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  • Guided Allocation

    Steady Start as Real Assets Stumble

    David Schassler, Portfolio Manager
    February 20, 2020
     

    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.

    Overview

    The VanEck Vectors Real Asset Allocation ETF (“RAAX”) started 2019 by significantly outperforming both of its benchmarks. RAAX returned -2.28% relative to the Bloomberg Commodity Index, with a return of -7.36%, and its custom blended benchmark, with a return of -5.07%.

    In January, RAAX was able to provide meaningful downside protection while remaining fully invested due to its risk-focused portfolio construction process. It was fully allocated across natural resource equities (30%), gold and gold equities (30%), REITs (19%), global infrastructure (11%), diversified commodities (5%) and MLPs (5%). RAAX’s top performing real assets last month were in gold and interest rate sensitive investments. Its allocation to gold bullion returned 4.56%, its allocation to REITs returned +1.23% and its allocation to global infrastructure returned +1.23%. RAAX’s real assets that were down the most last month were in the natural resource equity allocation. Its holdings in oil service equities lost 17.74%, coal equities lost 15.47%, unconventional oil & gas equities lost 14.50% and steel equities lost 11.14%.

    Average Annual Total Returns (%) as of January 31, 2020
      1 Mo† YTD† 1 Yr Life
    (04/09/18)
    RAAX (NAV) -2.28 -2.28 3.11 1.52
    RAAX (Share Price) -2.33 -2.33 2.99 1.48
    Blended Real Asset Index* -5.07 -5.07 1.79 0.93

    Average Annual Total Returns (%) as of December 31, 2019
      1 Mo† YTD† 1 Yr Life
    (04/09/18)
    RAAX (NAV) 5.26 6.24 6.24 2.96
    RAAX (Share Price) 5.24 6.08 6.08 2.95
    Blended Real Asset Index* 4.75 16.23 16.23 4.05

    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 1.13%; Net 0.75%. Expenses are capped contractually at 0.55% through February 1, 2021. 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.

    This month, RAAX remains fully invested and well diversified. It holds a 29% allocation to gold and gold equities, a 25% allocation to natural resource equities, a 20% allocation to REITs, a 17% allocation to global infrastructure, a 5% allocation to MLPs and a 5% allocation to diversified commodities. Coal equities were removed based on negative price and commodity trends, bearish supply and demand activity, and extreme investor sentiment.

    We believe that the current positioning of RAAX, with its exposures well diversified across risk-off assets (gold and gold equities), risk-on assets (natural resource equities and commodities) and interest rate sensitive assets (REITs and global infrastructure), will provide the fund with the stability it needs to navigate the month regardless of the markets direction.

    A Deeper Dive

    Below is the overall real asset 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. The current score of 9 indicates a stable risk regime for real assets. 

    Overall Risk Score

    Overall Risk Score

    The risk score can be decomposed into key factors that drive real asset prices. These include price trends, economic activity, realized volatility, economic activity and investor sentiment.

    Price Trend Risk Score

    Price Trend Risk Score

    Price trends are bullish. Bullish price momentum is evident across all sectors of the real asset universe.

    Economic Risk Score

    Economic Risk Score

    Economic risk remained subdued.

    Price Volatility Risk Score

    Price Volatility Risk Score

    Volatility in real asset prices is not extreme.

    Investor Sentiment Risk Score

    Investor Sentiment Risk Score

    Investor sentiment risk is not at an extreme.

    Therefore, based on all of the bullish data points, RAAX will remain fully invested and well diversified. Its large allocation to gold should provide downside protection in the event that there is a dramatic increase in risk within real assets.

    Real Asset Class Allocations

      20-Feb 20-Jan Change From Previous Month
    Global Infrastructure 16.60% 11.40% 5.20% Increase
    REITs 20.30% 19.30% 1.00% Increase
    Low Carbon Energy Equities 4.20% 3.90% 0.30% Increase
    Cash 0.10% 0.10% 0.00% No Change
    Gold Equities 8.00% 8.00% 0.00% No Change
    MLPs 4.80% 4.90% -0.10% Decrease
    Agribusiness Equities 3.60% 3.70% -0.20% Decrease
    Gold Bullion 22.00% 22.30% -0.30% Decrease
    Global Metals & Mining Equities 3.40% 3.70% -0.30% Decrease
    Steel Equities 3.30% 3.70% -0.40% Decrease
    Energy Equities 3.20% 3.60% -0.40% Decrease
    Diversified Commodities 4.50% 4.90% -0.40% Decrease
    Unconventional Oil & Gas Equities 3.20% 3.60% -0.50% Decrease
    Oil Services Equities 3.10% 3.70% -0.60% Decrease
    Coal Equities 0.00% 3.50% -3.50% Decrease

    DISCLOSURES

    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.

    This content is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this content. Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.

    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©2020 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 www.spdji.com. 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.

    Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 855.281.3413 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.

     

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