparisons are relative to the blended benchmark (60% MSCI ACWI/40% Bloomberg Barclays US Agg.) or neutral allocation. This represents the starting allocation point absent an alternative recommendation once the model takes into consideration the indicators that yield the global tactical allocation model.

    1The Fund’s benchmark is a blended unmanaged index created by the Van Eck Associates Corporation (the “Adviser”) consisting of 60% MSCI All Country World Index (ACWI) and 40% Bloomberg Barclays US Aggregate Bond Index. The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 24 emerging markets (EM) countries and covers approximately 85% of the global investable equity opportunity set. The Bloomberg Barclays US Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. This includes treasuries, government-related and corporate securities, mortgage-backed securities, asset-backed securities and collateralized mortgage-backed securities.

    2Morningstar category averages are equal-weighted category (total) returns. The calculation is the average of the total returns for all funds in a given category. The standard category average calculation is based on constituents of the category at the end of the period. Total return reflects performance without adjusting for sales charges or the effects of taxation, but is adjusted to reflect all actual ongoing fund expenses and assumes reinvestment of dividends and capital gains. If adjusted, sales charges would reduce the performance quoted.

    The Morningstar Tactical Allocation category includes portfolios that seek to provide capital appreciation and income by actively shifting allocations across investments. These portfolios have material shifts across equity regions, and bond sectors on a frequent basis. To qualify for the tactical allocation category, a fund must have minimum exposures of 10% in bonds and 20% in equity. Next, a fund must historically demonstrate material shifts in sector or regional allocations either through a gradual shift over three years or through a series of material shifts on a quarterly basis. Within a three-year period, typically the average quarterly changes between equity regions and bond sectors exceeds 15% or the difference between the maximum and minimum exposure to a single equity region or bond sector exceeds 50%. As of June 30, 2019, the Fund ranked 211 out of 276 funds for the 1 month period; 206 out of 275 funds for the YTD period; 206 out of 271 funds for the 1 Year period; 150 out of 254 funds for the 3 Year period; and 152 out of 254 funds since inception. As of September 30, 2019, the Fund ranked 173 out of 275 funds for the 1 month period; 215 out of 272 funds for the YTD period; 197 out of 267 funds for the 1 Year period; 166 out of 250 funds for the 3 Year period; and 153 out of 250 funds since inception.

    Global stocks are measured by the MSCI ACWI and U.S. bonds are measured by the Bloomberg Barclays US Aggregate Bond Index. Large-cap stocks are measured by the Russell 1000 Index, an index of the largest 1,000 companies in the Russell 3000 Index. The Russell 1000 Index comprises over 90% of the total market capitalization of all listed U.S. stocks. Small-cap stocks are measured by the Russell 2000 Index, an index which measures the performance of the smallest 2,000 companies within the Russell 3000 Index. Value stocks are measured by the Russell 3000 Value Index, a market-capitalization weighted equity index based on the Russell 3000 Index, which measures how U.S. stocks in the equity value segment perform. Included in the Russell 3000 Value Index are stocks from the Russell 3000 Index with lower price-to-book ratios and lower expected growth rates. Growth stocks are measured by the Russell 3000 Growth Index, a market capitalization weighted index based on the Russell 3000 Index. The Russell 3000 Growth Index includes companies that display signs of above average growth. Companies within the Russell 3000 Index that exhibit higher price-to-book and forecasted earnings are used to form the Russell 3000 Growth Index. U.S. stocks are measured by the Russell 3000 Index which is a capitalization-weighted stock market index that seeks to be a benchmark of the entire U.S stock market. It measures the performance of the 3,000 largest publicly held companies incorporated in America and is based on market capitalization. The MSCI Europe ex UK Index captures large and mid cap representation across 14 developed markets (DM) countries in Europe. The MSCI Canada Index is designed to measure the performance of the large and mid cap segments of the Canada market. The MSCI Pacific ex Japan Index captures large and mid cap representation across 4 of 5 developed markets (DM) countries in the Pacific region (excluding Japan). Emerging Markets stock are measured by the MSCI Emerging Markets Index which captures large and mid cap representation across 24 emerging markets (EM) countries. The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market. The S&P 500® Index consists of 500 widely held common stocks, covering four broad sectors (industrials, utilities, financial and transportation). International stocks are measured by the MSCI EAFE captures large and mid cap representation across 21 developed markets countries around the world, excluding the US and Canada. U.S. Dollar Index (DXY) indicates the general international value of the U.S. dollar. The DXY does this by averaging the exchange rates between the U.S. dollar and six major world currencies: Euro, Japanese yen, Pound sterling, Canadian dollar, Swedish kroner, and Swiss franc. 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.

    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. 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. Results reflect past performance and do not guarantee future results.

    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 is a “fund-of-funds,” an investor will indirectly bear the principal risks of the exchange-traded products in which it invests, including but not limited to, risks associated with cash and cash equivalents, debt securities, exchange traded products, exchange traded products’ underlying investments, below investment grade securities, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, common stock, concentration, derivatives, emerging markets, investment style, small- medium and large-capitalization companies, limited number of holdings, market, model and data, operational, portfolio turnover and regulatory risks. The Fund will bear its share of the fees and expenses of the exchange-traded products. Consequently, an investment in the Fund entails more direct and indirect expenses than a direct investment in an exchange-traded product. Because the Fund invests in exchange-traded products, it is subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of an exchange-traded product’s shares may be higher or lower than the value of its underlying assets, there may be a lack of liquidity in the shares of the exchange-traded product, or trading may be halted by the exchange on which they trade. Principal risks of investing in foreign securities include changes in currency rates, foreign taxation and differences in auditing and other financial standards. Debt securities may be subject to credit risk and interest rate risk. Investments in debt securities typically decrease in value when interest rates rise.

    Please call 800.826.2333 or visit vaneck.com for performance information current to the most recent month end and for a free prospectus and summary prospectus. An investor should consider the Fund’s investment objective, risks, charges and expenses carefully before investing. The prospectus and summary prospectus contain this as well as other information. Please read them carefully before investing.