Van Eck Blogs https://www.vaneck.com/Templates/PageLayout_Special_rwd.aspx?pageid=12884903011?blogid=2147483856 Insightful, Weekly Commentary on the Municipal Bond Markets 2016-12-03 en-US How Fundamentals Boost the Case for Emerging Markets Bonds https://www.vaneck.com/blogs/emerging-markets-bonds/how-fundamentals-boost-case-for-emb/ Fundamentals of many emerging markets countries appear to be stabilizing, and in some cases showing signs of improvement.

]]>
Van Eck Blogs 12/1/2016 12:00:00 AM

The emerging markets debt market has evolved significantly over the past two decades, growing in both size and diversity. The market’s growth reflects the dynamic structural reforms that have transformed many emerging markets economies and helped boost economic growth. Also, investor understanding and appetite for emerging markets bonds has increased significantly as more investors recognize the asset class’s potential income and diversification benefits.

In this five part blog series (read my previous post, A Case for Emerging Markets Bonds: Part 1), we advance the case for investing in emerging markets debt and identify some of the opportunities the asset class provides in today’s market environment.

Favorable Fundamentals

Fundamentals of many emerging markets countries have stabilized and improved following the headwinds of the past few years. This post examines these favorable fundamentals.

Although many emerging markets economies have been significantly impacted in the past few years by the collapse in commodity prices, the stronger U.S. dollar, and the slowdown in Chinese economic growth, fundamentals now appear to be stabilizing and, in some cases, showing signs of improvement. In addition, the longer-term fundamental rationale for investing in emerging markets remains intact. This is perhaps best characterized by the higher economic growth that emerging markets have enjoyed versus developed markets, over several decades.

As a result, emerging markets today contribute approximately 39% of global gross domestic product (GDP) versus only 19% two decades ago (Source: IMF). Despite this growth, emerging markets have, on average, maintained steady and manageable debt levels through disciplined borrowing, in stark contrast to many developed countries which have seen their debt-to-GDP ratios balloon to more concerning levels.

Emerging Markets Have Significantly Lower Debt-to-GDP Ratios versus Developed Markets

Emerging Markets Have Significantly Lower Debt-to-GDP Ratios versus Developed Markets

Source: IMF.

The economic growth advantage enjoyed by emerging economies stems from several factors, including favorable demographics, growing middle classes, increased urbanization, and improving infrastructure. From a policy perspective, much of the credit goes to reforms undertaken following several emerging markets debt crises in the 1980s and 1990s.

Before the early 2000s, external debt denominated in U.S. dollars accounted for a much larger portion of emerging markets borrowing than it does today. A weaker local currency can significantly impact a country’s ability to repay its external debts, which may result in capital flight as investors pull out of vulnerable markets. In order to avoid the political, social, and economic disruptions of a large and rapid devaluation, countries may deplete foreign currency reserves to defend their currencies. In some cases, however, devaluations and even defaults can inevitably occur, which can shut off a country’s access to global capital markets for years and result in a lack of foreign investor confidence.

Structural Reforms Have Strengthened Emerging Markets

In response to the crises of the 1980s and 1990s, many countries adopted floating exchange rates, pursued structural reforms to enhance fiscal discipline, and increased local currency debt issuance to help reduce the vulnerability of their economies to external shocks. For many emerging markets countries, taken together, these reforms have increased foreign currency reserves and also resulted in secular reductions in borrowing costs.

Emerging Markets Reserves and Spread vs. U.S. Treasuries
As of October 2016

Emerging Markets Reserves and Spread vs. U.S. Treasuries

Source: Bloomberg.

Since the greater adoption of flexible exchange rates, the ability and willingness of emerging markets central banks to use them as shock absorbers has been tested several times. The financial crisis of 2008 and European debt crisis thereafter provided significant tests for the new emerging markets model of lower external debt, higher reserves, and greater fiscal flexibility. In both cases, central banks took swift action to insulate their economies without depleting reserves to dangerous levels. The more recent “taper tantrum” of 2013 demonstrated that policymakers in many countries were willing to tolerate weaker currencies and higher interest rates in order to maintain stable reserves and control inflation.

In summary, the fiscal stability of emerging markets has increased considerably in the past 20 years. Exchange rate flexibility along with higher reserves and healthier fiscal positions have allowed emerging markets economies to avoid a repeat of earlier crises, maintain market access, and help boost investor confidence.

Next: A Look at Ratings Trends

Next I will concentrate on how ratings trends reflect long-term progress while also touching on recent headwinds within the asset class.

]]>
A Case for Municipal Bond Optimism https://www.vaneck.com/blogs/muni-nation/case-for-municipal-bond-optimism/

]]>
Van Eck Blogs 11/30/2016 12:00:00 AM

Very much like hitting a modern day “reset” button, the outlook ahead for the municipal market should be viewed in the light of the factual evidence, which I argue supports a return to optimism for the municipal asset class. Despite the post-election selling and volatility which has occurred broadly in fixed income, I view this tumult as a short-term market correction. Viewed in the context of the details below, I believe that the muni asset class has not been as attractively valued in the 10-30 year maturity range since back on June 24 and March 17 of this year. Right now, as shown in the following table, 10-30 year AAA-rated munis currently are yielding more than U.S. Treasuries. Prior to this period, October 2015 presented a similar valuation opportunity and marked the beginning of a year of positive performance for municipals, and the start of more than 50 consecutive weeks of inflows into municipal bond open end mutual funds and ETFs, according to Morningstar® data.

Triple-AAA Rated Muni Yields as a Percent of U.S. Treasury Yields

AAA Muni vs. U.S. Treasuries

11/25/15 - 11/25/16 11/25/2016
Maturity Min Max Mean Yield Ratio
1 Year 56.30% 136.36% 94.62% 111.67%
2 Year 65.63% 118.47% 84.81% 98.48%
5 Year 65.20% 100.81% 79.55% 91.92%
7 Year 68.49% 99.31% 81.16% 91.16%
10 Year 80.65% 103.21% 92.09% 101.76%
15 Year 92.26% 115.31% 102.74% 109.86%
20 Year 95.57% 118.07% 105.48% 111.36%
25 Year 91.67% 116.97% 102.80% 108.08%
30 Year 86.10% 110.18% 97.34% 103.82%

Source: Siebert Cisneros Shank & Co..

When considering the supply and demand dynamics, the projected December 2016 cash flow of $35 billion from maturing bonds is expected to be the largest amount ever in any December in the history of the municipal bond market. The second largest volume occurred in 2012 when $32 billion flowed back to investors from calls and maturing bonds. If you include coupon payments, the total amount of reinvestment cash that will likely be available at the end of December is approximately $46 billion.1 This should place enormous pressure on supply. Even if only half of the reinvestment cash is deployed back into munis, demand would be well in excess of supply. According to the Bond Buyer, today’s 30-day visible supply2 stands only at $16.785 billion.

Given the promising data, I believe December may potentially be a rebound month for the asset class.

1Source: Siebert Cisneros Shank & Co

2The 30-day visible supply is compiled daily from The Bond Buyer's Competitive and Negotiated Bond Offerings calendars. It reflects the dollar volume of bonds expected to reach the market in the next 30 days. Issues maturing in 13 months or more are included.

The S&P rating scale is as follows, from excellent (high grade) to poor (including default): AAA to D, with intermediate ratings offered at each level between AA and C. Anything lower than a BBB rating is considered a non-investment-grade or high-yield bond.

]]>
A Case for Emerging Markets Bonds: Part 1 https://www.vaneck.com/blogs/emerging-markets-bonds/case-for-emb-part-1/ In this five part blog series, we advance the case for investing in emerging markets bonds and identify some of the potential opportunities the asset class provides in today’s market environment.

]]>
Van Eck Blogs 11/23/2016 12:00:00 AM

The emerging markets bonds market has evolved significantly over the past two decades, growing in both size and diversity. The market’s growth reflects the dynamic structural reforms that have transformed many emerging markets economies and helped boost economic growth. Also, investor understanding and appetite for emerging markets bonds has increased significantly as more investors recognize the asset class’s potential income and diversification benefits.

In this blog series, we advance the case for investing in emerging markets bonds and identify some of the potential opportunities the asset class provides in today’s market environment.

Emerging Markets Bonds is a Significant Asset Class

The emerging markets debt asset class has grown tremendously in the past two decades. It now has a market capitalization of more than $3.6 trillion (as of October 31, 2016), as measured by J.P. Morgan’s emerging markets bond indices, versus approximately $1.1 trillion ten years ago. In addition to its growing size, the emerging markets debt market has become incredibly diverse and now includes bonds issued by sovereign, quasi-sovereign, and corporate entities in both hard currencies (mainly U.S. dollars and euros) and local currencies.

The Emerging Markets Debt Asset Class Has Grown in Size and Diversity
2002-2016

The Emerging Markets Debt Asset Class Has Grown in Size and Diversity

Source: J.P. Morgan as of 10/31/2016. EM USD Sovereign represented by J.P. Morgan EMBI Global Index. EM Local Sovereign represented by J.P. Morgan GBI-EM Broad Index. EM USD Corporate represented by J.P. Morgan CEMBI Broad Index. Past performance is not indicative of future results; current data may differ from data quoted.

Growth in the market size has been driven primarily by the increased issuance of local currency-denominated sovereign bonds, as well as corporate bonds. The emerging markets corporate debt market alone nearly equals the size of the U.S. high yield bond market. Many foreign investors gravitate towards hard currency sovereign and corporate bonds, typically those denominated in U.S. dollars, to limit currency risk. However, the local currency market far exceeds the hard currency market in size.

With local bond markets, some emerging markets countries impose capital controls, taxes or other hurdles that may impact a foreign investor’s ability to access the market effectively and efficiently. These restrictions may reduce the tradeable size of the local currency market. It is worth noting, however, that a significant amount of that reduction comes from China’s exclusion from investable global bond market indices. China has undertaken a series of reforms that are gradually opening up its massive onshore market to foreign investors.

Next: A Look at Emerging Markets Bonds Fundamentals

Fundamentals of many emerging markets countries appear to be stabilizing, and in some cases showing signs of improvement. In the next post, How Fundamentals Boost the Case for Emerging Markets Bonds, I examine these favorable fundamentals.

]]>
Emerging Markets Bonds Strength Tested by U.S. Election https://www.vaneck.com/blogs/emerging-markets-bonds/emerging-markets-bonds-strength-tested-us-election/ Van Eck Blogs 11/18/2016 12:00:00 AM

At this writing, the surprise election of Trump on November 8, 2016 has markets anticipating higher U.S. rates and inflation, which has dramatically impacted fixed income asset classes, including emerging markets bonds (read more about this in Emerging Markets React Strongly to Trump Victory). In addition, emerging markets are greatly impacted by the shifting winds of global trade, and given the yet-to-be-determined trade policies of a Trump Presidency, we expect markets to remain somewhat unsettled in the coming months.

Looking back at the month of October, global fixed income markets suffered a setback, as U.S. interest rates remained on the volatile path they had assumed in September. By the end of the month, rates had moved 0.23% higher with the 10-year U.S. Treasury note yields ending October at 1.83%. Emerging markets bonds sold off as well, mostly in line with U.S. Treasuries. Other fundamental drivers of performance were mixed. As the U.S. presidential election loomed large, risk appetite remained relatively healthy in October. Meanwhile, economic data and Fed signaling led to increased anticipation of a December rate hike.

Emerging Markets Continue to Grow Faster than Developed Markets

The news for emerging markets this year has been taken mainly as positive. For starters, the growth differential of emerging markets versus developed markets has expanded in 2016 YTD, while the global growth picture overall has improved slightly. China moved out of the headlines during the first quarter, but the China yuan renminbi (CNY) has been devaluing and capital has been leaving the country. On the other hand, positive Purchasing Managers’ Index (PMI) readings have been in line with the slightly improved global growth backdrop. While Turkey and South Africa battle their own political crises, Latin American economies have begun to show long awaited fiscal improvements, and several key central banks are anticipating, or have recently begun, a cycle of interest rate cuts.

Hard Currency Sovereign Bonds Selloff on Higher Rates

Emerging markets hard currency sovereign bonds were largely impacted by a rising interest rate driven selloff, with added negative contribution from Venezuela on solvency concerns and Colombia after the peace agreement referendum failed. A proposed bond swap by Venezuela’s national oil company, Petroleos de Venezuela S.A. (PDVSA), turned into a market saga as the proposed terms were revised multiple times due to lack of market interest. With rising uncertainty about the consequences of a failed swap ahead of sizeable obligations coming due, Venezuela’s (and PDVSA’s) bond prices dropped significantly. Colombia’s progress on a fiscal agenda had taken a back seat to the signing of a peace agreement. In a surprise vote reminiscent of the Brexit vote in June, the agreement was shot down via public referendum. Colombian assets sold off sharply as a result. Positive contributions were mainly from smaller, high beta issuers like Ecuador and Ukraine. Overall, U.S. dollar sovereign bonds returned -1.24% in October, though on average credit spreads moved only 0.04% wider. New supply of dollar bonds has been running at a record pace in 2016, at approximately $132 billion through October 31.

In October, another notable occurrence in the sovereign debt space was the impact of ratings moves on widely followed indices. Turkey moved to the high yield sector within JP Morgan’s sovereign indices; Hungary at the same time moved back to investment grade. The portion of investment grade issuers in most widely followed U.S. dollar sovereign index, the J.P. Morgan EMBI Global Diversified Index (EMBIGD), is down to approximately 52.5% at the beginning of November, with Turkey (3.95% of the EMBIGD) trading places with Hungary (3.11% of the EMBIGD). In the J.P. Morgan Custom EM Investment Grade Plus BB-Rated Sovereign USD Bond Index (JPEGIGBB) Turkey moved into the capped (at 20%) BB category, while Hungary re-ascended to the investment grade category. As a result, Turkey’s weight fell from 6.2% to 4.3%, while Hungary grew from 3.5% to 4.8%. The corporate debt market, which has a higher weighting towards higher rated Asian issuers, began November at approximately 60.5% investment grade.

Local Rates, Currencies Drag Down Local Currency Sovereign Bonds

Emerging markets local currency sovereign bonds were down 0.85% in October, driven by both local rate movements and adverse currency movements. Colombia and Central/Eastern European markets were the worst performers during the month. Brazil, South Africa, and Mexico (with the peso closely tracking election odds) were the top positive performers, and Peru and Chile had positive returns. Interest rate easing cycles continued in the majority of emerging markets local markets, including Brazil after the country’s central bank lowered the SELIC rate in October for the first time in four years (from 14.25% to 14.00%).

High Yield Emerging Markets Corporate Bonds Show Strength in October

Corporates performed better than dollar and local sovereigns, but investment grade credit in particular dragged lower with U.S. Treasuries. High yield emerging markets credit, posted slightly positive returns in October, almost canceling out the 0.51% loss by investment grade corporates. Credit spreads tightened by approximately 0.12% overall. One risk barometer we have been monitoring, the yield spread between emerging markets high yield corporate and U.S. high yield corporates, tightened further during October to 27 basis points (“bps”) from 51 bps at the end of September. On an option-adjusted-spread basis, which also takes into account the shorter duration of emerging markets high yield, the spread narrowed to 51 bps from 80 bps a month earlier.

October 2016 1-Month Total Returns by Country

October 2016 1-Month Total Returns by Country Chart

Source: FactSet as of 10/31/2016. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

 

]]>
Election Results Benefit U.S. Moats https://www.vaneck.com/blogs/moat-investing/election-results-benefit-us-moats/ The idea of investing in attractively priced quality companies remains a long-term strategy despite the short-term impact of the U.S. presidential election.

]]>
Van Eck Blogs 11/17/2016 11:01:06 AM

As global financial markets continue to sort through the long-term impact of Donald Trump’s U.S. presidential victory on Tuesday, November 8, 2016, one thing is certain: there were both winners and losers in the immediate aftermath. Among U.S. moat companies, several sectors and individual stocks wavered in the week preceding the election and reversed course in the days that followed. Overall, moat companies that benefited from the election outweighed those that suffered.

Positive Reversal of Fortune on Trump Victory

Throughout the week leading to the election (November 1 to November 8), several stocks within the U.S.-oriented Morningstar® Wide Moat Focus IndexSM (the “Index”) (MWMFTR, or “the U.S. Moat Index”) posted unimpressive returns. Companies from the healthcare sector such as Allergan plc (AGN), AmerisourceBergen Corp. (ABC), McKesson Corp. (MCK), and Amgen Inc. (AMGN) struggled with the prospects of potentially higher regulation and price controls under a possible Clinton administration. Following Trump’s election, these companies recovered significantly. Banking, which also stands to benefit from potentially reduced regulations and higher interest rates under Trump, received a boost led by Index constituent Wells Fargo & Co. (WFC).

Five Largest Reversals in Pre-Election versus Post-Election Performance
Morningstar Wide Moat Focus Index
Pre-Election Period: 11/1/16 – 11/8/16; Post-Election Period: 11/9/2016 – 11/10/2016

Five Largest Reversals in Pre-Election versus Post-Election Performance

Source: Morningstar; FactSet. Past performance is no guarantee of future results. Not intended to be a forecast of future events or investment advice.

Tech Companies among those Hurt by Threat to Skilled Foreign Workers

On the flip side, several U.S. Moat Index constituents struggled following the election. Amazon.com, Inc. (AMZN), Starbucks Corp. (SBUX), Western Union Co. (WU), and Salesforce.com (CRM) were among the negatively affected stocks. Immigration policy uncertainty appears to be impacting tech companies who rely on foreign skilled employees or that have significant Mexican and Latin American business ties.

Moat Companies Positioned for the Long Term

Although many of these post-election trends may be short lived, the idea of investing in attractively priced quality companies remains a long-term proven strategy. Year to date through November 15, 2016, the Morningstar Wide Moat Focus Index has outperformed the S&P 500® Index by 12.43% (21.17% vs. 8.74%). Taking an even longer view, the Index has bested the S&P 500 Index for the five years ended November 15, 2016 (15.99% vs. 14.05% on an annualized basis), according to Morningstar data.

The VanEck Vectors™ Morningstar Wide Moat ETF seek to replicate before fees and expenses, as closely as possible, the price and yield performance of the Morningstar Wide Moat Focus Index.

Click here to view MOAT holdings and learn more about moat investing

]]>
Emerging Markets React Strongly to Trump Victory https://www.vaneck.com/blogs/market-insights/emerging-markets-react-strongly-trump-victory/ CEO Jan van Eck analyses the strong reaction that emerging markets had to Trump’s November 8 presidential win, and outlines key considerations for equity and bond investors.

]]>
Van Eck Blogs 11/15/2016 12:00:00 AM .lm20 { margin-left:30px; }

Jan van Eck, CEO
Eric Fine, Portfolio Manager, Emerging Markets Fixed Income Strategy
David Semple, Portfolio Manager, Emerging Markets Equity Strategy


The election of Republican Donald Trump has led to an acceleration of the trends that we discussed in our November 3 blog - Stars Align for Emerging Markets Equities. The primary trend we predicted was a downside for bonds and an upside for equities. Although both candidates promised to stimulate the economy through more infrastructure spending, Trump is likely to combine spending with tax reform and less regulation.

As markets have reacted in the past few days, what has been most surprising is the response from emerging markets (“EM”). EM currencies and bonds sold off heavily last week; this was primarily due to concerns about Trump’s potential trade policies, combined with a move upwards in global rates. Here are some observations from our emerging markets investment teams.

Emerging Markets Fixed Income

Key considerations for emerging markets bond investors from Portfolio Manager Eric Fine.

China’s Impact on Local Currencies in Emerging Markets

Trump has promised to name China a currency manipulator. China’s currency has recently appreciated against the emerging markets currencies in its basket, creating additional devaluation pressure. Moves in this direction would be negative for emerging markets foreign exchange (“EMFX”) as China is a crucial marginal buyer of commodities. China also faces some capital outflow pressures which could be exacerbated in the event of further currency weakness or a policy challenge from the U.S.

European Fragility May Increase Volatility

Upcoming European risk events such as the Italian referendum, and the Dutch and French elections can now be viewed through the lens of the U.K.’s Brexit decision and Trump’s victory. We view Europe as fragile and thus vulnerable, so political pressure could create volatility. If this volatility triggers something systemic, we expect additional strength for the U.S. dollar.

Inflation Expectations Have Risen

Trump’s proposed fiscal policies are viewed as inflationary, and thus inflation expectations have risen. Whether we end up with either stag- or re-flation will take time to ascertain, but either way, the consensus view of “lower rates for longer” is being fundamentally challenged. It is not extreme to wonder whether “good” news (re-flation) hits risk-free duration and “bad” news (stag-flation) hits credit duration.

Emerging Markets Equity

Key considerations for emerging markets equity investors from Portfolio Manager David Semple.

EM Investment Case Still Strong

The underlying investment case for emerging markets remains strong. In the short term, uncertainty breeds risk-off behavior, particularly for an asset class such as emerging markets where growth is predicated on free movement of capital, labor, and development of global supply chains. With Trump’s victory, we question how much of his trade rhetoric will translate from the stump to implementable policy, particularly given the institutional bias of the Republican Party. Although President Trump is expected to have a relatively free hand with trade, institutional checks and balances will likely restrict his changes. On the other hand, Trump’s promise of lower taxes and deregulation are positive for U.S. economic growth and should be supportive of global consumption.

Europe and Smaller EM Countries are More Vulnerable

While we see the greatest risks to the Eurozone, smaller, more open emerging markets countries with low savings ratios may be vulnerable. Korea, Taiwan, and Japan are vulnerable given that their stock markets have high export components. India and China will be relatively less at risk. We think that the Chinese currency will continue its controlled depreciation against its trading basket, and stick to our view that a disorderly devaluation is highly implausible. As for the risk of increased protectionism, in the end, we think cooler heads will realize that the real impact of global trade barriers boils down to the increased costs of many everyday items, given that you cannot easily replace established supply chains.

Individual Companies Will Prevail

Last week’s post-election selloff of emerging markets equities does not dampen our optimism for the asset class. More importantly, we remain enthusiastic about many of the individual companies in emerging markets. We have invested through similar periods of angst and uncertainty. Recent events have helped make prices even more reasonable and attractive.

Our overall view is that the election of one particular individual does not change our long-term investment outlook. Yes, government policies are likely to change, but until these are precisely determined, our base investment case remains intact. We have also seen in the past that the investments with best year-to-date performance are hit hardest in a correction, and based on YTD 2016, this has meant gold bullion, Brazilian equities, and global fixed income.

]]>
The Trump-Bump in Biotech https://www.vaneck.com/blogs/etfs/trump-bump-biotech/ Van Eck Blogs 11/14/2016 1:40:40 PM

In the two days following the 2016 election results, large cap biotech stocks, as measured by the MVIS™ US Listed Biotech 25 Index (MVBBH), posted returns of 9.6% with many underlying stocks venturing into double-digit return territory. Among the top performers, Ionis (IONS) collected 30.2%, Alnylam (ALNY) mustered 21.8%, and Bluebird (BLUE) posted 18.8% return. Other large biotech names such as Gilead Sciences (GILD), Allergan (AGN) and Amgen (AMGN) performed with the rest of the majority of the large cap biotech market that is within the 5%-30% return range.1

Economic Policy May Benefit Large Biotech Stocks

Biotechnology’s sudden “Trump-bump” after Election Day is not surprising. In the past year, amidst increasing political campaign pressure and Hillary Clinton’s enduring health care pricing-structure criticisms, large biotech stocks came under undue pressure and consequently experienced a sharp price decline. The pressure eased the morning after Election Day as industry experts expect President-elect Trump’s pro-business stance to be beneficial for the biotech industry. His plan highlights business tax rate cuts from 35% to 15%, repeal of the Affordable Care Act incurred taxes on health care companies and wide-ranging cash repatriation initiatives, all three of which would potentially benefit large and profitable biotech companies.2

Large Biotech Stocks are at More Attractive Valuation Levels

Is this “Trump-bump” phenomenon enough to warrant investors to look at biotech stocks again? While event driven market reactions can sometimes be fleeting, it’s worth noting that large cap biotech valuations have become more attractive since peak valuations in mid-summer 2015, as the price to earnings ratio of large biotech stocks decreased 46% from 27.8 on 7/31/2015 to 15.0 times earnings as of 11/10/2016. Recently, valuations of the largest biotech stocks have diverged significantly from the broad industry.1

On a price-to-fair value basis, large biotech stocks traded at a 22% discount on average.3 Familiar names such as Gilead Sciences (GILD) traded at a 30% discount, Allergan (AGN) 29% and Amgen (AMGN) 25% compared to their respective fair value estimates. Also noteworthy is that the aforementioned three stocks carry Morningstar’s “wide-moat” designations meaning that Morningstar believes these firms have strong competitive advantages that may allow them to protect long-term earning potential. Moat designations are not uncommon to the large cap biotech industry; 13 out of 25 stocks in MVBBH are moat-rated, of which 5 companies carry “wide-moat” designations.4

Amid current political developments and valuations, investors may consider targeting large biotech companies via an exchange-traded fund such as the VanEck Vectors™ Biotech ETF (BBH) to potentially capture value and latent opportunities in the biotech industry.

View BBH's Current Constituents

Large Biotech Stock Valuations Diverge from the Broad Industry
12/31/2015 – 11/10/2016

>Biotech Stock Valuations

Source: FactSet. Past performance is no guarantee of future results.

]]>
Muni High Yield’s Response to Trump’s Surprise Win https://www.vaneck.com/blogs/muni-nation/municipal-high-yield-response-trump-surprise-win/ Jim Colby explains the recent price movements of municipal high yield following this week’s historic presidential election.

]]>
Van Eck Blogs 11/11/2016 10:58:19 AM

The results of this week’s historic presidential election ushered in a wave of dynamic price moves in municipal high yield. This is not overly surprising given the nature of the high yield market, and in our view, is likely a short-term dislocation.

High yield municipal bonds are particularly subject to volatility when dramatic and market moving events occur. With Tuesday’s surprise presidential win by Donald Trump, we find ourselves in one such time period, unforeseen by millions of voters, pundits, and investment professionals.

Much like the “taper tantrum” that occurred in May 2013, investors in municipal high yield bonds can extrapolate from a handful of recent secondary market transactions of fairly liquid high yield bonds, that valuations appear lower than where they actually should be. Pricing in the municipal asset class is often more art than science since there may be only a handful of actual trades to reference.

VanEck Vectors™ High-Yield Municipal Index ETF (HYD) tends to be a first mover as it is the largest U.S.-listed high yield municipal bond ETF in terms of asset size, as well as the most liquid in terms of trading volume and tight bid/ask spreads. This means that in response to disruptive events we are likely to see significant volume, as well as a greater discrepancy between the fund’s net asset value (NAV) and its market price.

Past experience has shown that these responses are temporary dislocations and that the NAV and price are likely to converge fairly quickly once the shock and wave of activity passes.

]]>
Trump Uncertainty Could Be “Huge” for Gold https://www.vaneck.com/blogs/gold-and-precious-metals/trump-uncertainty-huge-gold/ Our view on the long-term gold price is unchanged. Investors will continue to be driven to gold as a safe haven given the further loss of confidence in central banks, and the uncertainty following Trump’s presidential victory.

]]>
Van Eck Blogs 11/9/2016 2:17:59 PM

Our positive view on the long-term prospects for gold remain unchanged. The U.S. elections are over, and markets will likely take time to reflect the full impact of a Trump victory. Gold immediately rose above $1,300 per ounce yesterday on news of Trump's win, but settled back to end the day at $1,278. Price volatility in the short run is not surprising.

Fed Comments on December Rate Hike Break Gold’s Upward Move

The strong price movements that followed the U.K. Brexit vote on June 23 had set gold on a new positive trend, breaking the downtrend that had been established during the 2013-2015 gold bear market. On October 4, however, gold fell $44 per ounce, a 3.4% drop for the day, and gold closed below $1,300 per ounce for the first time since June 24. As it had for most of the year, the downward pressure followed comments by some Federal Reserve (the “Fed”) members that were interpreted by the market as increasing the likelihood of a Fed interest rate hike occurring in December. In addition, and importantly, Chinese markets were closed the first week of October for the Golden Week holidays. With gold’s biggest buyer out on vacation, gold was left very vulnerable, which we believe emboldened short sellers. Gold closed as low as $1,251 per ounce on October 14 but bounced back modestly to end the month at $1,277.30 per ounce, down $38.45 or 2.9% for the month.

A Rate Increase Has Been Priced into Gold and U.S. Dollar

At the beginning of November, markets attached about a 78% probability to a December Fed rate hike, as implied by the federal funds futures markets. This probability stood at 59% at the end of September, despite U.S. macro data releases that were very mixed, as has been the case throughout the post-crisis recovery. There were certainly some positive economic surprises in October: PMI (Purchasing Managers’ Index) readings from both the ISM (Institute of Supply Management) and Markit Group in the manufacturing, non-manufacturing, and services sectors showed some expansion and an increase in August factory orders for U.S. goods.1

In contrast, however, weak data were reported for U.S. employment, the preliminary University of Michigan Consumer Sentiment Index,2 the Empire State Manufacturing Index,3 housing starts, and the U.S. Consumer Confidence Index.4 While 3Q gross domestic product (GDP) headline growth was above consensus, personal consumption missed expectations by a wide margin. By mid-October, regional Fed growth forecasts were being downgraded. The Federal Reserve Bank of New York’s 4Q 2016 GDP Nowcasting Report, for example, shows 1.4% growth as of October 20 versus 2% growth in late August. In this environment, a rate hike does not appear to us as the obvious next move by the Fed, but the market is pricing it in, and both gold and the U.S. dollar reflected this in October. While gold was down 3%, the U.S. Dollar Index (DXY)5 was up 3% during the month.

Demand for Gold Withstood Recent Selloff

Despite the drop in the gold price in October, demand for gold bullion-backed exchange traded products (ETPs) held firm. Inflows have no doubt slowed down compared to earlier in the year (0.4% increase in holdings in October compared to 12% and 6% increases in February and June respectively), but demand continued during the recent selloff. We believe this is positive since investments in gold bullion ETPs typically represent longer-term, strategic investment demand. In contrast, the latest Commitment of Traders report shows a significant decline in COMEX6 net long positions, which reached record levels this year. We think COMEX positioning reflects more speculative and shorter-term demand for gold, and the recent decline suggests perhaps some of those weaker players liquidated positions during the October selloff.

Gold stocks underperformed the metal, as expected when bullion prices fall. The NYSE Arca Gold Miners Index (GDMNTR)7 fell 7.3%, and the MVIS Global Junior Gold Miners Index (MVGDXJTR)8 dropped 8.8% during the month. This decline trimmed gains for the year to 79% for GDMNTR and 110% for MVGDXJTR as of October 31, while gold bullion gained 20.3% during the same year-to-date period.

Election Uncertainty and Asian Demand Should Support Gold

The gold price is on a slightly different track now compared to our previous expectations. A correction was not surprising, given gold’s outstanding performance this year. But we thought that the $1,300 level might hold and gold would continue on the new trend established this year, potentially exiting 2016 around the $1,400 level. Although our shorter-term outlook has been curbed by the recent price action and we now think that gold may not reach $1,400 in 2016, we believe strong seasonal demand out of Asia and continued uncertainty following the results of the U.S. presidential election could lend support to gold in the near term. In the first week of November, gold managed to rally back above $1,300. The Fed decided to keep rates unchanged at its November 2 Federal Open Market Committee (FOMC) meeting, but this was widely expected, so we estimate the positive move was most likely driven by market concern over the outcome of the U.S. elections. Market views quickly shifted, once again, and on November 8, Election Day in the U.S., gold closed at $1,277. Following Trump’s stunning victory, gold rose back above the $1,300 price level on the morning of November 9.

Trump Presidency May Increase Financial Risk

With the contentious presidential election finally over, we can now assess the impact that the Trump victory will have on the country and more importantly, how it potentially increases risk to the financial system.

Although Trump emerged successful in the election, there remains tremendous uncertainty surrounding his morals, temperament, and judgment. Internationally, high levels of trepidation around his foreign policies are not likely to subside quickly, and his anti-trade stance could damage economic growth. In our opinion, Trump’s aggressive immigration policy was no doubt one of the key drivers of his appeal but could lead to potential civil unrest, extreme costs, and logistical challenges once implemented. If Trump is able to implement some of what he promoted during the campaign trail, infrastructure spending could push the national debt to unsustainable levels and deficit spending should continue. While the risks of a Trump presidency are substantial, the potential for pro-growth tax and regulatory reforms may partially mitigate risks.

Independent of policy specifics, there exists a growing chance our newly elected president will likely preside over the next recession. After eight years of expansion, there are signs that the economy has entered the "late cycle" phase. The Fed's efforts to tighten policy could create a further drag on growth. A recession layered onto the existing risks we see in a Trump presidency, in our view, makes a systemic financial crisis more likely.

Higher Rates Not Always Negative for Gold

A Fed rate hike in December appears almost fully priced-in already. The common argument is that higher rates are negative for gold given that it is a non-yielding asset. Yet, following the first rate hike of the current tightening cycle in December 2015, gold has advanced more than 20% so far this year. In fact, Scotiabank analyzed the previous six tightening cycles since 1982 (when a suitable gold index became available) and it found that gold prices advanced in the year following the first rate increase in half of the cycles, whereas gold declined in the other half.

Scotiabank points out that the only other point at which the Fed raised rates in a low-inflation environment was in 1986 when rates were increased to help defend a sharply depreciating U.S. dollar. It was one of the rate-rising periods when gold performed well. This is shaping up to be a similar period demonstrated by gold’s already strong performance after the first rate increase in December 2015. The economic and financial backdrop of the current rate cycle is unlike any other in recent history, and we expect gold to continue to perform well. In our opinion, the stress that rising rates have the potential to place on the global economy and financial system are very bullish for gold.

Long-Term Outlook Remains Positive for Gold Bull Market

Our view on the long-term gold price is unchanged. We see the recent weakness as a consolidation phase within what we believe is the early stages of the next bull market for gold. We continue to believe dislocations created by the unconventional policies being implemented by central banks around the world are likely to increase global financial risks. We believe that investors will continue to be driven to gold as a safe haven given the further loss of confidence in central banks on a global scale and perhaps domestically, and the uncertainty following Trump’s presidential victory.9

 

 


 

]]>
Yield Curve Suggests Targeted Opportunity in Municipal Bonds https://www.vaneck.com/blogs/etfs/yield-curve-suggests-opportunities-municipal-bonds/ ]]> Van Eck Blogs 11/8/2016 12:00:00 AM

Many muni analysts and market participants maintain that the recent negative performance of muni bonds is unlikely to result in “taper tantrum-style” muni fund outflows, despite expectations of a Fed rate hike before yearend.

We believe that markets have already priced in a rate hike, given that U.S. Treasury futures reflect a 70% probability of December Federal Reserve (the "Fed") action. A more hawkish Fed is more likely about its low-bar for tightening rather than its confidence in the strength of U.S. growth and inflation. While recently we have seen the yield curve steepen, rate hikes are not necessarily a recipe for steeper curves. In the recent past they have actually resulted in curve flattening.

Attractive Relative Yields from Munis

We believe recent municipal bond weakness is an opportunity to put money to work at lower prices than what we have seen for some time. High quality, triple-A rated municipal bonds with maturities between 13 to 23 years currently offer higher nominal yields than 10-year U.S. Treasuries, making them particularly attractive, as shown in the following chart. Muni investors can target this maturity range with VanEck Vectors™ AMT-Free 12-17 Year Municipal Index ETF (ITML) and VanEck Vectors™ AMT-Free Long Municipal Index ETF (MLN) which offer exposure to investment grade municipal bonds within their respective index’s target maturity range.

Yield Curves: High-Quality Municipal Bonds versus 10-Year U.S. Treasuries
As of 10/31/16

High-Quality Municipal Bonds versus 10-Year U.S. Treasuries

Source: Thomson Reuters and BofA Merrill Lynch. Past performance is no guarantee of future results. Yield curve characteristics are not representative of fund characteristics. For fund characteristics visit vaneck.com

]]>
Do Emerging Markets Bond Credit Ratings Affect Returns? https://www.vaneck.com/blogs/emerging-markets-bonds/bonds-credit-ratings-affect-returns/ Emerging markets credit ratings changes in September provide an opportunity to examine how a country’s bond returns may be impacted by changes in credit quality.

]]>
Van Eck Blogs 11/4/2016 11:35:04 AM

Credit rating upgrades and downgrades occur frequently, but two rating actions in September stood out in particular: Turkey’s downgrade to non-investment grade status, and Hungary’s upgrade to investment grade status.

Following the attempted coup in Turkey this past summer, a credit rating downgrade by Moody’s Investors Service in September pushed the country into the non-investment grade category based on the credit rating methodology of the J.P. Morgan EMBI suite of indices, which track U.S. dollar-denominated emerging markets sovereign bonds. By contrast, Hungary benefitted from a rating upgrade by Standard & Poor’s, which cited the country’s improving fiscal, external, and growth expectations. This upgrade allowed Hungary to once again be included in investment grade-only indices.

Forced Selling and Buying May Impact Bond Values

Changes in investment grade status can significantly impact a bond’s market price. There are many investors who track quality based indices only, or can only invest in investment grade bonds. When a bond is either downgraded from or upgraded to investment grade, these investors may be forced to buy or sell bonds based on shifting ratings. The market, however, is not driven entirely by credit ratings, and market prices often anticipate credit rating changes.

In the chart below, Hungary and Turkey credit spreads (as measured by Z-spread1 levels of country sub-indices of the J.P. Morgan EMBI Global Index2) are shown along with credit rating changes to or from investment grade status by individual rating agencies.

Hungary and Turkey Bond Spreads and Rating Changes
January 2014 - September 2016

Hungary and Turkey Bond SPreads and Rating Changes

Source: J.P. Morgan and Bloomberg. Past performance is no guarantee of future results. Current market conditions may not continue.

Spreads Diverge Ahead of Ratings Changes

Although Hungary and Turkey credit spreads were at similar levels and generally moved together through 2014, these spreads began to diverge in early 2015. As Turkey’s credit spreads widened, Hungary’s credit spreads generally tightened. These spread changes occurred well before the countries’ changes in investment grade status, indicating that the market’s assessment of credit risk may have anticipated these rating actions.

For an investor in U.S. dollar-denominated Hungarian sovereign bonds, this translated into an 8% cumulative return attributable to credit spreads from 12/31/2014 to 9/30/2016. During the same period, Turkish bond investors lost 1% based on credit spreads. Although isolating the impact that credit spreads have on returns helps to understand the market’s view of a country’s credit risk, total returns are also driven by other factors such as interest rates. Overall for the period, Hungarian bonds posted total returns of 14% and Turkish bonds returned 6% (as measured by country sub-indices of the J.P. Morgan EMBI Global Index).

Price Gains and Lower Volatility

Investors may benefit from tighter spreads through an increase in the value of outstanding bonds, all else equal. A potentially more predictable and less volatile stream of future returns due to the lower risk of default are additional benefits. Overall yields decrease, reflecting the reduced risk on the bonds.

Conversely, wider spreads may result in a decrease in value on bonds outstanding, but also an increase in yields to compensate for the perceived credit risk. Although further downgrades do not appear likely in the near term for Turkey, deteriorating credit quality, in the worst case scenario, can eventually lead to default, in which case a loss may be realized despite high spread levels. More typically, a country may take steps to stabilize or improve its credit profile. Other emerging markets sovereign fallen angels,3 including Russia and Brazil, experienced large price gains after being downgraded to non-investment grade as their credit spreads tightened significantly, more than making up for losses experienced prior to the downgrades.

A Focus on Quality May Enhance Performance

What can investors learn from this? Both the market’s and credit rating agencies’ assessment of credit quality can have a direct impact on the risk and return of emerging markets sovereign bonds. Credit risk is reflected in credit spreads, and movements in credit spreads can result in changes in overall yield and the current value of an investment. We believe that investment grade emerging markets sovereign bonds, along with a limited allocation to BB rated bonds, may provide a combination of relative stability, attractive yields and the potential for price gains that result from credit improvement, for example through exposure to fallen angel emerging markets countries.

VanEck Vectors™ EM Investment Grade + BB Rated USD Sovereign Bond ETF (IGEM) provides access to the higher rated subset of the broad U.S. dollar-denominated emerging markets sovereign bond universe.

]]>
Investment Outlook: Stars Align for Emerging Markets Equities https://www.vaneck.com/blogs/market-insights/stars-align-emerging-markets/ CEO Jan van Eck believes we may have hit the low on 10-year Treasury yields, and explains why we like the valuations of emerging markets equities. 

]]>
Van Eck Blogs 11/3/2016 12:00:00 AM

Watch Video Investment Outlook: Stars Align for Emerging Markets Equities  

CEO Jan van Eck believes we may have hit the low on 10-year Treasury yields, and explains why we like the valuations of emerging markets equities

Watch Now  


An Interest Rate Paradigm of Lower-for-Longer?

TOM BUTCHER: What strikes you about the year so far, and are people missing anything important from the third quarter?

JAN VAN ECK: I believe that what we are missing was perhaps the most obvious thing. We have all been talking about interest rates and the Federal Reserve's actions, and the effects on markets for many years now. But in the third quarter, we may have hit the lowest yield on record for the 10-year U.S. Treasury bond [on July 5, the 10-year U.S. Treasury bond yield hit a record low of 1.36%]. The 10-year yield fell below 1.5%, and that retested the record low recorded in July 2012, several years ago.1

Right now with interest rates, we are in a paradigm of lower-for-longer, and many people expect rates to go even lower for many reasons. But what if we have already hit the low? I believe that this scenario is entirely possible.

This issue is important because there has been a big debate about whether negative interest rates have been great for growth. The argument for growth is that negative rates may drive up asset prices, which makes people feel rich and then leads to more consumer spending. But the counter argument, however, is that negative interest rates are bad for growth, and even U.S. Federal Reserve Chairman Yellen has discussed this. Negative rates can scare people and make them more cautious, and this then reduces economic behavior. I believe that we may have reached the low point with rates, as you can’t have negative interest rates forever. We may have hit the low. We think that in four years, it is very unlikely we'll have negative interest rates globally.

10-Year U.S. Treasury Bond Hits Record Low in 3Q 2016
Treasury Yields: 1996 - 2016

Treasury Yields: 1996 - 2016
Source: Bloomberg as of 9/30/16. Past performance is no guarantee of future results. Current market conditions may not continue.

BUTCHER: If we have hit a low, there really hasn't been a paradigm shift.

VAN ECK: The real question is: Are we in the United States ever going to go to negative interest rates or be forced to go to negative interest rates? If not, given that negative interest rates may be viewed in the U.S. as not stimulating the economy, then interest rates really might start to rise, or at least be stable for some time. I'm not saying that rates are going to shoot up, but just that we may have seen the lows.

Post U.S. Election Fiscal Spending?

BUTCHER: What is your opinion of the talk about addressing matters fiscally in the U.S.?

VAN ECK: There is a significant level of speculation about what the new U.S. president will do, and the thought that there might be increased fiscal spending. We just don't know right now. But if government spending were to increase, it would be hard to imagine that interest rates would decline in that environment. Yes, the potential risks right now are slightly to the upside. As I have said, however, many people are not thinking about this possible change given that we have been in this interest rate lower-for-longer pattern, and rates have kept going down. People keep piling investments into fixed income and bond funds. We will just have to see, but it is quite possible that we will look back on this past quarter and say, that was the low.

Commodities and Credit Markets Rallied in 2016

BUTCHER: How does this affect the view you had at the beginning of the year when you said that 2016 would be a year of recovery for gold and commodities and that fixed income opportunities existed even in a low interest rate and low yield environment?

VAN ECK: Yes, those were two views that we had at the beginning of 2016. I have different answers for each. First, we predicted that the commodities bear market would end in the beginning of this year because typically it takes about 18 months to finish the washout of commodity prices and that timing put us in the first quarter (Read January 2016 Investment Outlook for details). Commodity markets rally for about three years, and right now we believe that we may be about nine to 12 months into a positive cycle, if this is a normal cycle. Second, credit markets, particularly the high yield sectors, have rallied very strongly in the past six months, and in my mind, they tend to oscillate between being too cheap and too rich. In terms of upside potential, I don't believe that high yield has much further to go.

Caution Has Dominated Investor and Company Behavior

BUTCHER: There is a certain amount of uneasiness in the market now with the U.S. elections coming up and December's FOMC [Federal Open Market Committee] meeting. What is your outlook for the rest of 2016 and 2017?

VAN ECK: Let us first take a look back at this year. What has struck me all year ― and I have yet to find a good answer ― is why have investors been so cautious? Investors have been very cautious this year, and here are some facts to support that. They have redeemed approximately $53 billion out of U.S. equity funds while investing $225 billion into fixed income funds. More conservative funds have been getting inflows, and stock funds are experiencing outflows. This trend is being mirrored in ETF flows globally, with more inflows into fixed income ETFs, even though they represent less than 25% of the overall ETF market.3

Secondly, U.S. companies have also been noticeably conservative. This year companies have been cutting capital expenditure and giving back cash to investors, either through dividends or stock buybacks. Most remarkably, companies have been doing mergers with cash. In the past 12 months, $400 billion in cash has been used for M&A [mergers and acquisitions], and this represents the highest level, by far, in U.S. history.4 Lastly, it appears that the stock market has been rewarding companies that are conservative.

An Argument to Stay Invested

Overall there has been this tide of conservativeness that I don't fully understand. Having said that, looking forward, what we look for in our asset allocation guidance is the three research areas that Ned Davis Research looks at, which are macro, fundamental, and technical. Two out of three are still bullish. I believe we do not have any reason to be highly concerned given the macro environment; interest rates are still low, and I think fiscal policy is okay. Valuations are very stretched, and that tends to concern some commentators, but because technicals are now supportive, I feel that is not the biggest concern. This indicates staying invested.

Most Comfortable with Emerging Markets

BUTCHER: What opportunities should investors be seeking?

VAN ECK: I believe that there is one area that we have been giving more attention recently and that is emerging markets equities, given that these equities have been inexpensive for several years. Finally, the technical support has come in to support these investments. Oddly enough, post-Brexit, there has been a flood of investor money moving into emerging markets equities and bonds. Emerging markets, both equities and fixed income, is an area that we feel most comfortable with when viewed from a longer term allocation perspective. (Read Emerging Markets Shake Off Brexit and Emerging Markets Bonds Continue to Rally.)

]]>
Moativated Investing – Big League Batting Average https://www.vaneck.com/blogs/moat-investing/moativated-big-league-batting-average/ ]]> Van Eck Blogs 11/2/2016 10:23:54 AM

With all eyes having been on the Cubs-Indians World Series, we can’t help but talk sports metaphors. Whether it’s a “home run” stock or an investment “game plan,” sports metaphors are often used to describe investments. At VanEck, right now we like "batting average," given that is aptly conveys the level of relative success for a particular investment strategy.

For us, moat investing boasts a “big league” batting average based on the outperformance of the Morningstar® Wide Moat Focus IndexSM (the “Index”), which represents U.S. companies that Morningstar equity analysts believe possess long-term competitive advantages and are attractively priced relative to their intrinsic value.

Identifying the Heavy Hitters

What is a big league batting average? In professional baseball, look no further than outfielder Ty Cobb, who currently holds the sport’s highest career batting average 0.366, or 36.6%. This means that Cobb successfully registered a hit in nearly four out of ten at-bats during his career in the early 1900s.1 To be elected to the National Baseball Hall of Fame, it is generally accepted that if a professional player can average a hit in one-third of his at-bats over a career, he may eventually get the nod.

It seems investors are increasingly facing pressure to measure the success of their investments and search for the highest batting average. But this usually means far outpacing a 36.6% success rate over a benchmark. Since its inception in 2007, the Index has demonstrated an increasingly impressive batting average versus the S&P 500® Index over long-term holding periods. As shown below, the most impressive statistic is the 91% of the time the Index has outperformed the S&P 500 over 5-year rolling periods beginning in March 2007 through September 2016.

We like to think that U.S. moat investing, given its history of outperformance, is in a “league of its own.”

Batting Average: Morningstar® Wide Moat Focus IndexSM vs. S&P 500 Index
Monthly Frequency: 3/2007 – 9/2016

Source: Morningstar; FactSet.

Index performance is not representative of Fund performance. Fund performance current to the most recent month-end can be found at www.vaneck.com/moat. Past performance is no guarantee of future results. Effective June 20, 2016, Morningstar implemented several changes to the Morningstar Wide Moat Focus Index construction rules. Among other changes, the index increased its constituent count from 20 stocks to at least 40 stocks and modified its rebalance and reconstitution methodology. These changes may result in more diversified exposure, lower turnover, and longer holding periods for index constituents than under the rules in effect prior to this date. Past performance is no guarantee of future results.

VanEck VectorsTM Morningstar Wide Moat ETF (MOAT®) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Morningstar Wide Moat Focus Index. Listed in 2012, MOAT is the only U.S. exchange-traded fund to provide access to Morningstar’s top U.S. stock picks.

]]>
Bullish on Agriculture: Technology, Precision Ag, and Consolidation https://www.vaneck.com/blogs/natural-resources/bullish-agriculture-technology-precision-consolidation/ Our recent trips to the American Midwest confirmed that technology has found firm footing within the agriculture sector and that this high-tech trend is likely to continue to grow in importance.

]]>
Van Eck Blogs 10/26/2016 12:04:22 PM #container1, #container2, #container3 { min-width: 320px; max-width: 720px; height: 500px; border: 1px solid rgb(153, 153, 153); padding-top: 10px; margin-bottom: 10px; } .chart-image { display: none; } @media print { .chart-image { display: block; max-width: 700px; min-width: 320px; } #container1, #container2, #container3 { display: none; } .col-sm-8 { width: 100% !important; } }

Our recent trips to the American Midwest confirmed that technology has found firm footing within the farming community of the agriculture sector and that this high-tech trend is likely to continue to grow in importance.

As part of our deep dive into the agriculture sector, we spent much of August in the Midwest taking in numerous field tours, management meetings, and farm shows. These trips confirmed for us that technology has found firm footing within the farming community, even though the average age of a U.S. farmer is 58 years old.1 The technology trend is likely to continue to grow in usage and importance. Here we explore how it may shape agriculture, and future agricultural investment, in the years to come.

Driving Toward 300 Bushel Corn

Changes in the agriculture industry are continuously being driven by the dual imperatives of maximizing crop yields and minimizing climate impacts. Advances in technology underpin the success of the industry in achieving these goals. Despite three years of bumper crops, the need to dramatically increase global food production to feed the world is unrelenting. The Food and Agriculture Organization of the United Nations ("FAO") estimates that population growth will increase more than 35% by 2050 and accordingly, agricultural production must rise by approximately 60%. Furthermore, the FAO highlights that there is minimal additional acreage available for increased farming and most of this potentially available land is located in Sub-Saharan Africa.

In the past few decades, the increased food demands of the growing global population have been met primarily through improvements in crop yield. For example, U.S. corn grain yields were approximately 50 bushels per acre (“bu/acre”) in 1960. By 2010, U.S. corn grain yields had increased threefold to 150 bushels per acre, as shown in the following chart.


U.S. Corn Grain Yields Have Increased Threefold Since 1960
Yearly Bushels per Acre: 1960 - 2015

Source: U.S. Department of Agriculture (USDA), VanEck.

Goldman Sachs estimates that since 1970, almost 90% of our yield gains have come from seed improvements. Goldman also estimates that by 2050 we will need yields of more than 280 bushels per acre to meet growing food demand. It estimates that more than half of the yield enhancements will be the result of precision related applications, which aim to optimize field-level management.

Iowa’s One-Man Monsanto

Exciting farm innovation is coming from both the micro- and mega-farming tiers. For example, at an August dinner in Des Moines, we met one farmer who is essentially a one-man Monsanto.2 The farmer and his company receive royalties on nearly two thirds of every seed in the ground in the U.S. Despite being one of the richest men in Iowa, he still continues to farm and was clearly disappointed with his farm’s 300 bu/acre corn yield. He suggests that Bayer’s3 proposed acquisition of Monsanto could lead to less innovation (due to more bureaucracy) and that his company’s advancements are driving significantly greater yield improvements. Typically, corn grows eight to twelve feet high with ten-inch spacing. His company is experimenting with growing five-foot corn that is spaced more narrowly at five inches, which have resulted in higher test weights and smaller cob size.

Nevertheless, mega-farmer Monsanto is also doing its part to drive agriculture technology. Monsanto has recently been promoting that it is adding multiple “modes of action” (essentially giving seeds more functionality) to every seed and that it can test/develop new seed traits with increasing speed and efficiency. Ultimately, Monsanto believes that by 2030 it can increase yields in the U.S. to 300 bu/acre.

Advancements in Digital Agriculture and Precision Machinery

Monsanto is also striving to increase yields through improvements in digital ag, as reflected in its $1.1 billion purchase of Silicon Valley based Climate Corporation4 ("Climate") in 2013. Although early on Monsanto struggled to integrate the big data weather company, by 2016 the integration path for Climate is clearer and the benefits for farmers more obvious. Climate is linking drones and in-field sensors to its digital analytics platform and, most importantly, is opening its platform to other service providers, essentially creating a marketplace for farm technology. (Perhaps Amazon would be a better partner for Monsanto rather than Bayer?)

While seeds and herbicides are the building blocks of increased yield, increasingly sophisticated farming machinery is needed to help maximize these benefits. John Deere5 has approximately doubled its research and development spending in the past 10 years, and this has resulted in increased efficiency and precision for farmers.

Imagine this scenario: You are a farmer in the cockpit of a tractor holding an iPad. Your farm is laid out in grids. You know exactly where to apply more or less nitrogen fertilizer. You can space seeds accurately and closer together. The soil is more receptive to seeds, and this allows optimal sunlight for every seed. You avoid double planting seeds when your tractor turns at the end of a row because your planter knows you are turning. Most importantly, perhaps, your tractor’s auto steering and dynamic positioning allow you to relax in your seat and focus on other issues, or perhaps daydream.

Technology Remains the Future

2016 has been a banner year for mergers and acquisitions in agriculture. The deals have been huge and relatively frequent: The Dow Chemical Company6 and Dupont,7 Bayer and Monsanto, Agrium8 and PotashCorp,9 and on a smaller scale, John Deere and Precision Planting.10 While the downturn in agriculture has driven some of the push to consolidate and cut costs, there is a strong undercurrent of technology, via productivity enhancement, big data, and precision agriculture, running through all of these deals.

Balancing the demand for greater crop yields and global food production with environmental sustainability remains the critical future challenge for the ag industry and will likely drive persistent change. We believe key trends in the benefits from technological advancements and the companies leading and capitalizing on these trends should create ongoing compelling investment opportunities.

For a complete listing of the holdings in VanEck Global Hard Assets Fund as of 9/30/16, please click on this PDF. Please note that these are not recommendations to buy or sell any security.

]]>
Moativated Investing – A History of Outperformance https://www.vaneck.com/blogs/moat-investing/moativated-investing-history-outperformance/ Van Eck Blogs 10/24/2016 12:00:00 AM

Moativated Investing – A History of Outperformance

Long-term outperformance defines the track record of Morningstar's success in identifying quality "moat" companies with sustainable competitive advantages that are also trading at attractive valuations. Since its live inception in 2007, the Morningstar® Wide Moat Focus IndexSM has outperformed the S&P 500® Index by more than four percentage points each year, as shown in the chart below.

Morningstar's Economic Moat Rating

Morningstar first began rating companies in 2002 according to the strength and longevity of their competitive advantages. Nearly fifteen years later, Morningstar's equity research process remains rooted in the core belief that quality companies positioned to maintain one or more competitive advantages well into the future are best positioned for long-term success. The quality of these companies is reflected in Morningstar's Economic Moat Rating.

Morningstar's unique Economic Moat Rating system helps investors identify how likely a company is to keep competitors at bay for an extended period. The highest rating, a wide economic moat, signifies Morningstar's belief that the company can sustain its competitive advantage for at least 20 years into the future, which is no small feat in today's ultra-competitive environment.

Fair Value Represents a Company's Long-Term Intrinsic Value

Another key component to Morningstar's moat-investing equity research approach is its valuation process. Morningstar equity analysts assign a fair value estimate to each company based on how much cash it believes the company may generate in the future. The fair value represents a company's long-term intrinsic value. Of course, stocks may trade above or below the company's underlying fair value. The key is to identify those companies that are attractively priced at the time of investment.

VanEck VectorsTM Morningstar Wide Moat ETF (MOAT) is the only U.S. ETF that seeks to track the Morningstar® Wide Moat Focus IndexSM (the "Index"), a benchmark that combines Morningstar's measure of quality with their valuation framework. The Index's approach to identifying U.S. companies with wide economic moats that are attractively priced has resulted in long-term outperformance versus the broader U.S. equity market, and provided a unique way for investors to invest in quality companies.

U.S. Moat Investing Has Provided a Long-Term Performance Advantage
Cumulative Index Returns 2/14/2007 to 9/30/2016

Source: Morningstar; FactSet.
Index performance is not representative of Fund performance. Fund performance current to the most recent month-end can be found at www.vaneck.com/moat. Past performance is no guarantee of future results. Effective June 20, 2016, Morningstar implemented several changes to the Morningstar Wide Moat Focus Index construction rules. Among other changes, the index increased its constituent count from 20 stocks to at least 40 stocks and modified its rebalance and reconstitution methodology. These changes may result in more diversified exposure, lower turnover, and longer holding periods for index constituents than under the rules in effect prior to this date. Past performance is no guarantee of future results.

]]>
Emerging Markets Bonds Continue To Rally https://www.vaneck.com/blogs/emerging-markets-bonds/emerging-markets-bonds-continue-rally/ All sectors of emerging markets debt produced positive returns in September, supported by accommodative monetary policies and contained inflation.

]]>
Van Eck Blogs 10/20/2016 12:00:00 AM

The overwhelming influence of G-3 (U.S., Japan, and Europe) monetary policy has been the dominant theme in emerging markets debt this year, and September was no exception. U.S. interest rate volatility leading up to the Federal Reserve (the “Fed”) meeting impacted hard currency bonds, while local currency sovereign bonds were boosted by stronger currencies and lower local interest rates. Overall, accommodative policies and contained inflation continue to provide support, and all sectors of emerging markets debt produced positive returns in September.

Rate Volatility and Curve Steepening

Interest rate volatility was a primary concern in September as the market grappled with the possibility that the major developed market central banks might be on the verge of policy shifts. The European Central Bank and the Bank of Japan versions of quantitative easing are both under review and the anticipated impact of reversals or tapers led to steeper curves. In the U.S., the Fed remained on hold, as expected, but took a more hawkish tone with regard to the likelihood of a single hike before yearend. Even so, the scaled back rate expectations of Fed governors in the “dot plot” showed only two potential hikes in 2017.

Emerging Markets Credit Developments

Amid the focus on developed market central bank actions, there were several notable credit stories in emerging markets. After the political events of the summer, Turkey lost its investment grade status following a downgrade by Moody’s Investors Service. Some forced selling of Turkish hard currency sovereign bonds will likely occur due to its removal from investment grade indices at the end of October. Hungary, by contrast, regained investment grade status following an upgrade by Standard & Poor’s (S&P), which may support additional inflows in coming months. Turkish spreads widened while spreads on Hungarian sovereign bonds tightened. We continue to have conviction in higher quality hard currency sovereign bonds, and believe they can offer an attractive yield pickup versus core investment grade fixed income sectors, without excessive risk.

On the corporate side, Petroleos de Venezuela S.A. (PDVSA) was downgraded further into junk territory by S&P following the announcement of a proposed debt swap that could be characterized as a distressed exchange. Although a successful swap would buy time by reducing 2017 maturities, clearly the PDVSA and sovereign bonds continue to price in a very high risk of default with yields ranging between 15% and 50% (annualized for shorter maturity bonds in the latter case). The high current yields on the bonds coupled with a price recovery this year as Venezuela continues to apply band aids to its longer term structural problems, have made the country a top performer in the hard currency space year-to-date. In addition, Brazil’s Petróleo Brasileiro S.A. (Petrobras) announced a new spending plan through 2021 that aims to regain investment grade status by reducing leverage, primarily through an ongoing asset sale program.

The mixed ratings actions, and more generally the mixed data through the month reflect the economic diversity within emerging markets. There were inflation upside and downside surprises in September, and although Mexico hiked rates many emerging markets central banks currently appear to favor further easing. Both Indonesia and Russia cut rates, and Brazil may be poised for rate cuts later this quarter. Overall, the fundamental picture in emerging markets continues to brighten, given that real GDP growth is expected to recover this year to 3.9% and further accelerate in 2017, and current account balances are improving as exports increase.

Strong Local Currency Performance As Rates Remain Steady

Returns in the emerging markets debt space have so far in 2016 ranked commensurately with risk. More specifically, local debt has been the top performer, with a total return of 17.08% YTD after a very strong September (2.02%). Although local sovereigns are lower duration by nearly two years versus U.S. dollar sovereigns, currency risk has tended to be a major factor in volatility and returns (though currency movements explain only about 40% of this year’s return through the end of September). Hard currency corporate debt has actually lagged hard currency sovereign debt, but when one considers the greater than two year duration difference between the asset classes in a year when U.S. Treasury yields have moved significantly lower, the performance difference makes sense. In both the sovereign and corporate hard currency space, high yield has performed significantly better than investment grade.

South Africa, Colombia, and Russia were the top performing countries in the local space, while the Philippines, Mexico, and Malaysia posted negative returns, mostly on currency weakness. In contrast to most emerging markets currencies, the Mexican peso has depreciated 11% against the U.S. dollar. In addition to sluggish economic growth, much of the weakness has been attributed to the upcoming U.S. presidential election and the consequences of a potential Trump presidency. Further volatility is possible over the next month.

Hard currency bonds were impacted by U.S. rate movements in the first half of the month, but generally recovered by month end. Sovereign bonds returned 0.40%, with many of the riskier names outperforming as a result of both spread tightening and a lower duration versus higher quality issuers, which were more impacted by the steepening of the yield curve. The same was true for corporate bonds, which finished September with a small positive return overall (0.18%) while the high yield segment returned 1.14% for the month. Emerging markets high yield bonds yielded 0.51% more than U.S. high yield bonds at the end of September, and provided a pickup of 80 basis points in option-adjusted spread terms. The spread advantage tightened 20 basis points during the month, driven largely by an influx of Turkish bank “fallen angels” entering the BofA Merrill Lynch Diversified High Yield US Emerging Markets Corporate Plus Index (EMLH or the “Index”). Although these bonds are tighter than the rest of the overall Index, we believe these bonds are trading at spreads that are attractive for BB rated bonds.

Looking Ahead: December Rate Hike Coming into Focus

As we enter the fourth quarter, given the significant gains in emerging markets debt already achieved this year, one might ask: Where do we go from here? Near term uncertainty will likely come from the approaching U.S. elections, the continued positioning of Organization of Petroleum Exporting Countries (OPEC) members and the resulting impact on oil prices, and the precarious capital positions of some European banks. Most significantly, the prospect of a December rate increase in the U.S. will increasingly come into focus. However with a liquidity backdrop that is still very supportive, yields that remain attractive, and fundamentals that continue to improve, we believe that the investment case for emerging markets debt is not likely to be diminished with the next rate hike.

September 2016 1-Month Total Returns by Country  

 

Source: FactSet as of 9/30/2016. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.  


]]>
Rebalancing Markets Fuel Positive Sentiment for Hard Assets https://www.vaneck.com/blogs/natural-resources/rebalancing-markets-positive-sentiment-hard-assets/ Van Eck Blogs 10/19/2016 12:00:00 AM #container1, #container2, #container3 { min-width: 320px; max-width: 720px; height: 500px; border: 1px solid rgb(153, 153, 153); padding-top: 10px; margin-bottom: 10px; } .chart-image { display: none; } @media print { .chart-image { display: block; max-width: 700px; min-width: 320px; } #container1, #container2, #container3 { display: none; } .col-sm-8 { width: 100% !important; } } -->

3Q'16 Hard Assets Equities Strategy Review and Positioning

Our hard assets equities strategy's positions in Energy and Diversified Metals & Mining sectors were, in particular, significant contributors to positive performance. Within the Energy sector, positive performance stemmed mainly from the Oil & Gas Exploration & Production (E&P) sub-industry. The Oil & Gas Drilling sub-industry also made a useful contribution to performance during the quarter. By contrast, Oil & Gas Equipment & Services was the only energy sub-industry to detract from the strategy's performance and its impact was relatively minimal. Other sub-industries that made positive contributions of note to performance were Copper and Coal & Consumable Fuels. During the quarter, the strategy continued to hold no position in Integrated Oil & Gas.

3Q Performance Contributors

The top performing company was major diversified mining company Glencore,1 which continued to benefit from debt reduction and overall restructuring initiatives that began in 2015. In the face of persistent skepticism from the market, Glencore has proved demonstrably that it has been able to provide a workable blueprint and subsequently execute its plan to deleverage its balance sheet and improve its cost structure. Not only has Glencore delivered (as we expected) thus far on what it said it would do, it continues to implement its debt reduction program. This has, in some instances, been in contrast with other major metal mining companies that, despite rhetoric to the contrary, have been slow to recognize the need for, or have been unsuccessful in, executing similar restructuring measures and have largely been playing "catch up" with Glencore in the eyes of the market.

Rounding out the top 5 performing positions were E&P companies, Pioneer Natural Resources,2 Parsley Energy,3 and SM Energy.4 These companies benefited from the high quality of their assets and acreages, in particular those in the Permian Basin. The final top five contributing company for the quarter was metal mining company Teck Resources5 which benefited from strengthening zinc and coal prices.

3Q Performance Detractors

Over the past three years, global demand for coking coal has been relatively solid at an annual level of around 990 million tonnes (Mt). China is one of the most important consumers in terms of setting prices, since it accounts for approximately 60%, or 590Mt, of global coking coal demand. It is followed by Japan at 69Mt, India at 49Mt, and South Korea at 40Mt. Demand from the U.S. is for approximately 21Mt per annum.

In a reversal from the second quarter when gold was the strongest performing sub-industry, in the third quarter, gold was the largest detractor from Fund performance. Gold mining companies Barrick Gold,6 Goldcorp,7 and Randgold Resources8 all suffered from a consolidation in the gold price during the period, and by quarter end we had reduced our exposure to each. The two other poor performers during the quarter were E&P companies Hess,9 which had to contend with a dry hole in Guyana, and Gulfport Energy.10

Positive Market Sentiment and Demand for Commodities in 3Q

Despite the continuing uncertainties in the market surrounding the U.S. presidential elections, and in the face of moderating global GDP growth, sentiment was on the positive side and demand for commodities remained remarkably resilient. As in the second quarter of the year, the most significant macroeconomic factor influencing the hard assets strategy was the extraordinary monetary accommodation extended by central banks around the world, which continues to add support for economic growth and demand for commodities.

Gold Consolidated After 2Q Rally

After an explosive first half of the year, the gold market experienced significant consolidation during the third quarter and gold mining companies suffered. On a positive note, gold mining firms overall have been bolstered by restructuring and strategic improvements and appear well positioned to withstand a short-term decline in the gold price.

Global Demand for Crude Oil Remained Strong

Global demand for crude oil and, in particular, gasoline increased once again during the quarter. U.S. gasoline demand remains at record highs and the country is now consuming approximately 10 million barrels a day. The country's gasoline demand continues to exceed the unrefined crude oil demand of every country in the world except China.

Supply disruptions with the potential to impact future production continued during the quarter including the lingering effects of attacks instigated by militant groups in Nigeria, an uncertain and confusing political situation in Libya, and a deteriorating economic and social environment in Venezuela, where production had fallen some 6% from approximately 2.35 million barrels a day (bbl/d) at the beginning of the year to approximately 2.2 million bbl/d by the end of the quarter. On a positive note, oil sands production in Canada was no longer affected by the wild fires that impeded second quarter production.

U.S. Oil Rig Count Rebounded Slightly

In the U.S., the rig count continued to rebound slightly and increase at a modest pace from previous trough levels. However, we continue to note and emphasize that any rebound remains very much incremental when compared with the nearly 1,300 rigs in the U.S. that were taken out of commission between 2014 and 2016.

Zinc and Coking Coal Excelled for Base/Industrial Metals

In the base metals space, zinc experienced further rebalancing of supply and demand. Fundamentals continued to tighten with a reduction in overall supply accompanied by solid demand (Read Zinc’s Year to Remember: A Supply-Side Story for details). Nickel markets erased losses from early in the quarter following the results of environmental mine audits in the Philippines in which three quarters of mines fell short, with 20 mines facing suspension, and an announcement by Indonesia that the ban on exports was being reconsidered. At the company level, restructuring continues. Balance sheet strengthening appears to be the primary objective with reducing operating costs a secondary focus. Additionally, we are just now starting to hear chatter from some companies about re-engaging growth projects.

By the end of the quarter, the prices of metallurgical coal (an essential steel-making raw material used to produce coke which, in turn, is used in the production of steel) had climbed more than 100% since the beginning of the year. The overwhelming driver behind this price recovery has been supply. In addition to both lower seaborne and domestic supply, global inventories are also at multi-year lows (Read Coking Coal Rally Driven by Supply Constraints for details).

Deal Activity Dominated the Agriculture Sector

In the agriculture sector, the quarter was marked by two major deals and the potential for further consolidation in the potash market amid oversupply. U.S. agriculture giant, Monsanto, agreed to be bought by German giant Bayer11 while Canada's Agrium12 and PotashCorp13 of Saskatchewan agreed to merge. In grains, an ideal growing season in the U.S. lead to close to record production in both corn and soybean.

Positive Outlook for Remainder of the Year

In the fourth quarter, we see the macro drivers continuing to be central bank policy and the ramifications of the forthcoming presidential election in the U.S. Broadly speaking, commodity demand has proven to be remarkably resilient. Despite concerns about global growth there is still firm demand and healthy consumption. On the supply side, we continue to see the effects from the lack of investment and capital expenditure reductions over the past several years.

OPEC Production Decision Puts Focus on Saudi Arabia and Iran

At the very end of the quarter, OPEC (Organization of the Petroleum Exporting Countries) came to an agreement to cap production. This move appears to us to indicate that Saudi Arabia and other OPEC members have reached their threshold of pain, which appears to be roughly in the $40 to $45 price-per-barrel range. Anything below that would probably only serve to consolidate and accelerate any decisions they might make as a group which indicates that, surprisingly, there may actually be a price floor.

Mainstream interpretation seems to be that the OPEC announcement is a reaction to $40 oil. Maybe it is, but we believe it could also be the excuse that Saudi Arabia has needed to allow it to force through some serious, and absolutely essential, economic restructuring. It now has the low price of oil to blame publicly.

Saudi Arabia is Worried About Oil Price Spike in Next 18 to 24 Months

We believe that the move by Saudi Arabia is a longer-term one and that, in particular, it demonstrates the country is also worried about a spike in oil prices in the next 18 to 24 months. Any such spike may: a) help Iran the most (something Saudi Arabia is not too keen on doing); b) eventually cause the price to plummet back down; and c) accelerate alternative energy use. Evidence of this can be seen in the press release issued by OPEC following its September meeting, in which it said that its objective was "to stabilize the oil market and avoid the adverse impacts in the short- and medium-term."

We also see this move as a way for Saudi Arabia to indicate to Iran that it is happy for the country to try and ramp up production from 3.6 million to 4 million barrels a day (something Iran is struggling to do as shown in Chart A) over the next four to five years. The Saudis are fully aware that this is extremely unlikely to happen any time soon as Iran has only hit the 4 million barrels per day figure three times since 1978.

Chart A: Iranian Crude Oil Production
Monthly in Barrels: 12/31/79 to 9/30/16

Chart A: Iranian Crude Oil Production

Source: Bloomberg. Data as of September 30, 2016.

While the focus is squarely on Saudi Arabia and Iran, among other OPEC nations, despite the political uncertainty in Libya mentioned earlier, there do appear to be some moves toward establishing some sort of unified government and we have seen the beginning of some flows of oil in the country.

We continue to point out that it is easy to fall into the trap of thinking that a simple increase in the current U.S. onshore oil rig count of approximately 400 rigs can restore the supply balance. But people forget that the U.S. rig count at its high numbered close to 1,700 in 2014 and that it has declined more than 75%, or 1,300 rigs, (see May blog post) since then. It will take a considerable increase in the current rig count to bring back any growth in production.

In addition, people continue to miss the fact that conventional exploration has been abysmal (discoveries in 2015 were the lowest since 1947 as shown in Chart B), a point that was also hinted at in OPEC's press release when it was stated that the "Conference … noted that world oil demand remains robust, while the prospects of future supplies are being negatively impacted by deep cuts in investments and massive layoffs."

Chart B: Conventional Oil Discoveries Are in Decline
Yearly in Barrels: 1947 to 2016

 

 

Source: Wood Mackenzie; Bloomberg. Data as of August 31, 2016.  

U.S. Shale Oil Production Will Need Time to Ramp Back Up

As usual, during the quarter we made a number of trips outside the U.S. and met with many prospective and existing clients. During our visits we noted a recurrent theme of strong skepticism around the rebalancing of commodity markets and, in particular, oil. We believe that much of this has been fueled by headlines that trumpet Saudi and Russian oil production reaching all-time highs, and talk of the strength of the rebound in the oil rig count in the U.S. People seem to truly believe that shale oil is a spigot that can just be turned on and off at will, and there continues to be a misplaced belief that higher oil prices will reinvigorate shale drilling to the point where it starts to raise production and "unbalance" the fundamentals. We do not believe this to be the case and, in our view, any increase in U.S. production must be preceded by a dramatic increase in the rig count which will require significantly higher crude prices.

Download Commentary PDF with VanEck Global Hard Assets Fund specific information and performance

For a complete listing of the holdings in the Fund as of 9/30/16, please click on this PDF. Please note that these are not recommendations to buy or sell any security.

]]>
Emerging Markets Shake Off Brexit https://www.vaneck.com/blogs/emerging-markets-equity/emerging-markets-shakes-off-brexit/ In 3Q, emerging markets equities continued to gather momentum and flows following the June Brexit vote and outperformed most global indices. Large-caps outpaced small-caps, and growth stocks staged a modest comeback.

]]>
Van Eck Blogs 10/17/2016 10:58:37 AM China, Brazil, and Hungary are Strong Performers

Emerging markets continued to gather momentum and flows following the June Brexit vote and, in the third quarter, outperformed most global indices including the S&P 500® Index. Large-caps outpaced small-caps, again extending the performance gap for the year. Growth stocks staged a modest comeback over value stocks.

After a couple of quarters of weakness, China was among the best performing countries in the third quarter, accompanied by Brazil (a familiar outperformer this year) and Hungary. India also advanced. Turkey, on the other hand, declined substantially in 3Q as a result of the power grab attempt by Turkish president Recep Tayyip Erdogan following the unsuccessful coup. Technology stocks pushed higher during the quarter to become the third best performing sector for the year following energy and materials. Emerging markets utilities stocks were the worst performers.

3Q'16 Emerging Markets Equity Strategy Review and Positioning

Stock selection added alpha in 3Q, while asset allocation detracted from the strategy’s performance. On a sector level, stock selection in the telecommunications and consumer sectors led the way while stock selection and under allocation to the information technology sector hurt relative performance. On a country level, stock selection in Mexico, Taiwan, and India contributed most to relative performance while stock selection in South Korea, China, and Jordan detracted from relative performance. The strategy’s weighting in small-caps detracted from performance most during the third quarter, while selections in large- and mid-caps aided performance.

3Q Performance Contributors

Our top five contributor companies in 3Q included long-term portfolio position Chinese internet company Tencent Holdings1 and Chinese e-commerce company JD.com,2 both of which rose during the quarter on the back of good earnings results.

India’s Yes Bank Ltd.,3 a high-quality, private sector bank benefited from strong loan and deposit growth, outpaced its peers, while at the same time maintaining a steady non-performing loans level. CP All,4 which operates close to 9,000 corporate, franchise, and sub-area license stores around Thailand reported strong second quarter results, resulting in earnings estimate upgrades.

Finally, Taiwan Semiconductor,5 the undisputed global leader in integrated circuit (IC) manufacturing, benefited from robust sales growth, and a strong 2017 demand outlook.

3Q Performance Detractors

The strategy’s bottom-five performing companies in 3Q included Hikma,6 a London-listed pharmaceutical company with a mix of branded and non-branded generics, and in-licensed drugs. Hikma had a difficult quarter in stock performance terms, reversing a strong second quarter. The proximate cause was a downgrade to company guidance, specifically related to delayed product approvals, which lead most analysts to downgrade earnings for this year, and conservatively, also for 2017.

Robinson Retail,7 a Philippines-based retailer with a variety of retail formats, also reversed relatively strong second quarter performance. In part this was due to a diminished enthusiasm for Philippines stocks generally, following the election of its new president. Although operations for the company are robust, there has been some frustration at the pace of deployment of capital, and concern about strong competition, particularly in Metro Manila.

Techtronic,8 a China-based producer of power tools that are sold mainly in the U.S. and Western Europe, declined due to weaker-than-expected quarterly revenue growth, and higher-than-expected promotional costs on new products, which depressed margins.

Credicorp,9 the leading bank in Peru, pared back gains from earlier in the year after it reported weaker-than-expected loan growth in the second quarter driven by economic uncertainty caused by Peru’s presidential election. Hence, loan growth for the full year is now expected to be lower than the market originally expected.

Eva Precision10 rounds out the performance detractors, and the strategy no longer holds this position. Hopeful signs of better plastic molding orders did not actually translate into orders, leading to worse-than-expected revenue and poor gross margins.

Emerging Markets Challenged by Brexit and “Populist Politics”

Global markets have seen some significant challenges, including record low and negative bond yields and concern about the limits of quantitative easing. Markets have been challenged by Brexit, and concerns about the rise of “populist politics” – to name a few issues. Emerging markets specifically have seen some challenges, including political change in Brazil and an attempted coup in Turkey. Notwithstanding these risks, the summer was actually a period of restrained market volatility, which surprised many market participants.

We Believe that China Should Remain Stable

Many factors combined to create the stronger relative performance from emerging markets during the quarter, and so far this year, compared to global indices. First, the rapid appreciation of the U.S. dollar appears to have faded as market expectation of a U.S. Federal Reserve (“Fed”) rate hike has been pushed back until the end of the year and possibly next year. Second, despite the febrile headline grabbing comments of market pundits, China has not had any kind of “Minsky moment” (a collapse in asset prices following the exhaustion of credit expansion), whether related to capital outflows or leverage. Although we certainly concede that there are some significant imbalances in China’s economy, we believe that the extra “stabilizers” available to authorities will be used to attempt to achieve a reasonably stable outcome over the medium term. Third, the supply and demand equation for commodities looks more balanced. Fourth, earnings are likely to be much less disappointing this year, partly because expectations have been reset to lower levels, and partly because corporates are gradually acclimatizing to a slower growth world and generating more efficiencies, rather than focusing predominantly on top-line growth.

Reform efforts have been uneven in emerging markets, but we are encouraged by the long-term impact of the passage of the GST (goods and services tax) in India. In China, some reform efforts are often opaque and sometimes appear to represent “two steps forward then one back”. The outcome of tax amnesties in India and Indonesia appears to have been better than expected, and, finally, infrastructure projects seem to be developing greater impetus in a number of countries, for example, the Philippines.

Emerging Markets Have Shown Considerable Relative Strength in 2016

We remain constructive on the continuing outperformance of emerging markets in a global context. After an extended period in the wilderness, emerging markets assets have shown considerable relative strength so far this year. We feel that there is reasonable evidence for that outperformance to continue for the asset class as a whole. Broadly speaking, a stable U.S. dollar, better commodities’ prices, a more resilient earnings profile, and light positioning in the asset class ought to combine to increase the relative attractiveness of emerging markets.

One facet of the uptick in interest is that substantially all inflows into the asset class this year have come through passive fund offerings. While appreciating the convenience that ETFs offer, we caution that allocation of capital through market capitalization can be particularly pernicious in emerging markets.

We make this comment because, given the economic history of many emerging markets economies, there are many very large scale state-owned companies in the emerging markets universe. The prominence of these companies we feel comes less from superior competence than from historically state-sponsored systemic advantage which is unlikely to be sustained in the long run. In addition, we believe many of these large companies are essentially driven by global cyclical factors such as energy and materials. We will continue to implement our philosophy of structural growth at a reasonable price. We are not style agnostic, drifting into whatever appears to be working at any given time. We are style specific and we continue to find that there are many areas of superior, sustained growth that are essentially non-cyclical in nature and will likely provide reliable opportunities for well-managed companies to exploit.

While there may be some countries where economic growth has stabilized or even picked up, the evidence for a sustained, strong improvement in global GDP appears limited at best. In a growth-challenged world, our philosophy of focusing on investment opportunities where strong, innovative management teams are able to capitalize on dynamic change and extract real value, ought to be rewarded over the medium term, despite the vagaries of commodity pricing and ETF flows.

Valuations for emerging markets equities and currencies are generally constructive, but not compellingly cheap. Expectations for earnings are much more realistic, and positioning in the asset class is cautious. Delayed expectations of further Fed tightening have also been positive for the asset class. Finally, it is perhaps hard to construct a case for alternative geographies and asset classes; arguably, the U.S. equity market looks overvalued, Japan is struggling with a strong currency, and Europe faces significant questions and uncertainties surrounding its political and economic future.

Consequently, we approach the remainder of this year, and the following years, with cautious optimism for the asset class. Much more importantly, we remain unabashedly enthusiastic about the companies that we actually own in emerging markets. As most investors know, we have a high active share and a healthy skepticism that the large emerging markets companies necessarily represent some of the best investable dynamics in emerging markets.

Download Commentary PDF with Fund specific information and performance  

For a complete listing of the holdings in VanEck Emerging Markets Fund (the "Fund") as of 9/30/16, please click on this PDF. Please note that these are not recommendations to buy or sell any security.

Post Disclosure  

1 Tencent Holdings represented 3.5% of the Fund's net assets as of 9/30/16.  

2 JD.com represented 2.8% of the Fund's net assets as of 9/30/16.  

3 Yes Bank Ltd. represented 3.0% of the Fund's net assets as of 9/30/16.  

4 CP All represented 2.2% of the Fund's net assets as of 9/30/16.  

5 Taiwan Semiconductor represented 2.8% of the Fund's net assets as of 9/30/16.  

6 Hikma represented 0.7% of the Fund's net assets as of 9/30/16.  

7 Robinson Retail represented 1.5% of the Fund's net assets as of 9/30/16.  

8 Techtronic represented 1.4% of the Fund's net assets as of 9/30/16.  

9 Credicorp represented 2.2% of the Fund's net assets as of 9/30/16.  

10 Eva Precision represented 0.0% of the Fund's net assets as of 9/30/16.  

The S&P 500® Index (S&P 500) consists of 500 widely held common stocks covering industrial, utility, financial, and transportation sectors. This Index is unmanaged and does include the reinvestment of all dividends, but does not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the strategy. An index’s performance is not illustrative of the strategy’s performance. Indices are not securities in which investments can be made.  

IMPORTANT DISCLOSURE  

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 views and opinions expressed are those of the speakers and are current as of the posting date. Videos and commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results.

Please note that Van Eck Securities Corporation offers investment portfolios that invest in the asset class(es) mentioned in this commentary. The Emerging Markets Equity strategy is subject to the risks associated with its investments in emerging markets securities, which tend to be more volatile and less liquid than securities traded in developed countries. The Emerging Markets Equity strategy's investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, including the takeover of property without adequate compensation or imposition of prohibitive taxation. The Emerging Markets Equity strategy is subject to risks associated with investments in derivatives, illiquid securities, and small or mid-cap companies. The Emerging Markets Equity strategy is also subject to inflation risk, market risk, non-diversification risk, and leverage risk. Investing involves risk, including possible loss of principal. An investor should consider investment objectives, risks, charges and expenses of the investment company carefully before investing. The prospectus and summary prospectus contain this and other information. Please read them carefully before investing.  

No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation.

]]>
Coking Coal Rally Driven by Supply Constraints https://www.vaneck.com/blogs/natural-resources/coking-coal-rally-driven-supply-constraints/  Coking coal prices have climbed more than 100% since the beginning of the year through September 30. The overwhelming price drivers have been low supply and low inventories, for both seaborne and domestic coking coal.

]]>
Van Eck Blogs 10/14/2016 12:00:00 AM #container1, #container2, #container3 { min-width: 320px; max-width: 720px; height: 500px; border: 1px solid rgb(153, 153, 153); padding-top: 10px; margin-bottom: 10px; } .chart-image { display: none; } @media print { .chart-image { display: block; max-width: 700px; min-width: 320px; } #container1, #container2, #container3 { display: none; } .col-sm-8 { width: 100% !important; } }

Overview: VanEck's natural resources investment strategy spans the breadth of raw materials commodities sectors, and the coal and consumable fuels sub-sector can play an important role. Not least, the global steel industry is dependent on coal. Metallurgical coal is essential to the steel making process with approximately 70% of the steel produced today using coal as a primary raw material. Metallurgic coal is also called “coking” coal because it is used to create coke, an irreplaceable input for steel production.  

By the end of September, metallurgical coal prices had climbed more than 100% since the beginning of the year.1 The overwhelming driver behind this price recovery has been restriction in supply. In addition to both lower seaborne and domestic supply, inventories are also at multi-year lows. Although our view is that current prices are not likely to hold, we do foresee a continuation of a market environment that will be supportive of higher prices.

What is Metallurgical Coal?

Global steel production depends on coal. Metallurgical coal, or coking coal, is used in the process of making steel, and hence is often referred to as “steel making coal”. Coking coal is heated to about 2,700° F (1,100° C) in a coke oven, forcing out impurities to produce coke. Coke itself is almost pure carbon. Because of its high thermal energy and dearth of impurities, coke is used to convert iron ore into molten iron. This is then used to make a range of steel types.

Global Demand is Solid

Over the past three years, global demand for coking coal has been relatively solid at an annual level of around 990 million tonnes (Mt). China is one of the most important consumers in terms of setting prices, since it accounts for approximately 60%, or 590Mt, of global coking coal demand. It is followed by Japan at 69Mt, India at 49Mt, and South Korea at 40Mt. Demand from the U.S. is for about 21Mt per annum.

China has invested heavily in its steel industry and currently accounts for approximately 55% of the world’s steel production. The net result of this is that domestic Chinese coking coal supply has had to be supplemented by imported, or seaborne coal (Chart A). “Seaborne” refers to coal that is transported internationally overseas by ship, and refers mostly to the coking coal export market.

Chart A: Chinese Seaborne Coking Coal Demand and Steel Production
Yearly in Tonnes: 2000-2016

 
Chinese Seaborne Coking Coal Demand and Steel Production

Source: VanEck, Bloomberg, World Steel Association, Australian Bureau of Statistic, Statistics Canada, and Chinese General Administration of Customs, as of 9/30/16.  

Coking Coal Supply: The Seaborne Market and the Domestic Market

The global coking coal market is generally considered as being split between the seaborne (or export market) and the domestically traded market.

The Seaborne Market  

The size of the global seaborne coking coal market was approximately 290Mt as of 2015 (Chart B). Despite being a much smaller market than the domestically traded coal market, the seaborne market is actively traded and, therefore, regarded as the price/trend indicator for all contracts.

Australia, the U.S., and Canada are the key suppliers of coking coal to the seaborne market. Seaborne supply reached record levels in 2014 as shown in Chart B. However, supply fell 8% in 2015 as producer profitability decreased, balance sheet quality deteriorated, and capital spending contracted. In 2016, supply has collapsed even more dramatically, and on an annualized basis, 2016 seaborne supply could be as low as 185Mt, or down 37%, a level last seen in 2004.

Chart B: Global Seaborne Coking Coal Supply
Yearly in Tonnes: 2000-2016

 
Global Seaborne Coking Coal Supply

 

Source: VanEck, Bloomberg, Australian Bureau of Statistic, Statistics Canada, Chinese General Administration of Customs, and U.S. Census Bureau, as of 9/30/16.  

The U.S. has had the largest impact on the shrinking supply to the seaborne market. Over the past three years, U.S. coking coal exports have fallen consistently, driven by subdued prices, lower margins, and/or restrictive environmental policies (Chart C). U.S. exports peaked at about 70Mt in 2012, but since then they have contracted by nearly 42% and 2016 exports are estimated at 40Mt. The export decline has been particularly pronounced over the past twelve months, a period in which 20Mt in capacity was lost.

Chart C: U.S. Coking Coal Exports
Quarterly in Tonnes: 2000-2016

 
U.S. Coking Coal Exports

Source: VanEck, Bloomberg, and U.S. Energy Information Administration, as of 9/30/16.  

The Domestic Market  

Domestic coking coal markets have also seen a dramatic reduction in supply. In 2016, China made a fundamental shift and implemented supply-side reforms in the domestic coal industry to curb overcapacity. In short, the reforms reduced the number of statutory working days for coal miners from 330 to 276. By mid-2016, in China, year-on-year production was down 20%, and in the coking coal-rich Shanxi province it was down 25% to 30%. As a result, because of lower supply and relatively solid demand, coking coal inventories in China are currently at multi-year lows.

Our Positive Outlook for Coking Coal

Current physical market conditions remain very tight. We believe that just as low prices have resulted in reduced supply, higher prices should lead to increased supply. At current spot market prices, virtually every tonne of seaborne coking coal will be cash positive.

While we do not expect current prices to hold, we do foresee a strong and supportive market that will keep prices higher than the current contract price (around $92.50 per tonne). This outlook is supported by a number of different factors. In addition to the fact that 70% of deals are executed by coking coal end-users and not traders, some 80% of concluded transactions were in Asia. On top of this, not only are coking coal inventories at coke plants at their lowest levels on record, demand for steel is also expected to remain solid. Taken together, we believe these factors provide a solid base for firm prices going forward.

]]>
All Eyes on the Finish https://www.vaneck.com/blogs/moat-investing/all-eyes-finish/ Despite headwinds in September, U.S. moats continued to impress through the first three quarters of the year. Internationally, moats posted a strong month relative to the broad market and made up ground year-to-date. 

]]>
Van Eck Blogs 10/11/2016 11:33:07 AM

For the Month Ending September 30, 2016

Performance Overview

The U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR, or “the U.S. Moat Index”) underperformed the S&P 500® Index in September (-1.66% vs. 0.02%). Despite lagging for the month, the U.S. Moat Index has posted very strong absolute and relative performance in 2016. Year-to-date through September, it has outperformed the S&P 500 Index by more than 10 percentage points (18.09% vs. 7.84%). International moats also outperformed for the month, with the Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN, or “the International Moat Index”) outpacing the MSCI All Country World Index ex USA by more than one percentage point (2.33% vs. 1.23%).

U.S. Domestic Moats: Overcoming Controversy

Ailing Wells Fargo & Company (WFC US) did its share to pull down the performance of the U.S. Moat Index in September. WFC US is in the midst of regulatory turmoil involving the aggressive opening of fraudulent customer accounts. Despite the controversy, Morningstar analysts took a deeper look at Wells' healthier relationships with its customers and has stood by its wide economic moat rating. Polaris Industries Inc. (PII US) also struggled in September on the heels of competitive pressures and product recalls. Even so, positive outweighed negative performers for the month led by strong gains from Amazon.com (AMZN US) and rail operator CSX Corporation (CSX US).

International Moats: All-In Gaming Sector Provides Boost

Macau gaming companies led the way once again in September comprising three of the top five performing companies in the International Moat Index for the month: Wynn Macau Ltd. (1128 HK); MGM China Holdings Ltd. (2282 HK); and Sands China Ltd. (1928 HK). Swedish firms were the next strongest contributors to performance led by radiotherapy firm Elekta AB (EKTAB SS). Elekta along with U.S. Moat Index constituent Varian Medical Systems (VAR US) make up a virtual duopoly in the radio therapy market. Lloyds Banking Group (LLOY LN) continued its post-Brexit slide and Australian telecom firm Vocus Communications Ltd. (VOC AU) was the leading Index detractor, following deterioration of the Australian telecom sector as a whole.

Index Review Results

Both Indices underwent a quarterly review in September. The U.S.-focused Morningstar Wide Moat Focus Index saw modest turnover with only three companies swapping into the Index, bringing the Index’s constituent total to 43. The internationally focused Morningstar Global ex-US Moat Focus Index experienced a higher level of turnover with 24 companies being replaced: 17 of those companies were removed due to the Index’s momentum screen, six were a result of valuation characteristics, and Power Financial Corp (PWF CN) was removed after seeing its economic moat rating downgraded to none. The International Moat Index now holds a total of 74 constituents.

(%) Month Ending 9/30/16

Domestic Equity Markets

International Equity Markets

(%) As of 9/30/16

Domestic Equity Markets

International Equity Markets

(%) Month Ending 9/30/16

Morningstar
Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers
Constituent Ticker Total Return
Amazon.com, Inc.
AMZN US
8.86
CSX Corporation
CSX US
7.85
Mastercard Inc Class A
MA US
5.32
Varian Medical Systems, Inc.
VAR US
3.54
Emerson Electric Co.
EMR US 3.47

Bottom 5 Index Performers
Constituent Ticker Total Return
V.F. Corporation
VFC US
-9.12
McKesson Corporation
MCK US
-9.68
salesforce.com, inc.
CRM US
-10.19
Polaris Industries Inc.
PII US
-10.62
Wells Fargo & Company
WFC US
-12.83

View MOAT's current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Top 5 Index Performers
Constituent Ticker Total Return
Wynn Macau Ltd. 1128 HK 18.90
Elekta AB Class B EKTAB SS 13.94
MGM China Holdings Limited 2282 HK 12.74
Seven & I Holdings Co., Ltd. 3382 JP 11.42
Sands China Ltd. 1928 HK 10.34

Bottom 5 Index Performers
Constituent Ticker Total Return
Linde AG LIN GR -0.58
Cameco Corporation CCO CA -6.69
Blackmores Limited BKL AU -7.54
Lloyds Banking Group plc LLOY LN -8.84
Vocus Communications Limited VOC AU -9.51

View MOTI's current constituents

As of 9/16/16

Morningstar
Wide Moat Focus Index (MWMFTR)

Index Additions
Added Constituent Ticker
Bristol-Myers Squibb BMY US
Deere & Co DE US
Lowe's Cos Inc LOW US

Index Deletions
Deleted Constituent Ticker
Cerner Corp CERN US
LinkedIn Corp LNKD US
Western Union Co. WU US

View Latest MOAT Reconstitution Report
View MOAT's list of current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Index Additions
Added Constituent Country
China State Construction International Holdings Ltd. China
Dongfeng Motor Group Co. Ltd. China
Beijing Enterprises Holdings Ltd. China
Iluka Resources Ltd Australia
Blackmores Ltd Australia
Orange France
Cheung Kong Property Holding Ltd Hong Kong
Industrial and Commercial Bank of China Ltd China
Ioof Hldgs Ltd Australia
Galaxy Entertainment Group Ltd. Hong Kong
Mobile TeleSystems PJSC Russian Federation
CSL Ltd Australia
Sun Hung Kai Properties Ltd. Hong Kong
Grifols SA Spain
Telstra Corp Ltd Australia
China Construction Bank Corp China
Singapore Exchange Ltd Singapore
Woolworths Ltd Australia
Alfa Laval AB Sweden
China Telecom Corporation Ltd. China
Bank of China Ltd China
Vocus Communications Ltd Australia
Infosys Ltd India
DuluxGroup Ltd Australia

Index Deletions
Deleted Constituent Country
Cameco Corp Canada
Power Financial Corp Canada
Linde AG United Kingdom
Lloyds Banking Group Plc United Kingdom
Henderson Group Plc United Kingdom
Kingfisher United Kingdom
Petrofac United Kingdom
BNP Paribas France
Sanofi-Aventis France
Safran SA France
Carrefour SA France
QBE Insurance Group Ltd Australia
Platinum Asset Management Limited Australia
Nordea AB Sweden
Svenska Handelsbanken Belgium
KBC Group NV China
Julius Baer Group Switzerland
Roche Hldgs AG Ptg Genus Switzerland
Teva Pharmaceutical Industries Israel
SoftBank Group Corp Japan
Wipro Ltd India
Tata Motors Ltd India
Sands China Ltd. Hong Kong
CapitaLand Mall Trust REIT Singapore

View Latest MOTI Reconstitution Report
View MOTI's list of current constituents



]]>
Check Your Fear and Favor Fundamentals https://www.vaneck.com/blogs/muni-nation/check-your-fear-favor-fundamentals/ Van Eck Blogs 10/10/2016 12:00:00 AM

As of this writing much looms over the horizon: the U.S. presidential election is only 30 days away; a possible move by the Federal Reserve is back on the table, economic impacts from the BREXIT vote have yet to be fully realized, and a significant increase of new municipal issuance is likely. All these factors have caused yields to rise and certain valuations to change.

Recent Dynamics Create Attractive Entry Points

The Bloomberg Barclays Municipal Bond Index1 posted a negative total return in September, generating returns of -0.50% and bringing year-to-date returns to +4.01%. This is the first month of negative returns after a run of 14 consecutive months of positive performance. Month-to-date (as of October 7) we’ve seen a similar story with the index posting a negative total return of -0.62%.

A clear path to uncertainty is never what investors in the municipal market desire, but I suggest that if these first 10 days of October have been less than desirable, it should be considered a period of healthy adjustment. I believe new attractive entry points into the municipal asset class are a positive for investors.

Fundamentals Suggest Positive 2016 Finish

Taxable-equivalent yields remain attractive. Ratios of municipal high yield to corporate high yield as well as municipals to U.S. Treasuries remain well above their long-term averages. These factors continue to be favorable for municipals. Any near term adjustments may strengthen these measures.

I suggest that muni investors can weather many of these uncertainties, to the benefit of the asset class as a whole. While volatility is likely, there are fundamental factors in play that I believe will likely provide a positive finish to 2016.

Source of all data: Barclays, as of October 7, 2016.

1The Bloomberg Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt municipal bonds with a maturity of at least one year.

]]>
Gold Bull Market Loses Some Shine But Still Healthy https://www.vaneck.com/blogs/gold-and-precious-metals/bull-market-loses-shine-still-healthy/ Although gold recently fell below $1,300 per ounce and broke the longer term trend line that had been established this year, we believe that this is just a pause in the current gold bull market.

]]>
Van Eck Blogs 10/10/2016 12:00:00 AM

Gold Dips Below $1,300 Trend Line in Early October

Since hitting its post-Brexit highs in July, gold had been consolidating in a narrow $1,300 to $1,350 per ounce range. As we write in early October, the gold bull market has taken a pause. Markets are again pricing in a higher likelihood of a Federal Reserve ("Fed") rate increase in December based on comments made by Fed members following its September meeting. This, in turn, is lending strength to the U.S. dollar.

As a result, gold has fallen below $1,300 per ounce and broken below the longer-term trend line that had been established this year. This leads us to be less aggressive in our gold price expectations for 2016. It looks like the current consolidation could persist through October, dependent on any economic news that develops. However, this price action changes virtually nothing in our positive long-term outlook for gold. Price weakness is likely to spur seasonal demand out of India and Asia. We continue to believe that a Fed rate increase would ultimately be seen as another misstep that puts global growth at risk. In addition, the U.S. presidential election, implementation of Brexit, and further loss of confidence in central bank policies should support gold through 2017 and beyond.

Gold Range Bound in September: $1,300 to $1,350

Gold was range-bound in September, moving in the $1,300 to $1,350 per ounce range. Economic news from the U.S. was generally weak and central bank announcements were supportive of gold. The Fed kept rates on hold and downgraded its median GDP growth projection for 2016 to 1.8% from 2.0%. The Bank of Japan (BOJ) acknowledged that negative rates and quantitative easing are not working as well as planned, so it decided to experiment further with unconventional monetary policies. The BOJ is now targeting the yield curve and attempting to keep 10-year Japanese Government Bonds (JGBs) sufficiently above shorter-term negative-yielding maturities. This initiative is aimed at aiding banks, pension funds, and insurance companies who are having difficulty making ends meet in this low/negative rate environment the BOJ and other central banks have engineered. We believe that these ongoing attempts to manipulate markets will lead to unintended consequences that raise systemic risk.

Gold bullion ended September at $1,315.75 per ounce for a 0.5% gain while gold stocks experienced more positive returns. The NYSE Arca Gold Miners Index (GDMNTR)1 posted a 3.8% gain, while the MVIS™ Junior Gold Miners Index (MVGDXJTR)2 advanced 5.8%.

Takeaways from 2016 Precious Metals Summit and Denver Gold Forum

Each year in mid-September, top managements of gold companies converge on Colorado for the Precious Metals Summit and the Denver Gold Forum. Based on our 41 meetings, eight presentations, and numerous dinners, gatherings, and interactions with industry contacts, we came away with a more refined outlook for the gold mining sector.

Here are some important takeaways:

Costs savings continue, margins expand – We questioned whether the cost cycle had run its course after all-in sustaining (mining) costs fell from roughly $1,200/oz in 2012 to $900/oz in 2016. We were surprised to hear companies anticipate continued savings in mining practices, technology implementation, procurement (the act of finding, acquiring, buying goods, services or works from an external source), and contractor costs. We now believe industry costs can trend towards $800/oz through 2018.

Companies focused on organic opportunities – Low gold prices forced companies to look inward at existing operations and projects. Success with brownfields exploration (modification or upgrades based on a prior project) have led to expansions or extended mine lives. Revised planning has enabled development projects to require less capital with higher rates of return and phased expansions.

Heavy M&A cycle not likely until late 2017/2018 – With more organic opportunities, there is not as much pressure to make acquisitions in the near-term. That said, corporate development teams were quite active, suggesting some companies are preparing to pull the acquisition trigger at some point to replace future production declines.

Dividend increases to be limited in 2017 – We had hoped to hear of strong dividend growth in 2017, however, we now believe any increases will be limited due to capital allocations to existing property developments and in some cases to further help pay down debt.

Ongoing industry themes – An emphasis on free cash flow over production growth, flat management structure, mine management focused on Net Asset Value (NAV) growth, use of double digit hurdle rates at conservative gold prices on new projects, partnering with juniors for exposure to greenfields (a property or project where no previous work has been conducted).

Actively Managed Gold Funds versus Gold ETFs

One of the dominant financial trends of the past decade has been a move by investors out of actively managed funds and into passively managed index funds or exchange traded funds (ETFs). The latest example is the Illinois State Pension Board, which according to The Wall Street Journal, decided to jettison active mutual fund managers altogether, leaving only passively managed choices for its state workers. The reasons cited for the move into ETFs included lower fees and potentially better performance as many active managers fail to outperform their passive peers. We have witnessed this recent preference for ETFs here at VanEck. This year we have seen strong net inflows into VanEck Vectors™ Gold Miners ETF (GDX), while our actively managed VanEck International Investors Gold Fund (INIVX) has experienced small net outflows.

Although both actively and passively managed options, including INIVX and GDX (and their respective peers), provide investors leveraged access to the gold market, there are distinct characteristics of each that must align with an investor’s objective in making a decision to add gold mining exposure. All gold equity investment options may not provide the same benefits.

The Genesis of VanEck Vectors Gold Miners ETF (GDX)

The rationale behind choosing the passively managed approach is evident in the genesis of GDX, which launched in 2006 as the first gold miners ETF offered in the U.S. The underlying index for GDX is the NYSE Arca Gold Miners Index (GDMNTR) and when VanEck partnered with the American Stock Exchange (predecessor to NYSE Arca), the goal was to create a new market-cap weighted index that would provide investors with a better overall representation of the global gold mining industry. The Index also included silver companies because silver is highly correlated with gold. As the only two monetary metals, all other metals companies were excluded. Importantly, in creating the Index, position size was capped so that the Index could not be dominated by a handful of companies.

VanEck Vectors™ Gold Miners ETF (GDX) soon followed the creation of this Index and certainly provides some unique benefits, potentially not accessible through most actively managed strategies. GDX offers broad, diversified exposure to gold miners, is highly liquid, easy to trade, carries low fees, and supports a deep options market. It may also capture broad themes such as exploration successes, operating improvements, and cost reductions that are ongoing across the gold mining sector.

INIVX Offers an Actively Managed, Specialized Approach

Whereas GDX attempts to reflect the complete global gold mining space, the actively managed VanEck International Investors Gold Fund (INIVX) affords investors the opportunity to add gold mining exposure through a more specialized approach. In contrast to its passively managed counterpart, INIVX employs an investment methodology that spans nearly 50 years which seeks to identify specific companies from the broader universe, with a particular focus on junior and mid-tier firms that possess long-term growth potential.

Both INIVX and GDX share many similarities and provide investors with the ability to diversify their portfolios with an exposure to gold equities. Investors are able to benefit from the experience, research process, and active stock selection that drives INIVX. Likewise, GDX has a strong track record of performance compared to its passive peers and remains a cost effective solution.

Positive Long-Term Outlook Persists

Although gold has experienced some consolidation recently, we still maintain our positive outlook for the metal and believe that investors would be wise to consider their exposure to gold stocks, either passively or actively, as these equities typically outperform gold bullion in a rising market and underperform when gold falls.

 

 


 

]]>
Are Currencies Cheap or Dear? Look to the REER https://www.vaneck.com/blogs/etf/currencies-cheap-dear-look-reer/ Real effective exchange rates (REER) may be a better measure of underlying value than a currency’s nominal exchange rate. A simple REER analysis suggests that emerging markets local currencies may have further room to appreciate.

]]>
Van Eck Blogs 10/5/2016 2:05:23 PM

Exchange rates reflect the relative value of one currency to another, and can greatly impact the value of an investment that is denominated in a currency other than an investor’s home currency. Take for example the case of a U.S.-based investor holding a bond denominated in Mexican pesos. Although the price of the bond in Mexican pesos is a determinant of the investor’s total return, what ultimately matters more to that investor is the value of the bond once converted into U.S. dollars.

Given the importance of exchange rates in determining investment returns, how can investors assess the value of a foreign currency and its potential impact on returns?

Exchange rates are often expressed as a currency’s value relative to U.S. dollars. For one U.S. dollar, how many units of the foreign currency can be purchased (or vice versa)? This is referred to as the nominal exchange rate.

Looking Beyond the Nominal Exchange Rate

The nominal exchange rate, however, may not be the best measure of a currency’s underlying value because it does not reflect the true purchasing power between two currencies. We feel a better measure to use is the real exchange rate which adjusts the nominal exchange rate for differences in price levels.

Let’s assume that someone holding Mexican pesos can buy a specified basket of goods and services in Mexico for a given price. If that person converted their pesos to U.S. dollars at the nominal exchange rate and could buy the same amount of that basket in the United States, then there is purchasing power parity, meaning one U.S. basket costs the same amount as one Mexican basket after taking into account the exchange rate. However, if the price of the U.S. basket increased by 20% and there was no change in the nominal exchange rate, then for a given amount of Mexican pesos, a larger amount of the Mexican basket can be purchased. The U.S. basket of goods and services is more expensive, and therefore less competitive, versus Mexico. An appreciation of the Mexican peso would reduce this advantage.

An Introduction to REER

Additionally, the exchange rates described above (both nominal and real) only reflect the foreign currency’s value against one other currency (e.g., the U.S. dollar). It may be more informative to compare a currency against all of a country’s trading partners in order to assess overall value. One measure that practitioners often look to is the real effective exchange rate (REER). The REER takes inflation into account, and is a more comprehensive measure of a country’s whole economy as it is a weighted average of bilateral exchange rates. REER is expressed as an index, and represents changes in price rather than absolute prices.

The interpretation of changes in REERs is not necessarily straightforward, because changes in the value of a currency can be caused by both long-term fundamental changes within an economy as well as shorter term factors. For example, does a declining REER indicate value or structural changes that have fundamentally reduced competitiveness? Further, price competitiveness of a country can be both a cause and effect of economic conditions, so linking movements in the REER to economic performance can be challenging. Additionally, several assumptions go into the calculation, including the measure of inflation that is used.

We believe REERs do, however, convey important information and are a good place to start when examining a currency, and movements may signal changes in fundamental or relative value. All else being equal, a rising REER means that a country’s goods are becoming more expensive, and therefore less competitive, relative to its trading partners. As a result, a country’s imports would be expected to increase which could lead to a wider current account deficit. A very rapid increase might precede balance of payments difficulties. On the other hand, a declining REER means a country’s goods are less expensive, and exports would be expected to increase.

REER Case Studies: Mexico and the U.S.

Market participants and researchers often attempt to estimate an equilibrium REER based on fundamental value. That analysis is beyond the scope of this post, but as a starting point we’ll look at the REERs of two countries, Mexico and the United States, within a historical context (see charts below). If one assumes that the long term factors that determine equilibrium are reflected in long term average observed REERs, then historical averages may be a good starting point. It can be seen that the Mexican peso is currently below historical averages, after a sharp decrease following the 2013 taper tantrum and more recent weakness this year. On the other hand, the U.S. dollar is above its historical averages, and reached a recent peak at the beginning of 2016.

Mexico Real Effective Exchange Rate
January 1994 - August 2016
Mexico Real Effective Exchange Rate  

Source: Bloomberg.  Past performance is no guarantee of future results. Current market conditions may not continue.

United States Real Effective Exchange Rate
January 1994 - August 2016
United States Real Effective Exchange Rate  

Source: Bloomberg. Past performance is no guarantee of future results. Current market conditions may not continue.

Emerging Markets Local Currencies Still Cheap?

To get a better sense of emerging markets more broadly, the chart below represents a weighted average of the countries currently represented in the J.P. Morgan GBI-EM Core Index (the “Index”), using country weights of the Index as of August 31, 2016. Despite recent strength beginning in February of this year, emerging markets REERs are still well below the levels experienced in the past decade and are still approximately at the level following the financial crisis in 2009. One possible conclusion is that emerging markets local currencies were, on average, oversold following the taper tantrum and the collapse in commodity prices and may still have room to appreciate before trading at more normalized levels. Rate hikes in the U.S. may provide a headwind, but lower rates for longer still appear likely and the U.S. dollar has already strengthened significantly over the past three years. Additionally, improving fundamentals, generally low inflation, and a stabilization in commodity prices may continue to be a tailwind to emerging markets local currency appreciation.

Emerging Markets Real Effective Exchange Rate Average
January 1994 - August 2016
Emerging Markets Real Effective Exchange Rate Average  

Source: Bloomberg. Past performance is no guarantee of future results. Current market conditions may not continue.

 

Emerging markets local currency bonds provide investors with two distinct sources of return: local bond yields and potential currency appreciation. Investors can access bonds issued by emerging markets governments and denominated in local currencies with VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC).

]]>
Opportunities in Colombia’s Solid Banking Sector https://www.vaneck.com/blogs/emerging-markets-equity/opportunities-colombia-solid-banking-sector/ Van Eck Blogs 10/5/2016 12:00:00 AM

VanEck's Emerging Markets Equity Strategy seeks to identify persistent long-term structural growth opportunities. Structural growth can be stock-specific or thematic, and can be driven by a sustainable advantage, which is often company management. Through this bottom-up process, we have identified Banco Davivienda as a potential opportunity, and representative of Colombia’s solid banking sector as described below (as of September 30, 2016, the holding represented 1.14% of VanEck Emerging Markets Fund's net assets). This is not a recommendation to buy or to sell any security; Fund securities and holdings may vary.

 

Colombia has experienced an historic economic boom over the past decade, and ranks as Latin America’s fourth largest economy measured by gross domestic product (“GDP”), behind Brazil, Mexico, and Argentina. Although best known as an oil exporter, Colombia’s economy offers other areas of notable strength, including its financial sector. We see exciting investment opportunities in Colombia’s banking sector, with the mortgage and transport infrastructure segments representing two main areas of growth.

Colombia’s banking sector has been revitalized since the late 1990s, when a financial/mortgage crisis forced the government to intervene to nationalize, recapitalize, or close major financial institutions. Since 2000, banking has staged a steady recovery and Colombia is viewed by us as having a more stable financial sector within a well-managed regulatory environment.

Colombia’s Loan Penetration is Relatively Low

Although loan penetration remains relatively low in Colombia, it has increased steadily over the past few years as the banking sector has recovered (see Chart A below). Major restructuring of the country’s financial system has taken place since the 1999 financial crisis, with privatization of state-owned institutions being one of the biggest changes. In the past decade, credit levels have rebounded substantially, but are still at levels below those in both developed countries and other countries in LATAM, including Brazil and Chile. “Informality” in Colombia is still high (defined as informal areas of Colombia’s economy that are not taxed or monitored by the government), and the continuing increase in formalization, together with very favorable demographics, could create strong opportunities for credit growth.

Chart A: Colombia’s Loan Penetration is Steadily Increasing
Yearly Loans-to-GDP

Colombia Loan-to-GDP Penetration

Source: J.P. Morgan and Superintendencia Financiera de Colombia.

The Housing Mortgage Opportunity

While one of the main areas of growth is the mortgage segment, loan penetration is still well below pre-crisis levels and registers as one of the lowest in the region (approximately 4%-5%, as shown in Chart B below). But Colombia’s mortgage potential is significant given that there is an estimated deficit of more than one million housing units and the government has assigned significant importance to housing development. A major driver of the growth for the housing market has been the implementation of a subsidy program for low income housing which has helped grow mortgages faster than any other loan segment over the last few years. A steady increase in long-term mortgage lending will be essential in order for Colombia to catch up with its neighbors and to expand its financial services sector.

Chart B: Colombia’s Mortgage Lending Penetration Remains Below Crisis Levels
Yearly Mortgage Loans-to-GDP

Colombia Mortgage Lending Penetration

*Starting in 2015, mortgage credit includes housing leases, previously recognized as commercial loans under ColGAAP (Colombia Generally Accepted Accounting Principles).
Source: SFC, DANE, Credicorp Capital.
 

Transport Infrastructure Investment Expected to Grow

Another important area of growth is the government’s transport infrastructure investment program, launched toward the end of 2015, called the Fourth Generation, or 4G. After five years of planning, the administration laid out a significant plan for investment over the next eight years to address the country’s big transport infrastructure deficit. The program provides an opportunity for local banks to participate and increase their commercial loan portfolios.

Over the past several years the Colombian economy has been resilient. Even with oil price declines, real GDP growth is expected to be close to 2.4% in 2016. The outlook for the country is constructive and expectations are that the housing program, the 4G infrastructure concessions, will provide very positive support for economic and credit growth going forward.

IMPORTANT DISCLOSURE  

Any mention of an individual security is not a recommendation to buy or to sell the security. Fund securities and holdings may vary. An updated list of VanEck Emerging Markets Fund holdings can be found here.

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 views and opinions expressed are those of the speakers and are current as of the posting date. Videos and commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results.

Please note that Van Eck Securities Corporation offers investment portfolios that invest in the asset class(es) mentioned in this commentary. The Emerging Markets Equity Strategy is subject to the risks associated with its investments in emerging markets securities, which tend to be more volatile and less liquid than securities traded in developed countries. The Emerging Markets Equity Strategy's investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, including the takeover of property without adequate compensation or imposition of prohibitive taxation. The Emerging Markets Equity Strategy is subject to risks associated with investments in derivatives, illiquid securities, and small or mid-cap companies. The Emerging Markets Equity Strategy is also subject to inflation risk, market risk, non-diversification risk, and leverage risk. Please see the prospectus and summary prospectus for information on these and other risk considerations.

You can obtain more specific information on VanEck strategies by visiting Investment Strategies.

Investing involves risk, including possible loss of principal. An investor should consider investment objectives, risks, charges and expenses of any investment strategy carefully before investing. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation.

]]>
Macro and Fundamental Factors Continue to Drive Gold https://www.vaneck.com/blogs/gold-and-precious-metals/macro-fundamental-factors-continue-drive-gold/ Van Eck Blogs 10/4/2016 12:00:00 AM

Watch Video Macro and Fundamental Factors Continue to Drive Gold  

Joe Foster, Portfolio Manager and Strategist, discusses how monetary policy and commitment to cost cutting by gold miners may continue to drive gold.

Watch Now | Video Transcript  

TOM BUTCHER: Joe, now that the Federal Reserve (”Fed”) has announced its plans to leave rates unchanged, how does this impact the gold market?

Investors Losing Confidence in the Fed and Central Banks

JOE FOSTER: First of all, gold reacts to what the U.S. dollar does. In reaction to the Fed’s decision to keep rates unchanged, we saw some weakness in the dollar and some strength in the gold market. Now the market is looking to December for the next Fed meeting. We go through similar cycles between every Fed meeting. The market wonders: Is the Fed going to raise rates or not? Now we are looking ahead to the December meeting, and markets will try to anticipate whether the Fed is going to change its policies at that point. Beyond this, what I think we are seeing in the market, and the reason why gold has done so well this year, is investors are losing confidence in the Fed and in central banks generally. Since the financial crisis [2008], we have not seen the level of growth that was promised to us by central bank policies.

There are increasing concerns about the efficacy of all the radical measures that central banks have taken, including keeping rates extremely low, and all the quantitative easings, etc. Japan, for example, has been experimenting with negative interest rates, and at the recent Bank of Japan (BOJ) meeting, it is now experimenting with the yield curve. The BOJ is trying to keep 10-year rates higher [at 0%] than one-year rates [~0.1%], and that is something that has never been done before. This brings risks into the financial system, and appears to be causing investors to lose confidence in central banks and their ability to stimulate the economy.

BUTCHER: I understand you have just come back from the Denver Gold Forum where you met with industry representatives and companies. What were your main takeaways from the Forum?

Gold Miners Cutting Costs Even Further

FOSTER: The Denver Gold Forum provides a great platform for institutional investors like us to meet with gold companies. Virtually every gold-mining management team on the planet was in Denver for the Forum, so it is a great opportunity. One thing we found very interesting this year is that costs have come down considerably over the last several years. Three years ago, in 2012, costs were around $1,200 an ounce. This year, the industry is averaging closer to $900 per ounce. This represents a tremendous drop in costs. What we found surprising is that companies are still finding ways to cut costs even further through efficiencies in procurement, and using technologies to incorporate more efficient mining methods. It looks like costs could come down another $50-$100 per ounce over the next year or two. That was a very positive development.

Also, gold mining companies are showing much better discipline in capital allocation. They are using higher rates of return in investment decisions to determine whether or not they want to go forward with projects. We are seeing more brownfields projects being developed, meaning projects located near existing mines in existing properties. Companies have really sharpened their pencils and are looking closely at what projects and mines they already have, instead of considering other parts of the world to develop new projects. Companies are finding projects that generate good returns right in their own backyards. This was another positive development that came out of the Forum.

Technology Driving Cost Reduction and Efficiency

BUTCHER: Let’s go back to cost-cutting. How do companies propose to cut costs even further?

FOSTER: One way is through technology, and the one new technology that I can point to most readily is driverless vehicles, or driverless trucks, meaning drill rigs that don't need an operator. We expect this technology to see more widespread use across the industry. Miners are also now using drones for mapping in remote areas. Procurement is improving: Companies are integrating operations all over the world so that they use the same parts and materials and get better pricing that way. Miners are using technology to integrate their systems globally. Although it may appear to be just a number of small things, they all add up to significant savings.

Current Bull Market Still in Early Stages

BUTCHER: How does the current bull market compare with other recent bull markets, and are there any similarities that might indicate where we are in the cycle?

FOSTER: Yes, there are. In fact, there's two parts to that question. One is looking at gold bullion; the other is looking at gold stocks. As far as gold bullion is concerned, I see similarities with the post-crisis market from 2008 to 2011, when gold went to new all-time highs. The market was driven central banks activities and their reactions to the crisis: the quantitative easing, the zero interest rate policies, the thought that these policies could bring some sort of inflation, or risk to the financial system, because these were radical policies that had never been tried before. We have a similar situation today. Central banks have even gone further out on the risk curve, experimenting with negative rates. Recently, we saw the Bank of Japan trying to manipulate the yield curve, which has never been done before. And this has investors very worried, thinking that this could create unintentional consequences that could end badly for the economy or the financial system. So we see similar drivers between this market post-crisis in 2008.

With regard to gold stocks, we look back to the beginning of the secular bull market in 2001, and the first full year of that bull market was 2002. Gold stocks saw tremendous returns, similar to what we're seeing this year for gold stocks. And 2002 wasn't the end of the line for the gold stocks. Between 2002 and the highs in 2008, gold stocks had many good years of performance. I think this current period is similar. We are now in the early stages of a bull market. Stocks have been so oversold in the previous bear market that you see a reversion to the mean and tremendous performance in that first year, but that doesn't mean it's over. It is a sign that it is just beginning.

FOSTER: Joe, thank you very much indeed.

]]>
Spin-Off in the Spotlight: Lumentum Holdings Inc. (LITE) https://www.vaneck.com/blogs/etfs/spin-off-lumentum-holdings/ Van Eck Blogs 9/29/2016 11:39:51 AM

Written by Horizon Kinetics' Research Analysts and CFA Charterholders Ryan Casey and Salvator Tiano, who together bring more than 20 years of combined industry experience to their research roles focusing on domestic and international spin-offs.

Spin-Off Company: Lumentum Holdings Inc. (NASDAQ: LITE)
Parent Company: JDS Uniphase Corp. (JDSU), now Viavi Solutions Inc. (NASDAQ: VIAV)

Spin-Off Date: August 4, 2015
GSPIN Index Inclusion Date: October 1, 2015


Lumentum Holdings Inc. (“Lumentum”) was first added to the Horizon Kinetics Global Spin-Off Index (“Index”) on October 1, 2015, after being spun off from JDS Uniphase (“JDSU”). The transaction, according to the parent company, was designed to give investors two pure-play investment opportunities, each operating in a distinct growth market, while granting the management teams of these companies the ability to focus on the technological changes impacting their industries. JDSU’s optical communications and commercial lasers business was separated to become Lumentum, while the network and service enablement segment stayed with the parent company, and was renamed Viavi Solutions Inc. (VIAV). Viavi Solutions retained a 19.9% stake in Lumentum.

Lumentum to Benefit from Industry Infrastructure Upgrades

Lumentum’s datacom business (a part of the company’s optical communications segment) is a provider to web and cloud service companies, and has been expanding its data center infrastructure. Lumentum is expected to benefit from infrastructure upgrades across this industry, as clients transition to faster equipment, such as 100G transceivers.1 The impact is already starting to be reflected in the company’s financials, with fourth quarter (ending July 2, 2016) revenues in the 100G datacom business up 40% sequentially and 240% relative to the prior year. The commercial lasers segment, whose end markets include manufacturing, inspection, and life-science applications, has also performed well, with revenues expanding 35% during the fourth quarter.

A Track Record of Reducing Costs

In addition to its increasing revenues, Lumentum has been able to significantly reduce costs since it became an independent company. Operating expenses, as a percentage of revenues, declined to 28.7% during the fourth quarter of 2016 relative to 37.4% in the prior year. Although part of this improvement can be attributed to higher revenues and the resulting operating leverage, the vast majority stems from sustainable expense reductions.

These results have had a positive impact on the Lumentum’s share price, which has more than doubled since the spin-off. However, despite the company’s share price appreciation, shares are currently trading at just over 20 times next year’s consensus earnings estimate, an arguably reasonable multiple for a company exhibiting the revenue growth that Lumentum has been able to generate.

View Current SPUN Fund Holdings

View Current GSPIN Index Holdings


]]>
No Fed Rate Change: Doves Hold Hawks at Bay https://www.vaneck.com/blogs/market-insights/no-fed-rate-change-doves-hold-hawks-bay/ Natalia Gurushina, Economist, explains the implications of the Fed’s September decision not to raise interest rates. 

 

]]>
Van Eck Blogs 9/28/2016 12:00:00 AM

Watch Video No Fed Rate Change: Doves Hold Hawks at Bay  

Natalia Gurushina, Economist, discusses the implications of the Fed’s September decision to not raise interest rates.

Watch Now  


 


TOM BUTCHER: Natalia, was the Federal Reserve's (“Fed”) decision at its September 20-21 meeting to leave rates unchanged expected or unexpected?

NATALIA GURUSHINA: It was certainly expected given that the implied probability of a September hike was barely above 20%. But there were some noteworthy outcomes that accompanied the decision. First, there were three dissenting hawkish votes, and this number is unusually high. This is very interesting in that we now have three FOMC [Federal Open Market Committee] members who think that the policy rate should remain unchanged in 2016. What this tells us is that the Fed is increasingly split in its decision making.

The Fed Has Pulled Down Expected Path of Policy Rate

Another interesting point is that even though the Fed's decision was in line with where the U.S. economy is in the current business cycle, the decision was yet again at odds with explanations that the Fed has provided, and also with its macro forecasts, which remained virtually unchanged in September. Nevertheless, the Fed pulled down the expected path of the policy rate and, importantly, the expected terminal policy rate is now below 3%. Remember, the rate was at 3.5% at the end of 2015.

Unfortunately, this ongoing downward revision of the terminal rate raises these questions: How confident is the Fed with its inflation target, and also with its estimate of the neutral policy rate? Both of these concerns, unfortunately, do not engender greater confidence in the Fed. With regards to the emerging markets assets reaction, I would say it is consistent with explanations provided by the Fed, but probably not as much with the fact that the U.S. economy continues to look weaker as would be implied by the Fed's forecast.

BUTCHER: Let’s look a little closer at how the Fed’s decision fits into the U.S. business cycle.

Fed’s Inaction Viewed as “Hawkish Hold”

GURUSHINA: The Fed's decision has been described by some as a “hawkish hold”. This implies a fairly high probability of a December hike, and this is precisely what markets have currently priced in. We are in an interesting situation right now due to the consequences of multiple quantitative easings. The growth rate is low, inflation is low, interest rates are low, and money velocity is very low. But at the same time, it is very important to understand that the business cycle in the U.S. is alive and well, even though it might be very shallow this time around.

It is also important to place the discussion about the Fed's decision in a context of the business cycle. We are seeing an increasing number of macroeconomic releases that signal that the U.S. economy might already be at the late stage of an expansion. Even for those areas of the economy where there has been significant improvement, there are a number of indicators which are, unfortunately, in our view not moving in the right direction. Take for example the U.S. labor market. If you look at the overall rate of unemployment, it looks relatively picture perfect. At the same time, however, the rate of under-employment is stuck at levels well above long-term historic averages. Also, non-farm payroll growth is decelerating, and the [United States] Labor Market Conditions Index is clearly topping off. If, indeed, the U.S. economy is already at the late stage of this recovery, then any additional tightening by the Fed under these circumstances should not be warranted. In the worst-case scenario, tightening might actually push the economy into recession. But, as I mentioned earlier, the Fed looks split in its decision making, and the large number of hawkish dissenters might be a consideration that we should take into account going forward.

BUTCHER: Would you expand more on the implications of the Fed’s decision for emerging markets?

Tailwinds for Emerging Markets as Fed Decision May Encourage Risk Taking

GURUSHINA: I think that in the near term, there are definitely quite a few tailwinds for emerging markets as a result of the Fed’s decision. For example, a weaker U.S. dollar is usually associated with larger inflows to emerging markets. The Fed’s decision to hold rates should encourage more risk taking by investors; it should also encourage emerging markets central banks to be less hawkish. Lower interest rates in emerging markets is a tailwind to growth, in part through leveraging, for example. But it is really difficult, however, to predict how long that tailwind is going to last, in part because of the uncertainty about aggregate demand in developed markets.

What we are seriously concerned about is a stagflation-type scenario in which growth in the U.S. decelerates, while inflation pressures go up. If the Fed chooses to hike rates going into such a scenario, then the implications for emerging markets will likely be much more problematic. Rolling over debt for both sovereigns and corporates would be more expensive. This could probably result in growth deceleration, capital outflows, and market corrections.

]]>
China: A $12 Trillion Economy Not to be Ignored https://www.vaneck.com/blogs/etfs/china-twelve-trillion-economy-not-ignored/ China remains an important part of the world economy. While it may not be posting the double-digit growth numbers of a decade ago, we believe the country continues to offer interesting investment opportunities.  

]]>
Van Eck Blogs 9/27/2016 12:00:00 AM

China remains an important part of the world economy. While it may not be posting the double-digit growth numbers of a decade ago, we believe the country continues to offer interesting investment opportunities. Although recent economic growth rates have been in the single digits (6.90% in 2015 as shown in the chart below), in absolute terms this growth is extraordinary given that China’s economy is far bigger than it once was. What was China’s $1 trillion sized-economy in 2000 is now 12 times larger at more than $12 trillion based on gross domestic product (GDP), putting China just behind the U.S. ($19 trillion).1

Concern over Capital Outflows Abates

We continue to believe that when evaluating any investment in either the emerging markets or any global allocation of assets, China needs to be considered. Although current concern surrounding China’s capital outflows may have decreased, there continues to be net depreciation pressure on the Renminbi. However, in some ways, mild, engineered depreciation versus a basket of currencies, while keeping a lid on capital outflow pressures, may represent a positive outcome for China. Market concern has tended to focus more on the rapid increase in leverage that has been seen in China since the global financial crisis. Although we agree that this is a significant issue that will likely necessitate some hard decisions, we think that there are serious differences in the nature of that debt and the management of the economy that could prevent a systemic crisis in the foreseeable future.

Debt Burden is Larger for SOEs

Much of the debt risk concern is around state owned enterprises, or SOEs. Privately owned enterprises tend not to carry as much debt. According to estimates in a paper published in June 2016 from Shi Kang, an associate professor at Chinese University of Hong Kong, private companies have cut debt to 53% of assets in 2013 from 58% in 2007, while SOEs have seen those figures jump to 62% from 55%.2

China’s New Economy Transition

Small and medium enterprises (SMEs) remain at the center of the narrative as China transitions from an “old” production-driven model to the “new” consumer and service-led economy. In this context, we believe VanEck Vectors™ ChinaAMC SME-ChiNext ETF (NYSE Arca: CNXT®) provides not only exposure primarily to China’s market for innovative, non-government owned companies, but also to the very sectors that are increasingly recognized as underpinning the growth of the country’s “New Economy.” CNXT gives investors a liquid, transparent way to gain access to some of these growing companies.

China GDP Absolute Growth and Growth Rate (2000 - 2015)
China GDP Absolute Growth and Growth Rate

Source: World Bank. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.


]]>
Politics Aside, Generics are Key to Drug Price Debate https://www.vaneck.com/blogs/etfs/politics-aside-generics-key-drug-price-debate/ ]]> Van Eck Blogs 9/26/2016 12:00:00 AM

We are in the homestretch of what has been an historic and rather divisive presidential campaign season. Despite the intensity of 2016’s political dog fight, here’s how the top issues among voters stack up: 1) economy, 2) terrorism, 3) foreign policy, 4) healthcare, and 5) 2nd Amendment rights. Heavily bandied about, immigration comes in at number six.1

Healthcare so far has taken a bit of a backseat during this campaign, but the rising costs of prescription drugs has garnered some attention from the candidates. Generics play a central role in virtually any discussion on costs savings. In the last decade, generic drugs have saved Americans $1.68 trillion, with $254 billion in 2014 alone, as shown in the chart below. Generic drug manufacturers can boast an admirable track record of cost savings and success in giving access to expensive treatments to millions of people.

Where the Candidates Stand on Drug Costs

Both Democratic candidate Hillary Clinton and Republican candidate Donald Trump generally agree on access to more affordable prescription medications, but it should come as no surprise that they differ on how best to achieve this goal, and this will likely impact generics.

Clinton has called for broader access to prescription medications and reduced costs, particularly out-of-pocket expenses. Her plan supports greater competition with brand name drugs by clearing out the generic drug approval backlog. Clinton’s plan also recommends reducing the exclusivity period for biological drugs, which are often the most expensive, from 12 years to seven years. This may potentially spur broader competition from biosimilars.2

Annual Savings from Generic Drug Continue to Rise

Source: Generic Pharmaceutical Association – Generic Drug Savings in the U.S. – 7th Annual Edition: 2015.


Trump has taken a broader, more sweeping approach. Trump’s plan focuses on the repeal of the Affordable Care Act (ACA), commonly known as Obamacare, which some argue has resulted in higher premiums, less competition, and fewer choices. Similar to Clinton, Trump is calling for reduced barriers to entry. However, he would achieve this by allowing the import of safe, reliable, and cheaper drugs from overseas.3

Clinton and Trump Agree that Medicare Should Negotiate Prices

Both Clinton and Trump support changes that would allow government run programs such as Medicare to help negotiate drug prices directly with manufacturers. Allowing Medicare to negotiate drug prices appears to have strong support from both sides of the aisle. A poll conducted by the Kaiser Family Foundation showed that 83% of Americans, including a majority of Democrats (93%) and Republicans (74%), are in favor of granting Medicare the authority to negotiate drug prices.4

Regardless of who wins this election, generics will likely continue to play a key role in future healthcare plans. The challenge will come after the election when approval for any major changes must be won from Congress. VanEck VectorsTM Generic Drugs ETF (GNRX) is the first and only ETF that offers global exposure to generic drug producers.


]]>
Get Even More Tactical with Our Newest Muni ETFs https://www.vaneck.com/blogs/muni-nation/new-etfs-targeted-slices-muni-yield-curve/ Jim Colby discusses why he believes the two new ETFs, ITMS and ITML may offer tactical opportunities for investors to create more dynamic portfolios.

 

]]>
Van Eck Blogs 9/22/2016 12:00:00 AM

VanEck recently launched two new ETFs focused on targeted slices of the muni yield curve. VanEck Vectors AMT-Free 6-8 Year Municipal Index ETF (ITMS) and VanEck Vectors AMT-Free 12-17 Year Municipal Index ETF (ITML). The funds offer investors tax-exempt income from targeted maturity ranges, distinct performance, yield, and duration characteristics, and exposure to the "sweet spot" of the muni yield curve, which has historically provided enhanced total return.*

Watch Video ITMS and ITML: Targeted Slices of the Muni Yield Curve

Jim Colby, Portfolio Manager, discusses the launch of ITMS and ITML, two new ETFs that each focus on a subset of the intermediate portion of the municipal bond yield curve for investors that have a view on interest rate risk.

Watch Now | Video Transcript

VIDEO TRANSCRIPT:

TOM BUTCHER: Jim, VanEck just launched two new intermediate municipal bond funds, tickers ITMS and ITML. What is the rationale behind these new ETFs?

JIM COLBY: Yes, we have launched two new municipal ETFs. ITMS (VanEck Vectors AMT-Free 6-8 Year Municipal Index ETF) is an ETF that will take a very narrow view of the municipal yield curve, from 6 to 8 years, which is the shorter maturity range carved out of the established ITM ETF (VanEck Vectors AMT-Free Intermediate Municipal Index ETF) that we have in the marketplace. With its focus on shorter maturity bonds, ITMS is going to be oriented for investors who are taking a slightly more conservative view of their interest rate risk in the municipal marketplace.

ITML (VanEck Vectors AMT-Free 12-17 Year Municipal Index ETF), also positioned as a subset of the broader ITM, is going to be associated with bonds from 12 to 17 years, which is the longer end of the bond maturity range for the broader ITM ETF. It is designed for those individuals who are willing to take a slightly more aggressive view of the marketplace and willing to take a little bit more interest rate risk with an intermediate position.

Why have we brought these two new municipal bond ETFs to market?

The municipal yield curve, particularly along the intermediate range, is changeable, depending on market conditions. We want to offer investors more focused opportunities that tactically facilitate total return potential ― given that it might occur in the short end of the market, or it might occur in the long end of the intermediate yield curve. These two new ETFs focuses on two specific slices of the muni yield curve, and represent tactical opportunities for investors to create more dynamic portfolios. Employing one or the other, or perhaps both, in some combination in investors’ portfolios, is the very thing that we had in mind.

Post Disclosure

*Intermediate municipal bonds have historically been positioned in the steepest part of the municipal yield curve. This positioning may provide attractive price appreciation potential through roll down. Roll down refers to the price appreciation of a bond as it rolls down the yield curve towards final maturity.

The views and opinions expressed are those of the speaker and are current as of the video’s posting date. Video commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results. For more information about VanEck Funds, VanEck Vectors ETFs or fund performance, visit vaneck.com. Any discussion of specific securities mentioned in the video commentaries is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com.

The Funds may be subject to risks which include, among others, risks related to municipal securities, credit, interest rate, call, California, New York, general obligation bond, transportation bond, special tax bond, sampling, tax, market, index tracking, authorized participant concentration, absence of prior active market, trading issues, replication management, fund shares trading, premium/discount, liquidity, non-diversified and concentration risks, all of which may adversely affect the Fund. Municipal bonds may be less liquid than taxable bonds. There is no guarantee that the Fund’s income will be exempt from federal, state or local income taxes, and changes in those tax rates or in Alternative Minimum Tax (AMT) rates or in the tax treatment of municipal bonds may make them less attractive as investments and cause them to lose value. Capital gains, if any, are subject to capital gains tax. The Funds’ assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.

The VanEck Vectors ETFs are not sponsored by, endorsed, sold or promoted by Bloomberg or Barclays and neither Bloomberg nor Barclays makes any representation regarding the advisability of investing in them. The only relationship to Van Eck Associates Corporation with respect to the VanEck Vectors ETFs is the licensing of certain trademarks and trade names of Bloomberg and Barclays and the BLOOMBERG BARCLAYS INDICES that are determined, composed and calculated by Bloomberg without regard to the Adviser or any investor in the VanEck Vectors ETFs.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement.

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. Creation units are issued and redeemed principally in kind. 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. Returns for actual Fund investments may differ from what is shown because of differences in timing, the amount invested, and fees and expenses.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333. Please read the prospectus and summary prospectus carefully before investing.

]]>
Fallen Angels’ Index Rule Change Should Enhance Liquidity https://www.vaneck.com/blogs/etfs/fallen-angel-index-change-enhance-liquidity/ Van Eck Blogs 9/20/2016 12:00:00 AM

Authored by Meredith Larson, Product Manager, VanEck VectorsTM ETFs

 

The BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA), which VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL) seeks to track, will implement a rule change on September 30 raising the minimum amount outstanding permissible for each bond issue from $100 million to $250 million. As a result, approximately 7.4% of the current Index will be eliminated. We see this as a positive move that should help improve the overall liquidity of the Index’s universe, while imposing relatively minimal impact on potential performance and composition.

Improving Liquidity by Removing Small Holdings

The rule change will help promote the Index’s liquidity by eliminating a number of very small components that tend to be less liquid and difficult to trade relative to larger issues. This is likely to have two very positive effects. First, market makers in the ANGL ETF will no longer see bond issues smaller than $250 million in creation and redemption baskets, with positive ramifications for their estimated cost of trading those baskets. Second, eliminating hard-to-trade smaller positions from the underlying Index could help improve ANGL’s tracking error, as the ETF may now be more closely aligned with the Index’s constituency.

Little Impact to Performance, Yield, and Duration

Based on the Index’s historical return profile, we anticipate that the rule change is likely to have minimal impact on Index performance. A closer look at the smaller positions expected to be removed from the Index, reveals that they contributed approximately 130 basis points (bps), or just 1.3%, of the Index’s 22.4% year-to-date total returns. We also note that the yield and duration of the ETF and Index are expected to remain little changed once the smaller bond issues are cut.

Sector and credit composition should be minimally impacted as well. Sixteen out of the eighteen Merrill Lynch Level III sectors’ allocations will likely be trimmed between 0.06% and 0.90%. The automotive sector’s allocation, which was only 0.27% of the Index, would be 0%. In terms of credit quality, we feel the impact of the rule change is minimally positive. The BB-rated group is estimated to remain approximately 75% of the Index, while the lower end of the credit spectrum should decrease slightly, as shown in the table below.


Estimated Credit Quality Impact from Index Rule Change
 

Credit Rating Current New Estimate Change
BB 75.2% 75.8%  0.7%
B 22.4% 22.2% -0.2%
CCC 1.6% 1.2% -0.3%
CC 0.8% 0.7% -0.1%

Source: BofA Merrill Lynch.
Based on data as of August 31, 2016. Estimates excluded current bond issues with face values under $250 million. Estimates are not guaranteed and may not reflect actual Index characteristics following rule change. Composite ratings are based on the simple averages of ratings from Moody’s, S&P, and Fitch. This composite is not intended to be a credit opinion.
 

A Positive Enhancement for Investors

We view the Indexer’s decision to raise the minimum amount outstanding for its eligible Index constituents as favorable for investors of VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL). The enhancement is expected to eliminate the smaller, less liquid positions with what appears to be a minimal impact on potential performance and composition.

]]>
Hard Currency Emerging Markets Bonds Shine in August https://www.vaneck.com/blogs/emerging-markets-bonds/hard-currency-emerging-markets-bonds-shine-august-2016/ Van Eck Blogs 9/14/2016 12:00:00 AM

Skittishness has increased in September over a potential hike in U.S. interest rates, especially ahead of next week’s (9/20-9/21) FOMC meeting. In August (the month covered in this post), these concerns were mostly in the background. The ongoing search for yield continues to bring investors into emerging markets debt. Our view is that a rate hike by the Federal Reserve (the “Fed”) is not likely to dampen this trend, and that the environment for emerging markets debt will remain supportive.

All Eyes on the Fed

Investors focused on the Fed's annual event in Jackson Hole, Wyoming (held in late August) for clues about the likely path of interest rates. A surprisingly strong July jobs report led to increasing expectations of a rate hike before the end of the year, and comments from Yellen and Fed Vice Chairman Stanley Fischer seemed to support that case. However, following the meeting weaker than expected U.S. manufacturing and August employment figures seem to have convinced the market that an imminent rate hike is now less likely.

Despite this rate uncertainty, flows into emerging markets debt remained strong in August, slightly moderating from the previous month. Globally, $8.0 billion flowed into emerging markets debt funds according to J.P. Morgan, bringing year-to-date flows to $31.3 billion, with $29.0 billion going into hard currency debt.

Developments in August

With approximately $11.7 trillion in negative yielding global debt, investors continued to allocate to emerging markets debt despite negative developments in some countries. In South Africa, an investigation of the finance minister increased uncertainty over leadership and caused the South African rand to tumble. Turkey maintained its investment grade status for now, but reviews are ongoing and Fitch Ratings lowered its outlook to negative. Standard & Poor’s lowered Mexico’s rating outlook to negative, citing sluggish growth and increasing debt. The agency noted that structural reforms undertaken continue to show positive results, but have not yet stimulated sufficient investment. In Brazil, President Dilma Rousseff was ousted by the Senate, providing hope that the country can move on with fiscal reforms under President Michel Temer. However, Temer’s ability to impose fiscal discipline is unclear, as the country remains divided with relatively little appetite for austerity measures.

There were also positive developments in August. Colombia’s government announced a peace deal with FARC (The Revolutionary Armed Forces of Colombia), ending a 52-year-old war with the leftist rebel group. If successful, the Colombian government may now be able to focus on much needed tax reforms. In addition, the strength of emerging markets local currencies this year, assisted by commodity price gains, has helped central banks build up foreign currency reserves for the first time in two years.

Besides bullish political developments in Brazil, there are signs that monetary policy has turned more supportive as Brazil’s central bank indicated potential room for easing. Low or slowing inflation in other countries (e.g., Russia and Indonesia) may provide central banks room to ease rates or end tightening cycles to help boost growth. Elsewhere, including Chile and Mexico, central banks appear to maintain a more hawkish tone.

Spread Tightening Boosts Hard Currency Bonds  

In August, hard currency sovereign bonds returned 1.79%, outperforming local currency sovereign bonds, which returned 0.04% (all returns are stated in U.S. dollar terms), and corporates which returned 1.18%. Returns of hard currency bonds were driven by a tightening of spreads over U.S. Treasuries. Local currencies detracted from positive local bond returns as the U.S. dollar showed strength amid expectations of a rate increase.

Latin America was the highest returning region among hard currency sovereign bonds. Both Peru and Colombia released positive economic data, with the latter also benefiting from the peace process. Bonds issued by Mexico were also top performers, despite a cut to the country’s credit rating outlook. Laggards included Mongolia, South Africa, and Chile.

Also of note within the hard currency bond universe is the relative performance of emerging markets high yield corporate debt. At 14.75% total return through the end of August, the sector is performing in line with U.S. high yield, which has returned 14.58%, and is 600 basis points ahead of emerging markets investment grade corporates which have returned 9.35% year-to-date. Emerging markets high yield corporates were still yielding above 7% at the end of August and provided 107 basis points pick-up versus U.S. high yield in option adjusted spread terms. Emerging markets high yield corporates currently have a one notch higher average credit rating than U.S. high yield and a shorter duration as well (3.74 vs. 4.20). That said, the spread pickup over U.S. high yield is near its lowest level since early 2013.

Among local currency sovereign bonds, Colombia, Russia, and the Philippines all experienced currency appreciation, adding to positive local bond returns. South Africa, Chile, and Indonesia were laggards. Chile’s government is dealing with an economic slowdown and rising pension costs. The ability to address these issues is in question given the unpopularity of the current government.

The Supportive Market Environment

In the short run, investors are likely to continue to focus on Fed action and the potential impact of a rate increase on the U.S. dollar. Despite these concerns, we feel the overall conditions remain supportive for emerging markets debt. Emerging markets yields continue to be attractive to investors looking beyond the low and negative rates available from most developed markets core fixed income asset classes.

1-Month Total Returns by Country  

 

Source: FactSet as of 8/31/2016.  


]]>
Zinc’s Year to Remember: A Supply-Side Story https://www.vaneck.com/blogs/natural-resources/zinc-year-supply-side-story-september-2016/ Van Eck Blogs 9/14/2016 12:00:00 AM

Overview: VanEck's natural resources investment strategy spans the breadth of raw materials commodities sectors, and the industrial and base metals sector plays a critical role. Global infrastructure and industry are dependent on supplies of copper, nickel, zinc, aluminum, lead, and tin, and the companies who mine and refine them. As of August 31, 2016, industrial and base metals-related holdings accounted for approximately $2.5 billion of the firm's assets under management.

Zinc is top performer in 2016

2016 has been a notable year for zinc with the metal's price soaring 41.3% year-to-date through August 31, 2016. The world's third most important base metal in terms of dollar trading volume (behind copper and nickel; see Chart A), zinc has been the top performer among base metals in 2016, a position traditionally held by the red metal, copper. From our investment perspective, falling supply and resilient demand have made zinc one of the most attractive base metals in 2016.

Supply/Demand Fundamentals are Supportive

Most metals suffered during what was a protracted commodities downturn (2008-2015), the worst seen in 40 years. But we believe the turnaround began in this year's first quarter ( read more on the commodities rebound), and zinc has been a major beneficiary. The fallout from the commodities recession resulted in significant shut downs of mines and production. Zinc production has fallen, as evidenced by tightening treatment and refining charges, and weak supply growth. Inventories have also declined since early 2013, both at smelters and in warehouses, but demand remains resilient, supported by ongoing global infrastructure spending.

We believe that the current supply and demand fundamentals in zinc are very supportive of this year's higher prices, which in our opinion may have the potential to climb even higher. Several significant catalysts, described below, are likely to continue to strengthen as the year progresses and should be supportive of zinc over the next three to six months.

Chart A: Base Metals by Trading Volume
Average 3-Mo. Volume in $ Millions

Base Metals by Trading Volume Source: LME, London Metals Exchange as of 8/31/16.

Strong Catalysts for Zinc

Lack of Capital Spending by Mining Companies
Among the big six base metal mining companies, capital spending, both growth capital and sustaining capital, peaked at about $80 billion in 2012 and has contracted yearly since then to approximately $23 billion in 2016 (see Chart B). This is due to subdued prices, lower margins, and, in particular, stretched balance sheets. Drastically reduced capital spending has resulted in a drop off in mine production, with zinc ore being among the most impacted.

Chart B: Total Capital Spending of Big Six Base Metal Mining Companies

Total Capital Spending of Big Six Base Metal Mining Companies Source: VanEck, Company Reports as of 7/31/16. The Big Six Metal Mining Companies are BHP Billiton, Rio Tinto, Glencore, Anglo American, Vale, and Freeport McMoRan1. These are not recommendations to buy or sell any security. Sectors and holdings may vary.

Falling Zinc Ore Production

Global zinc ore production for 2016 is, on an annualized basis at the end of June, already 1.6 million tonnes lower than it was in 2015. The run rate2 for 2016, as of the end of June was approximately 11.5 million tonnes, compared with 13.1 million tonnes in 2015, a 12.5% drop in supply (Chart C).

Aging mines have been closed and production has been cut around the world. Last year MMG Ltd. closed its Century mine in Australia, Vedanta Resources closed its Lisheen mine in Ireland, and Glencore announced a cutback of some 500,000 tonnes in annual zinc production, including the closure of its Iscaycruz3 mine in Peru and its Lady Loretta4 mine in Australia. Zinc mine production has also fallen in Europe by as much as 10.1% and in India by as much as 39.5%.

China, the world's largest zinc producer has also experienced significant production cutbacks (China's output is trailed by Australia, Peru, the U.S., and India). At the end of June 2016, Chinese production was approximately 6.9% lower than in 2015, with a run rate for the year (annualized based on six months ending June 30) of 4.4 million tonnes, compared with 4.7 million tonnes in 2015. Chinese reductions are not just price related, but are also a direct result of the administration empowering, enforcing, and policing more stringent environmental policies. Annual production for all of Asia has dropped 11.5% from 2015 to 2016, when comparing the full year 2015 to the first six months of 2016 annualized (Chart D).

Chart C: Global Zinc Ore Production

Global Zinc Ore Production Source: VanEck, Bloomberg, World Bureau of Metal Statistics as of 7/31/16.

Chart D: Regional Zinc Ore Production

Regional Zinc Ore Production Source: VanEck, Bloomberg, World Bureau of Metal Statistics as of 7/31/16.

Falling Inventories

Deliverable inventories5 of zinc metal held in both LME6 and SHFE7 warehouses have been falling and continue to fall (Chart E). For most of 2015, SHFE inventories had been building, but now due to the lack of mine supply, they are rolling over. Inventories stood at around 206,000 tonnes at the end of July,8 down from a peak of 274,000 tonnes in March 2016. LME inventories have also continued to fall, to 432,000 tonnes in July, down from a peak of 504,000 tonnes in February 2016.

Chart E: Global Zinc Inventory

Global Zinc Inventory Source: VanEck, Bloomberg, Commodities Exchange Center, London Metals Exchange, Shanghai Futures Exchange as of 7/31/16.

Resilient Demand

Demand for refined zinc, supported by global infrastructure spending, has remained resilient. Some 25% of refined zinc demand is directly related to infrastructure spending, and because of its anticorrosive properties about 50% of all zinc demand is used for galvanizing (a process of electromagnetically laying a thin layer of zinc on iron or steel to prevent rusting).

Recent Chinese Fixed Asset Investment (FAI) data, a key indicator of refined zinc demand, have shown that infrastructure spending in the country has accelerated.9 Thus far in 2016, Chinese apparent demand (domestic production + imports – exports) has been very strong, building from a low in January of 301,000 tonnes per month to 408,000 tonnes in May. Although this is slightly below the 2015 monthly average of 433,000 tonnes, we believe that this trend will continue, as the second half of the year is seasonally a stronger period for demand.

Our Positive Outlook for Zinc

Given the strong catalysts we have described, we believe that zinc should continue to perform well as the year comes to a close. To be balanced in our outlook, we do see possible headwinds from potential new supply and/or demand destruction as substitute materials such as cadmium and aluminum alloy anti-corrosive coatings become more prominent. But at the same time, industries are benefiting from several new applications, such as zinc's use in organic fertilizers and in potential applications for battery storage.


]]>
Gold Consolidates Amid Late Summer Doldrums https://www.vaneck.com/blogs/gold-and-precious-metals/gold-consolidates-amid-late-summer-doldrums-september-2016/ Gold markets consolidated in August, given inconsistent shifts in Fed guidance. Even so, gold equities reached a new three-year high on August 12, having climbed 127.6% YTD. 

]]>
Van Eck Blogs 9/12/2016 12:00:00 AM

For the month ending August 31, 2016

The late summer period of August into early September shaped up to be a period of consolidation for gold markets. This follows the strong 28.5% year-to-date gain in the gold price as of July 6, which represented a two-year high, as measured by the NYSE Gold Miners Index1 (GDMNTR). In late August, however, the gold sector cooled off, and gold prices declined $42.03 per ounce (-3.1%) for the month, while the GDMNTR fell 16.2% and the MVIS Global Junior Gold Miners Index2 (MVGDXJTR) declined 15.9%.

The Fed's Shifting Stance on Rates

The summer doldrums came late this year for gold and gold stocks. Now that the U.K. Brexit decision is old news, the markets are again obsessed with the Federal Reserve's (the "Fed") shifting stance on rate decisions. Although the Fed's tone had been dovish on rate increases following the August 18 release of the Federal Open Market Committee (FOMC) minutes from its July 27 meeting, sentiment changed markedly just a week later following the Federal Reserve Bank of Kansas City's annual symposium in Jackson Hole on August 26.

The selling pressure actually started on August 24 ahead of the Jackson Hole meeting, when unusually heavy selling occurred in the gold futures market. We continue to be amazed (in a negative way) at the inconsistent shifts in the Fed's guidance, its lack of leadership, and the damage this uncertainty seems to be causing to the economy. A speech by Federal Reserve Chairwoman Janet Yellen, followed by comments in the press by Vice Chairman Stanley Fischer, convinced the markets that a rate increase is now possible at the next Fed meeting on September 21. As a result, the U.S. dollar strengthened while gold, and especially gold shares, took a tumble.

A 2016 Fed Rate Increase Could Benefit Gold

The Fed is now indicating that it might tighten monetary conditions with a rate increase either in September or in December after the upcoming presidential election. This is a questionable policy stance when GDP growth in the most recent quarter was just 1.1%, industry capacity utilization is low at just under 76%, worker productivity is in decline, and the last time the yield curve (2- to 10-year U.S. Treasuries) was this flat was in 2007. The jobless rate at 4.9% indicates near full employment, yet inflation remains subdued.

The Fed has probably never tightened rates in past cycles with indicators so weak. In fact, at this point in the business cycle, a more normal stance would be to hold steady, looking ahead to a time when it might cut rates. Because of this, we believe any decision to raise rates in 2016 will ultimately be viewed as a misstep that increases financial and economic risks, and this will be to gold's benefit. In the meantime, however, the anticipation of a rate increase and any attendant U.S. dollar strength could cause gold to struggle. David Rosenberg of Gluskin Sheff3 characterizes this anticipated rate increase as the fourth scare of the cycle. The first was the "taper tantrum" in 2013, next came the end of quantitative easing (QE) in 2014, and then lastly, the actual interest rate increase in December 2015. Each of these episodes lasted no more than a few months with volatility and downward pressure on stocks, bonds, commodities, and emerging markets.

Yellen Channels Doobie Brothers' "What Were Once Vices Are Now Habits"

Another aspect of Janet Yellen's Jackson Hole speech furthered our conviction for strong gold prices in the long term. She described all of the unconventional monetary policies implemented since the financial crisis (e.g., zero rates, QE, etc.) as components of the Fed's "toolkit". Perhaps she is a fan of the 1974 Doobie Brothers classic song "What Were Once Vices are Now Habits". These once radical monetary tools are now considered conventional, and she plans to use them in the future if deemed necessary. She also suggested the Fed may follow the examples set forth by the European Central Bank, Swiss National Bank, Bank of England, and Bank of Japan by purchasing corporate debt and/or equities as part of stimulus measures. Ms. Yellen virtually guarantees that the policies that we believe are creating asset bubbles, wealth disparities, and other market dislocations will persist indefinitely. If these fail to generate the desired growth, "helicopter money" (printing money to give directly to the U.S. Department of the Treasury) might be the next experiment. The potential risks and currency debasement that generally accompany these policies could stand to be supportive of the gold price for the foreseeable future.

Demand from India Could Lend Support

In the near term, India could lend support to the gold market. Indian gold demand has been very weak this year due mainly to the higher gold price. This suggests there is pent-up demand. A good monsoon season in India can lead to a bountiful fall harvest that typically spurs demand ahead of the Diwali Festival in October.

Our June update highlighted a new bull trend in the gold price. The base of that trend is currently around $1,290 per ounce. If this price level holds through September, it would be a further sign of resilience in the gold market. A lower gold price, while disappointing, would indicate a new trendline with a lower trajectory. In the longer term, we regard the recent Fed machinations as just a bump in the road of a new bull market for gold.

Recent Bull Markets Indicate Similarity to 2001 - 2008 Cycle

The table below looks at the previous six bull markets since the U.S. terminated the direct link between the U.S. dollar and gold in 1971. The table shows the bull market of the 1970s as two phases, separated by a mid-cycle correction in 1975. The bull market of the 2000s is also shown as two phases, separated by the 2008 financial crash. The bull markets are further classified as either secular (long-term) or cyclical (bull phases within an overall bear market).

Gold Bull Markets 1971 - 2016

From To Gold Price Change Duration (Months) Type Barron's Gold Mining Index Returns
Oct. '71 Dec. '74 358.2% 38 Secular 297.8%
Aug. '76 Sep. '80 574.5% 49 Secular 535.2%
Feb. '85 Nov. '87 63.9% 33 Cyclical 20.3%
Feb. '93 Feb. '96 21.5% 36 Cyclical 52.8%
Mar. '01 Feb. '08 276.2% 83 Secular 464.4%
Oct. '08 Aug. '11 150.3% 34 Secular 145.7%
Dec. '15 Aug. '16 24.9%
so far
8 and
counting
? 95.1%
so far

Source: Bloomberg, Barron's (month-end prices), VanEck.

Performance is clearly much higher in secular markets. Across these secular markets, the performance of gold and the Barron's Gold Mining Index4 (BGMI) are similar except for the 2001 to 2008 market when stocks substantially outperformed gold. We believe the reason stocks performed so well through 2008 is that this was a period of profit margin expansion when cost inflation was subdued for gold miners. In contrast, the '70s was a period of double-digit inflation across the entire economy, while 2008 to 2011 was a period of double-digit inflation that was confined to the mining industry. As a result, of these periods of cost inflation, margins failed to keep pace with the gold price and stocks failed to outperform gold.

We believe the current market is similar to the 2001 to 2008 period. Mining costs have subsided and there are relatively no significant inflationary pressures. Other mining sectors ― coal, tar sands, copper, iron ore ― are depressed. We believe higher gold prices will encourage increased mining activity, but the gold sector alone cannot generate cost pressures without increasing activity in other mining sectors. In fact, we would use copper as a barometer of inflationary pressures in the mining business. With copper currently at $2.09 per pound, we would not anticipate inflationary pressures until copper trades above $3.00 per pound.


]]>
Turkey’s Auto Industry Revs Up https://www.vaneck.com/blogs/emerging-markets-equity/turkeys-auto-industry-revs-up-september-2016/ Van Eck Blogs 9/9/2016 12:00:00 AM VanEck's Emerging Markets Equity strategy seeks to identify persistent long-term structural growth opportunities. Structural growth can be stock-specific or thematic, and can be driven by a sustainable advantage, which is often company management. Through this bottom-up process, we have identified the Turkish automaker Tofas Turk Otomobil Fabrikasi as a promising opportunity, and representative of Turkey's growing auto industry described below (as of August 31, 2016, the holding represented 0.67% of VanEck Emerging Markets Fund's net assets).

 

Well known for its rich history, geopolitical significance, and beautiful beaches, Turkey is less known as a major motor vehicle manufacturing hub in Europe. Turkey produces more vehicles than Italy and, at the end of 2015, was the fifth largest automotive manufacturer in Europe ― and was ranked the 15th largest vehicle producer in the world.1  

The "Devrim" Makes an Inauspicious Start

Turkey's first foray into automotive manufacturing dates back to the early 1960s, but with an inauspicious start. Following its launch in 1961, production of the Devrim, the country's first domestically developed and manufactured passenger car, never exceeded four prototypes. The vehicle's "birth" (and demise) is encapsulated in an amusing anecdote: Turkey's President Cemal Gürsel drove his first (and only) black Devrim about 100 yards before it ran out of gas.2 The car then passed into history.

Efforts continued, with Turkey contracting the British manufacturer, Reliant, to design a prototype passenger car for local production.3 The result was the Anadol, the country's first domestically developed and mass-produced passenger car, debuted by Otosan in 1966. Production of the Anadol continued through to the early 1980s, and Otosan manufactured trucks through to 1991.4  

Turkey's Auto Growth Explodes in the 2000s

By 2015, Turkey was producing close to 1.4 million vehicles, compared to fewer than 374,000 in 2002.5 Once dependent on assembly-based partnerships6 (when Otosan finally ceased manufacturing its own vehicles in 1991 it proceeded to produce those of American giant Ford), the automotive industry in Turkey now both designs and is involved in the mass production of vehicles.

Turkey exports approximately 1 million of the vehicles it produces each year, with France, Germany, Italy, Spain, and the U.S. its major export customers. In Europe alone, by the end of 2015, Turkey was the top producer of light commercial vehicles.7  

Large OEMs (original equipment manufacturers) including Fiat and Ford have publicly listed joint ventures in Turkey (with Tofas and Ford Otosan) and the country is fast becoming a research and development hub with certain models now being designed mostly in Turkey.

We believe that Turkey's automotive sector should continue to grow in size and prominence.

Turkey's Annual Motor Vehicle Production
(1999-2015)

 

 
 

 

Source: OICA (International Organization of Motor Vehicle Manufacturers).  

IMPORTANT DISCLOSURE  

1 Invest in Turkey: Automotive.  

2 Autoweek: Ottomobiles: The memorable cars of Turkey, part one: November 11, 2011.

3 Autoweek: Ottomobiles: The memorable cars of Turkey, part one: December 1, 2011.

4 Ibid.

5 Invest in Turkey: Automotive.

6 Ibid.

7 Ibid.

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 views and opinions expressed are those of the speakers and are current as of the posting date. Videos and commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results.

Please note that Van Eck Securities Corporation offers investment portfolios that invest in the asset class(es) mentioned in this commentary. The Emerging Markets Equity strategy is subject to the risks associated with its investments in emerging markets securities, which tend to be more volatile and less liquid than securities traded in developed countries. The Emerging Markets Equity strategy's investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, including the takeover of property without adequate compensation or imposition of prohibitive taxation. The Emerging Markets Equity strategy is subject to risks associated with investments in derivatives, illiquid securities, and small or mid-cap companies. The Emerging Markets Equity strategy is also subject to inflation risk, market risk, non-diversification risk, and leverage risk. Investing involves risk, including possible loss of principal. An investor should consider investment objectives, risks, charges and expenses of the investment company carefully before investing. The prospectus and summary prospectus contain this and other information. Please read them carefully before investing.  

No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation.

]]>
Taking Physical Delivery of Gold Assets https://www.vaneck.com/blogs/etfs/taking-physical-delivery-gold-assets-september-2016/ ]]> Van Eck Blogs 9/8/2016 12:00:00 AM

Authored by Brandon Rakszawski, Product Manager, VanEck VectorsTM ETFs


Investors often wrestle with how best to own gold. Physical ownership of bars or coins? Jewelry? Paper ownership through mutual fund or ETF investments? We will walk you through some various options, and leave you with one that may offer the best of all worlds: VanEckTM Merk® Gold Trust (OUNZ).

Gold is Unique

Gold is unique among investable commodities. Gold is not “consumed” like other raw material commodities such as grains, lean hogs, or oil, and is not constrained by an economic model that dictates the continuous creation of new supply. Throughout human history gold has served primarily as a “store” of value or wealth. Whether transformed into jewelry, coins, or bars, gold has been used by families to pass down generational wealth and by governments and central banks to manage currency reserves.

For many investors, especially the ardent “gold bug”, gold is generally an important investment during times of economic and geopolitical uncertainty, like our current environment. When other asset classes seem too risky, gold may shine as a “safe haven” investment. Gold is also used by investors for portfolio diversification, appreciation potential, and as a hedge against inflation and U.S. dollar.

Gold in Your Hands…But at What Cost?

Gold bars and coins are the most direct form of physical gold ownership, and allow investors to hold gold in various shapes, sizes, and purities. Investors can directly purchase and take possession of coins or bars to store away or resell in the marketplace. But physical ownership has its price. Gold bars and coins are typically purchased from a precious metals dealer at a premium to the spot price1 quoted in the financial press, and then typically sold at a discount to spot. This means that investors are highly likely to pay more than spot when they buy physical gold, and get less when they sell.

Gold storage also takes thought and consideration. Bars and coins should be stored in safe locations. Private homes may be suitable for small amounts, but at certain quantities it may be advisable to store gold assets in a secure location. Investors will often choose bank safe deposit boxes or work with specialty vaulting companies such as Brinks and Loomis, all of which come at an ongoing cost.

Finally, gold coins and bars are purchased and sold over-the-counter. Buyers and sellers must find each other and agree upon a transaction price. This may add an extra layer of complexity and may mean less liquidity in comparison to other investments.

ETPs Make Gold More Accessible

To be fair, there is likely to be an annual fee associated with an investment in gold bullion ETPs. There is also concern among investors about ease of access to the physical gold held by the ETP. Most U.S.-listed gold bullion ETPs will not transact with investors unless they qualify as an “Authorized Participant”, a role that is traditionally reserved for larger, institutional-sized broker dealers. Because of this, gold bullion ETPs are often referred to as “paper gold”.

OUNZ: The Gold ETF that Delivers

Unlike traditional gold ETPs, VanEck Merk Gold Trust (OUNZ) was created to allow investors to access gold through ETP shares and have the ability to take delivery of gold in exchange for their shares. This allows investors to maintain exposure to gold and benefit from all of the features of an ETP and, if and when they choose, take delivery of the underlying physical gold.

OUNZ allows investors to redeem shares for various bars and coins and for as little as 1 ounce of gold. Each redemption is subject to a per-ounce exchange fee and a minimum fee also applies to each delivery request. Click here to view typical gold bar and coin types available for delivery.

Here's how it works:

OUNZ Redemption Process

]]>
No Dog Days for Moat Investors https://www.vaneck.com/blogs/moat-investing/no-dog-days-moat-investors-september-2016/ Global moat companies performed well in August, brushing off the late summer doldrums that impacted other stocks globally. Performance was driven by strong brands and compelling company and industry outlooks, along with more moat company merger talks.

]]>
Van Eck Blogs 9/8/2016 12:00:00 AM

For the Month Ending August 31, 2016

Performance Overview

The U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR) outpaced the S&P 500® Index again in August (0.82% vs. 0.14%). 2016 continues to be an exceptional year for U.S. wide moat stocks that Morningstar has identified as trading at attractive valuations. Year-to-date through August, MWMFTR has outperformed the S&P 500 Index by more than 12 percentage points (20.09% vs. 7.82%). International moats also outperformed for the month, with the Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN) outpacing the MSCI All Country World Index ex USA (1.15% vs. 0.63%).

U.S. Domestic Moats: That Little Blue Box

Tiffany & Co. (TIF US) was a MWMFTR standout in the otherwise underwhelming consumer discretionary sector. Although the high-end jeweler posted a decline in sales for the second quarter that was in line with expectations, Morningstar analysts believe long-term industry trends and emerging markets consumer class growth is expected to benefit TIF US due to its intangible assets and pricing power. Morningstar analysts believe the stock closed the month at a discount to fair value. Financials exposure also benefited MWMFTR in August: State Street Corporation (STT US) and Wells Fargo & Company (WFC US) were strong contributors. By contrast, healthcare companies Eli Lilly & Co (LLY US) and Allergan plc (AGN US) reversed course from their strong July performance to detract from MWMFTR's returns in August. ATV manufacturer Polaris also declined in August and was the Index's leading detractor for the month.

International Moats: More Moat Mergers

Linde AG (LIN GR) was MGEUMFUN's top performer in August, on the back of merger talks with Praxair Inc. which could potentially result in the world's largest supplier of industrial gases. Telecom/tech conglomerate Softbank Group Corp. (9984 JP) posted strong gains for the month and is one of only two Japanese listings in the Index. All sectors represented in MGEUMFUN contributed positively to performance except for healthcare, which was dragged down by Roche Holdings AG (ROG VX), Teva Pharmaceutical Industries (TEVA IT), and Sanofi (SAN FP). Australian companies also struggled with six of eight Aussie firms in the Index posting negative returns for the month.



(%) Month Ending 8/31/16

Domestic Equity Markets

International Equity Markets

(%) As of 8/31/16

Domestic Equity Markets

International Equity Markets

(%) Month Ending 8/31/16

Morningstar
Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers
Constituent Ticker Total Return
Tiffany & Co.
TIF US
10.62
Compass Minerals International, Inc.
CMP US
8.09
Western Union Company
WU US
7.60
State Street Corporation
STT US
6.78
Biogen Inc.
BIIB US 5.42

Bottom 5 Index Performers
Constituent Ticker Total Return
Emerson Electric Co.
EMR US
-4.92
Eli Lilly and Company
LLY US
-5.61
Allergan plc
AGN US
-7.28
Twenty-First Century Fox, Inc. Class A
FOXA US
-7.88
Polaris Industries Inc.
PII US
-11.72

View MOAT's current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Top 5 Index Performers
Constituent Ticker Total Return
Linde AG LIN GR 18.83
SoftBank Group Corp. 9984 JP 17.38
KBC Groupe SA KBC BB 13.71
Computershare Limited CPU AU 11.91
Petrofac Limited PFC LN 10.02

Bottom 5 Index Performers
Constituent Ticker Total Return
Platinum Asset Management Ltd PTM AU -9.60
Genting Singapore Plc GENS SP -9.61
Sanofi SAN FP -9.66
Wipro Limited WPRO IN -10.03
Wynn Macau Ltd. 1128 HK -14.25

View MOTI's current constituents

As of 6/17/16

Morningstar
Wide Moat Focus Index (MWMFTR)

Index Additions
Added Constituent Ticker
Polaris Inds Inc. PII US
AmerisourceBergen Corp. ABC US
Tiffany & Co. TIF US
Stericycle Inc. SRCL US
VF Corp. VFC US
Wells Fargo & Co. WFC US
Berkshire Hathaway Class B BRK.B US
Twenty-First Century Fox Inx. FOXA US
Harley-Davidson Inc. HOG US
United Technologies Corp. UTX US
Starbucks Corp. SBUX US
Microsoft Corp. MSFT US
Emerson Electric Corp. EMR US
American Express Co. AXP US
Salesforce.com CRM US
Time Warner inc. TWX US
Lilly Eli & Co. LLY US
Western Union Co. WU US
Compass Minerals Intl. CMP US
Cerner Corp. CERN US
Amazon.com Inc. AMZN US

Index Deletions
Deleted Constituent Ticker
St. Jude Medical STJ US

View Latest MOAT Reconstitution Report
View MOAT's list of current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Index Additions
Added Constituent Country
Mgm China Holdings Ltd. China
Bayerische Motoren Werke BMW Germany
National Australia Bank Australia
Crown Resorts Ltd. Australia
Platinum Asset Management Ltd. Australia
Westpac Banking Corp. Australia
Carnival Plc. United Kingdom
Wynn Macau Ltd. Hong Kong
Wipro Ltd. India
Linde Ag. Germany
Kering Ord. France
Tata Motors Ltd. India
Amp Ltd. Australia
Commonwealth Bank of Australia Australia
Power Financial Corp. Canada
London Stock Exchange Group United Kingdom
United Overseas Bank Ltd. Singapore
Nordea Bank Ab. Sweden
Svenska Gandelsbanken Ab. Sweden
Safran Sa. France
Softbank Group Corp. Japan
Computershare Ltd. Australia
Seven & I Holdings Co. Ltd. Japan
Petrofac Ltd. United Kingdom
Capitaland Mall Trust United Singapore

Index Deletions
Deleted Constituent Country
Bank of Nova Scotia Halifax Canada
Toronto-Dominion Bank Canada
CI Financial Corp Canada
HSBC Holdings Plc. United Kingdom
Centrica United Kingdom
UBS Group Ag. Switzerland
Novartis Ag. Switzerland
Swatch Group. AG. B Switzerland
Richemont, Cie Financiere A Br. Switzerland
Loof Holdings Ltd. Australia
Ainsworth Game Technology Ltd. Australia
China Merchants Bank Co. Ltd. China
China Construction Bank Corp. China
BOC Hong Kong Holdings Ltd. China
China Mobile Ltd. China
China Telecom Corporation Ltd. China
China State Construction International Holdings Ltd. China
Dongfeng Motor Group Co. China
Credit Agricole SA. France
Technip SA. France
Mobile Telesystems PJSC Russia
Embraer SA. Brazil
Grifols SA. Spain
Sun Hung Kai Properties Ltd. Hong Kong
Contact Energy Ltd. New Zealand

View Latest MOTI Reconstitution Report
View MOTI's list of current constituents



]]>
What’s Behind the Huge Inflows Into Emerging Markets Debt? https://www.vaneck.com/blogs/etfs/emerging-markets-debt-whats-behind-huge-inflows-september-2016/ Monetary policies and fundamentals may explain investors' renewed interest in emerging markets debt.

]]>
Van Eck Blogs 9/1/2016 9:20:26 AM

Authored by William Sokol, Product Manager, VanEck VectorsTM ETFs

Emerging markets debt has attracted investor attention this year, as current low and negative yields in developed markets have led many to look outside of core fixed income asset classes for attractive income. The asset class has benefitted from several tailwinds since the start of the year, including a rebound in commodity prices, a restrained U.S. dollar, and expectations that U.S. interest rates will remain "lower for longer," even if the Federal Reserve decides to hike rates before the end of the year.

Strong investor interest in emerging markets debt is reflected in the inflows the asset class has experienced this year after enduring three years of outflows that began with the 2013 "taper tantrum". Looking closely at mutual fund and ETF flow data can provide some insight into how investors have approached the asset class this year.

Record-Breaking Flows Favor ETFs

July flows into emerging markets debt funds were record breaking at $13.3 billion globally, the highest monthly inflow for the category since Morningstar® began collecting data, bringing year-to-date inflows to $17.1 billion. Among emerging markets debt mutual funds and ETFs in the U.S., inflows totaled $4.9 billion. Although U.S. mutual fund data for August was not available at the time of this post, U.S. ETF flows of $1.3 billion (versus $2 billion in July) through August 26, 2016, suggest additional growth in emerging markets debt fund assets.

Digging deeper into the U.S. fund flow data, a preference for hard currency emerging markets debt can be seen with local currency strategies still negative overall through July. Flows into local currency ETFs have been positive since March with outflows concentrated in actively managed mutual funds. In fact, investors favored ETFs over mutual funds in both hard and local currency strategies so far this year, putting $5 billion into ETFs while pulling over $900 million out of mutual funds. These figures are even more impressive considering that at the end of July, ETFs held 23% of emerging markets debt assets under management.* This suggests a growing appreciation for passive investing in emerging markets debt either as a replacement, or complement, to actively managed strategies.

Just the Tip of the Iceberg?

Despite the attention that emerging markets debt has received, the recent inflows are still far lower than the amount that departed the asset class over the past three years. From June 2013 through February 2016, $29 billion left U.S. mutual funds and ETFs representing the asset class.* This may suggest that investors are still, as a whole, less allocated to emerging markets debt than they were in prior years. In addition, the assets currently invested may be "stickier" than those prior to the taper tantrum, resulting in less "flight risk" in case the tailwinds enjoyed this year fade or unexpected risks flare up.

Cumulative and Monthly Net Flows, January 2006 to July 2016

Cumulative and Monthly Net Flows, January 2006 to July 2016
Source: Morningstar. Past performance is no guarantee of future results. Current market conditions may not continue.

It’s Not Just About Yield

These flows provide a supportive technical backdrop for emerging markets debt. Meanwhile, growth remains tepid in developed markets, and central banks appear to be running out of ammunition. Conversely, many emerging markets central banks still have plenty of room to ease through conventional monetary policy and, with inflation remaining under control, many are expected to do so.

In addition to supportive technical and monetary policy, fundamentals appear to be stabilizing, and in many cases, improving in emerging markets economies. With economic growth expected to rise, the International Monetary Fund (IMF) is forecasting that the growth differential between developed markets and emerging markets will increase in coming years. Debt-to-GDP ratios remain well below those of developed markets. Policy reforms such as those in India, Malaysia, and Indonesia are likely to be positive for investors, and support the case for focusing on higher quality sovereign bonds.

Perhaps one of the biggest tailwinds recently, particularly for local currency strategies, has been the stabilization and rebound in commodity prices this year. We believe that commodity prices bottomed in the first quarter of 2016. Supportive monetary policies, continued demand, and the reduction of oversupply issues are expected to benefit commodity prices and the currencies of emerging markets with significant commodity exposure. Emerging markets currencies and commodity prices have historically exhibited fairly high correlation, and both are still far below their recent peaks in 2011.

Emerging Markets Local Currencies and Commodity Prices, 2011 through Present

Emerging Markets Local Currencies and Commodity Prices, 2011 through Present
Source: Bloomberg and J.P. Morgan. Commodity Prices represented by Bloomberg Commodity Spot Index. EM FX (Currencies) represented by the currency return index of the J.P. Morgan GBI-EM Global Diversified Index. Past performance is no guarantee of future results. Current market conditions may not continue.

We believe emerging markets debt will remain attractive for income seeking investors, who may benefit from the yields the asset class can potentially provide as well as supportive fundamentals and global monetary policies.

Investors can access bonds issued by emerging markets governments and denominated in local currencies with VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC). In addition, VanEck Vectors EM Investment Grade + BB Rated USD Sovereign Bond ETF (IGEM) provides access to the higher rated subset of the broad U.S. dollar-denominated emerging markets sovereign bond universe.

]]>
Shenzhen-Hong Kong Stock Connect May Boost China’s “New Economy” https://www.vaneck.com/blogs/etfs/shenzhen-hong-kong-stock-boost-chinas-new-economy-august-2016/ ]]> Van Eck Blogs 8/25/2016 12:00:00 AM

Authored by James Duffy, Product Manager, VanEck Vectors ETFs

Fast-growing companies of China's "New Economy" are likely to get a boost from Shenzhen-Hong Kong Stock Connect, which was approved by China's State Council1 on August 16 and expected to open by December. The connecting of these two giant stock markets is significant given that Shenzhen, where technology stocks make up more than a quarter of all listings, now trades more volume than the Shanghai Stock Exchange and is the third busiest stock exchange in the world in USD terms.2

This is welcome news for China's domestic technology companies and tech-hungry international investors as it comes close on the heels of MSCI's June disappointing announcement to continue to deny mainland China A-Shares in its flagship Emerging Market Index (see China A-Shares Denied MSCI Green Light).

Investors Will Have Greater Access to Fast-Growing Companies

Although access to China A-Shares (for investors who did not have QFII or RQFII licenses3) was initiated nearly two years ago through Shanghai-Hong Kong Stock Connect, the Shanghai Stock Exchange continues to be dominated by state-owned enterprises (SEOs), banks, and oil companies – hardly the darlings of international investors.

By contrast, the Shenzhen Stock Exchange will add more than 880 stocks for international investors to choose from, and will give them access to "New Economy" businesses—those that are driving technological innovation and other emerging industries, such as clean technology, ecommerce, and pharmaceuticals.

At the same time, Chinese regulators have further relaxed restrictions on foreign investments by abolishing, effective immediately, the aggregate quota limit on the Shanghai-Hong Kong Stock Connect program. The elimination of the quota which had been RMB 300 billion (or $45 billion in current USD) may draw investors who had previously avoided mainland investment because of the limitation. Regulators did keep in place the daily limitations, which are set at RMB 13 billion or just under $2 billion USD.

Independent Companies are Driving China's Growth

The Shenzhen Stock Exchange consists of three trading boards, each covering unique markets: the Main Board; the Small and Medium Enterprise (SME) Board; and the ChiNext Board. While larger companies are generally found on the Main Board, the SME and ChiNext Boards have historically focused on small and medium enterprises (SMEs) and technology companies, respectively, which tend to be both start-up and growth companies as well as maturing and mature firms.

The growth of private SMEs in mainland China may be viewed as quite remarkable when one considers the cost of capital is much higher (as much as 600 bps higher) than for their state owned counterparts.4 Yet despite the challenging environment, China's SMEs contribute to nearly 60% of the country's GDP, 68% of exports, and provide 80% of employment.5 As a result, the SME and ChiNext Boards have become key sources of capital for independent innovation in emerging industries and the number of companies on these Boards has continued to grow.

VanEck Vectors ChinaAMC SME-ChiNext ETF (CNXT) is the only U.S. listed ETF to offer dedicated exposure to the SME and ChiNext Boards on the Shenzhen Stock Exchange.

Shenzhen Stock Exchange's Equity Boards
as of August 22, 2016

Source: Shenzhen Stock Exchange.

]]>
Brexit Intensifies the Search for Yield within Emerging Markets https://www.vaneck.com/blogs/emerging-markets-bonds/brexit-intensifies-search-yield-emerging-markets-august-2016/ Van Eck Blogs 8/17/2016 12:00:00 AM The impact of the U.K.'s Brexit decision in June to withdraw from the European Union continued to influence global markets as the month began. With developed markets government bond yields hitting record lows, investor focus turned away from the potential economic impact of Brexit and toward finding areas of the market where one can still earn sufficient income. According to J.P. Morgan, emerging markets (EM) debt funds appear to have been a significant beneficiary of the U.K.'s decision, attracting almost $14 billion globally in July alone.

Investors Shrug off Geopolitical Risk

As the markets appeared to have digested the near-term impacts of the U.K. referendum, geopolitical risk flared up again on July 15 with news of an attempted coup in Turkey. The immediate market impact of the failed coup attempt was a 4.6% plunge in the Turkish lira, already an underperformer for the year thus far, and significantly wider spreads on Turkish sovereign bonds. The country was already experiencing sluggish economic growth, impacted in part from a collapse in tourism, and weaker confidence may dampen potential improvement. Standard & Poor's responded with a downgrade of Turkey's credit rating to junk status, and Moody's Investors Service placed the country's credit rating on review. Although in general, economic fundamentals for emerging markets countries have turned more positive during the first half of 2016, such has not been the case for Turkey. Turkey's potential migration to sub-investment grade status would also have a fairly significant impact on emerging markets sovereign dollar indices, which have been losing their investment grade bias.

Low Rates Continue, But For How Long?

Meanwhile, the Federal Reserve (the "Fed") was interpreting mixed economic data that was announced throughout the month. Respectable employment reports in the first week of July led to the implied probability of a Fed hike at the December 2016 meeting rising from only 12% at the beginning of the month to 48% by mid-month. Expectations were tempered by the GDP release at month-end showing 1.2% annualized growth, far lower than expected. The U.S. dollar, which had been strengthening through July, pulled back on the news along with expectations of a rate hike this year. However, July's non-farm payrolls, released in the first week of August, surprised heavily on the upside, leading some to once again raise the prospect of at least one rate hike before 2017.

Strong July Performance

The search for yield seemed to outweigh concerns stemming from events in Turkey, the growth impacts of Brexit, and a decline in current oil prices. Emerging markets corporates had a strong July, returning 1.59% largely due to spread tightening. Hard currency sovereigns posted strong July performance of 1.80%, outperforming local currency bonds which returned 0.60% in U.S. dollar terms, with currencies impacting performance negatively. Despite the compression in yields, spreads on hard currency sovereigns remain slightly wider versus their 10-year historical average.

Unsurprisingly, Turkey was an underperformer in both local currency (-4.76% in USD) and hard currency (-3.01%). Oil producing countries such as Colombia, Russia, and Mexico were also laggards, as oil prices fell back towards $40 per barrel through the month. The impact of this decline has so far been limited, but sustained lower prices may pose a potential risk. South Africa was a notable outperformer during the month (+2.36% on hard currency bonds; +8.07% USD-return on local currency bonds). Although economic fundamentals remain sluggish, hope for political change in South Africa has boosted asset prices this year.

Record Inflows

Investors' renewed interest in emerging markets debt amid the yield drought in developed markets is evidenced by the surge in flows this year that accelerated in July. According to J.P. Morgan, during the month, global flows amounted to an estimated $13.7 billion, almost 60% of year-to-date flows of $23.3 billion. Inflows of $4.7 billion toward the end of the month exceeded the previous weekly record set earlier in the month. Almost all flows have been into hard currency strategies, with local currency flows slightly positive at $0.7 billion.

Capital inflows, attractive yields in emerging markets (as shown below), and continued low and negative rates in developed markets continue to provide an extremely supportive backdrop for emerging markets bonds.

Yield Comparison: 10-Year Local Currency Sovereign Bonds (%)
as of July 31, 2016

 
 
Source: FactSet.

 

Download EM Debt Observer PDF with Fund specific information and performance  

RELATED FUNDS  

VanEck VectorsTM ETFs  
CBON   ChinaAMC China Bond ETF  
EMAG   Emerging Markets Aggregate Bond ETF  
EMLC   J.P. Morgan EM Local Currency Bond ETF  
HYEM   Emerging Markets High Yield Bond ETF  
IGEM   EM Investment Grade + BB Rated USD Sovereign Bond ETF  
IHY   International High Yield Bond ETF  
 
VanEck Funds  
EMBAX   Unconstrained Emerging Markets Bond Fund: Class A  

Important Disclosures and Index Definitions  

Source of all data: FactSet; J.P. Morgan; and BofA Merill Lynch. All data as of 7/31/2016. Emerging markets corporates represented by BofA Merrill Lynch US Emerging Markets Liquid Corporate Plus Index, hard currency sovereigns represented by J.P. Morgan EMBI Global Diversified Index; local currency sovereign bonds represented by J.P. Morgan GBI-EM Global Diversified Index; country returns derived from the respective hard currency sovereign index or local currency sovereign bond index.

BofA Merrill Lynch US Emerging Markets Liquid Corporate Plus Index (EMCL) tracks the US dollar denominated non-government debt of EM.

J.P. Morgan EMBI Global Diversified Index is comprised of U.S. dollar denominated Brady bonds, Eurobonds, and traded loans issued by emerging markets sovereign and quasi-sovereign entities. The index weighting methodology limits the weight of countries with larger debt stocks.

J.P. Morgan GBI-EM Global Diversified Index tracks local currency denominated EM government debt. The index weighting methodology limits the weight of countries with larger debt stocks.

The information herein represents the opinion of the author(s), 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.

Please note that Van Eck Securities Corporation offers investment products that invest in the asset class(es) included in this commentary.

Debt securities carry interest rate and credit risk. Bonds and bond funds will decrease in value as interest rates rise. Debt securities carry interest rate and credit risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer's financial health. Securities may be subject to call risk, which may result in having to reinvest the proceeds at lower interest rates, resulting in a decline in income. International investing involves additional risks which include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Changes in currency exchange rates may negatively impact the Fund's return. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict and social instability.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will generally decrease in value as interest rates rise. 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 contains this and other information, call 800.826.2333 or visit vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.  

 

]]>
Hone In On Income Not Financials https://www.vaneck.com/blogs/etfs/hone-in-on-income-not-financials-august-2016/ Preferred securities have been in demand, however, excluding the preferreds financials sector  would have been prudent in 2016.

]]>
Van Eck Blogs 8/16/2016 12:00:00 AM

Authored by Meredith Larson, Product Manager, VanEck VectorsTM ETFs

As the search for yield continues, preferred securities have become a beacon of potential income. However, a large proportion of the preferreds universe, approximately two-thirds, is made up of traditional financial companies, including banks.1 VanEck VectorsTM Preferred Securities ex Financials ETF (PFXF) offers the yield potential of preferreds, but without the excessive financials sector exposure.

Competitive Yield Potential

Excluding traditional financials from the preferreds universe has not meant giving up the yield potential. PFXF's underlying index, Wells Fargo® Hybrid and Preferred Securities ex Financials Index yielded 6.1%, as compared to 5.7% from the broad-based Wells Fargo® Hybrid and Preferred Securities Aggregate Index, as of July 31, 2016.2

Attractive Risk/Return Tradeoff

While the impact on yield has been negligible, the two-thirds concentration in financial preferreds has had a significant influence on returns. This concentration may not always be a negative factor, but is one worth considering. For example, the 2008/2009 credit crisis clearly showed the market that when financials sell off, they can do so significantly. In addition, excluding traditional financials allows for greater participation in other sectors, such as energy, utilities, and consumer staples. As shown in the chart below, avoiding financial preferreds contributed to over 5% outperformance year to date.3

Annualized Standard Deviation vs. Annualized Return
01/01/2016 to 7/29/2016

Source: FactSet, Bloomberg. Data as of July 31, 2016. Past performance is no guarantee of future performance. Index performance is not indicative of Fund performance. Indices are not securities in which investments can be made. See index descriptions and additional disclosure below.

Excluding traditional financial companies does not mean excluding the attractive income-producing Real Estate Investment Trusts (REITs) segment.4 In fact, REITs, along with other exchange-listed real estate companies, will be removed from the Global Industry Classification Standard (GICS®)5 Financials sector and placed in the new Real Estate sector at the end of August.6 We believe that this separate sector classification indicates REITs have become a more robust segment of the market. One positive impact may be increased institutional demand for REITs, as investment managers tend to keep pace with their benchmarks' sector weightings.

PFXF helps limit the unnecessary concentration of financial preferred securities without sacrificing yield potential. Investors who target preferred securities for the yield potential, can do so without piling on to their existing financial sector exposure that may be found with current fixed income and equity investments.

Click here to view standardized performance and yields for PFXF.

]]>
Quality Can Be Rewarding in Emerging Markets Bonds https://www.vaneck.com/blogs/etfs/quality-rewarding-emerging-markets-bonds-august-2016/ High quality emerging markets sovereign bonds may interest global bond investors seeking to enhance yield while balancing risks.

]]>
Van Eck Blogs 8/12/2016 12:00:00 AM

Authored by William Sokol, Product Manager, ETFs

The term "emerging markets" is very broad. Countries within this category can be at different stages in their development and employ varying economic policies. Emerging economies can be affected differently by external influences such as global commodity prices and monetary policies, as well as idiosyncratic factors. While some investors view emerging markets bonds as equivalents to high yield bonds, about half of the broad U.S. dollar-denominated sovereign market (as represented by the J.P. Morgan EMBI Global Diversified Index) is rated investment grade. It can be instructive to break down this bond universe by credit rating, examine how each rating category has performed historically, and what they can offer investors.

Higher Yields May Reflect Higher Risks

From a yield perspective, lower rated bonds tend to provide higher yields versus those with higher ratings. This should not be surprising since a higher yield is reflective of a higher spread which incorporates, among other factors, a higher risk of default. As shown in the chart below, investment grade emerging markets bonds had an average yield of 3.91% as of July 31, 2016 compared to a yield of 6.95% on bonds with high yield ratings. Breaking that down further, it’s clear that the yield pickup becomes increasingly large between the BB-rated and B-rated categories.

Emerging Markets USD Sovereign Bonds: Average Yield by Credit Rating Category
as of 7/31/2016

Source: J.P. Morgan as of 7/31/2016. Ratings represent J.P. Morgan Composite Ratings, which are a blend of a security's Moody's, S&P, and Fitch ratings. If all three agencies rate the security, the middle rating is taken. If only two agencies rate a security, the lower rating is taken. If only one agency rates a security, that rating is used. This composite is not intended to be a credit opinion. Securities are categorized as Investment Grade if two out of three ratings from Moody's, S&P and Fitch are Baa3/BBB-/BBB- or higher. If a security has two ratings, both must be Baa3/BBB-/BBB- or higher. Otherwise, securities are categorized as High Yield.

Venezuela provides a good example of the potential returns on bonds issued by a lower rated country, with an average yield of approximately 26% as of July 31, 2016.* However, these distressed levels reflect severe economic and political challenges the country is currently facing. Therefore, the very real possibility of default puts the ability of realizing this substantial yield in question.

On the other hand, yields on Venezuela bonds peaked at over 40% in February 2016, resulting in a total return of 68% since reaching those levels through the end of July.* Many investors, however, may be uncomfortable with the uncertainty and volatility associated with distressed countries like Venezuela.

Quality May Provide Attractive Risk-Adjusted Returns

It is also useful to analyze the historical returns of the different credit rating categories within emerging markets bonds. Historical returns incorporate the market's assessment of changes in credit quality, which can often precede changes in a country's credit rating.

As shown in the table below, the higher quality categories generally exhibited lower annualized total returns over the past ten years, with substantially lower volatility. One notable exception is the BB-rated category which outperformed B-rated bonds, providing risk adjusted returns comparable to A-rated bonds.

JP Morgan and Morningstar Rating Category 7-31-2016Source: J.P. Morgan and Morningstar as of 7/31/2016. High quality EM Bonds represented by a blend of 80% of the investment grade subset of the J.P. Morgan EMBI Global Diversified Index, and 20% of the BB rated subset of the J.P. Morgan EMBI Global Diversified Index. Broad EM Sovereigns represented by the J.P. Morgan EMBI Global Diversified Index.

Overall, investors who maintained exposure to investment grade emerging markets sovereign bonds, with an allocation to BB-rated bonds of 20%, would have earned 7.55% over the past ten years versus 7.83% on the broader emerging markets sovereign index, with lower volatility and higher risk-adjusted returns as measured by the Sharpe ratio.

For investors seeking to enhance yield while balancing risks, a focus on high quality emerging markets sovereign bonds may be an attractive addition to a bond portfolio. VanEck VectorsTM EM Investment Grade + BB Rated USD Sovereign Bond ETF (IGEM) provides access to the higher rated subset of the broad U.S. dollar-denominated emerging markets sovereign bond universe.

]]>
Performance Drivers Come in all Shapes and Sizes https://www.vaneck.com/blogs/moat-investing/performance-drivers-come-all-shapes-sizes-august-2016/ Van Eck Blogs 8/11/2016 12:00:00 AM

For the Month Ending June 31, 2016

Performance Overview

The U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR) outpaced the S&P 500® Index (5.62% vs. 3.69%) in July and continued its impressive 2016 year-to-date performance (19.11% vs. 7.66%). International moats lagged the broad international markets, albeit slightly. Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN) lagging the MSCI All Country World Index ex USA (4.81% vs. 4.95%).

U.S. Domestic Moats: Healthcare and Hogs

MWMFTR's strong relative performance was driven by several companies in various sectors. Financials standout State Street Corporation (STT US) benefited from strong second quarter earnings driven in part by effective cost cutting measures. Healthcare was the top performing sector in MWMFTR led by Biogen, Inc. (BIIB US) which saw a unique combination of strong earnings results and its CEO's resignation fueling speculation that the firm was suiting prospective buyers. Other strong performing companies included Polaris Industries, Inc. (PII US) and Harley-Davidson, Inc. (HOG US). Conversely, the materials sector struggled in July driven primarily by Compass Minerals International, Inc. (CMP US) which suffered from weak fertilizer sales and price pressure on its deicing salt business.

International Moats: Beamers and Blackjack

BMW Group (BMW GR) surged in July despite lagging Mercedes Benz in first half 2016 global luxury auto sales. BMW GR posted strong profits for the quarter and reaffirmed 2016 forecasts for sales and profit growth. Another theme for MGEUMFUN in July was the resurgence of Macau-based gaming companies. Sands China Ltd. (1928 HK), Wynn Macau Ltd. (1128 HK), and MGM China Holdings Ltd. (2282 HK) all contributed significantly to MGEUMFUN's performance. Several companies struggled in July, namely Cameco Corp (CCO CN), one of two energy companies in the index. Several moat-rated companies from the United Kingdom rebounded in post-Brexit July. However, Lloyds Banking Group plc (LLOY GB) and Petrofac Ltd. (PFC LN) – the other energy company in the index – struggled and were among the bottom performers in MGEUMFUN for the month.



(%) Month Ending 7/31/16

Domestic Equity Markets

International Equity Markets

(%) As of 7/31/16

Domestic Equity Markets

International Equity Markets

(%) Month Ending 7/31/16

Morningstar
Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers
Constituent Ticker Total Return
State Street Corporation
STT US
22.00
Polaris Industries Inc.
PII US
20.78
Biogen Inc.
BIIB US
19.89
Harley-Davidson, Inc.
HOG US
16.82
Varian Medical Systems, Inc.
VAR US 15.21

Bottom 5 Index Performers
Constituent Ticker Total Return
Walt Disney Company
DIS US
-1.20
Twenty-First Century Fox, Inc. Class A
FOXA US
-1.52
Gilead Sciences, Inc.
GILD US
-4.74
Compass Minerals International, Inc.
CMP US
-6.20
Stericycle, Inc.
SRCL US
-13.30

View MOAT's current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Top 5 Index Performers
Constituent Ticker Total Return
Bayerische Motoren Werke AG BMW GR 17.88
Kering SA KER FP 17.58
AMP Limited AMP AU 14.93
Sands China Ltd. 1928 HK 14.04
Wynn Macau Ltd. 1128 HK 13.08

Bottom 5 Index Performers
Constituent Ticker Total Return
SoftBank Group Corp. 9984 JP -1.38
Lloyds Banking Group plc LLOY LN -2.35
Roche Holding Ltd Genusssch. ROG VX -2.58
Petrofac Limited PFC LN -4.58
Cameco Corporation CCO CN -12.41

View MOTI's current constituents

As of 6/17/16

Morningstar
Wide Moat Focus Index (MWMFTR)

Index Additions
Added Constituent Ticker
Polaris Inds Inc. PII US
AmerisourceBergen Corp. ABC US
Tiffany & Co. TIF US
Stericycle Inc. SRCL US
VF Corp. VFC US
Wells Fargo & Co. WFC US
Berkshire Hathaway Class B BRK.B US
Twenty-First Century Fox Inx. FOXA US
Harley-Davidson Inc. HOG US
United Technologies Corp. UTX US
Starbucks Corp. SBUX US
Microsoft Corp. MSFT US
Emerson Electric Corp. EMR US
American Express Co. AXP US
Salesforce.com CRM US
Time Warner inc. TWX US
Lilly Eli & Co. LLY US
Western Union Co. WU US
Compass Minerals Intl. CMP US
Cerner Corp. CERN US
Amazon.com Inc. AMZN US

Index Deletions
Deleted Constituent Ticker
St. Jude Medical STJ US

View Latest MOAT Reconstitution Report
View MOAT's list of current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Index Additions
Added Constituent Country
Mgm China Holdings Ltd. China
Bayerische Motoren Werke BMW Germany
National Australia Bank Australia
Crown Resorts Ltd. Australia
Platinum Asset Management Ltd. Australia
Westpac Banking Corp. Australia
Carnival Plc. United Kingdom
Wynn Macau Ltd. Hong Kong
Wipro Ltd. India
Linde Ag. Germany
Kering Ord. France
Tata Motors Ltd. India
Amp Ltd. Australia
Commonwealth Bank of Australia Australia
Power Financial Corp. Canada
London Stock Exchange Group United Kingdom
United Overseas Bank Ltd. Singapore
Nordea Bank Ab. Sweden
Svenska Gandelsbanken Ab. Sweden
Safran Sa. France
Softbank Group Corp. Japan
Computershare Ltd. Australia
Seven & I Holdings Co. Ltd. Japan
Petrofac Ltd. United Kingdom
Capitaland Mall Trust United Singapore

Index Deletions
Deleted Constituent Country
Bank of Nova Scotia Halifax Canada
Toronto-Dominion Bank Canada
CI Financial Corp Canada
HSBC Holdings Plc. United Kingdom
Centrica United Kingdom
UBS Group Ag. Switzerland
Novartis Ag. Switzerland
Swatch Group. AG. B Switzerland
Richemont, Cie Financiere A Br. Switzerland
Loof Holdings Ltd. Australia
Ainsworth Game Technology Ltd. Australia
China Merchants Bank Co. Ltd. China
China Construction Bank Corp. China
BOC Hong Kong Holdings Ltd. China
China Mobile Ltd. China
China Telecom Corporation Ltd. China
China State Construction International Holdings Ltd. China
Dongfeng Motor Group Co. China
Credit Agricole SA. France
Technip SA. France
Mobile Telesystems PJSC Russia
Embraer SA. Brazil
Grifols SA. Spain
Sun Hung Kai Properties Ltd. Hong Kong
Contact Energy Ltd. New Zealand

View Latest MOTI Reconstitution Report
View MOTI's list of current constituents



]]>
A Unique Way to Access Physical Gold as Rally Strengthens https://www.vaneck.com/blogs/etfs/access-physical-gold-rally-strenghtens-august-2016/ Van Eck Blogs 8/10/2016 12:00:00 AM

Authored by Brandon Rakszawski, Product Manager, VanEck VectorsTM ETFs

Gold has enjoyed a strong run so far in 2016. With this rally, gold has once again reasserted its importance as both a "store of value" and a "safe haven asset".1 Through the ages, gold has remained one of the most highly valued commodities for cultures across the globe. It is especially prized as a way to pass on and preserve wealth from one generation to the next.

The current strength of the gold market is revealed in the 2016 numbers: YTD (through July 31, 2016), gold bullion has gained $282 per ounce, or 26.6%. Gold mining shares are up 122.9% as measured by the NYSE Arca Gold Miners Index (GDMNTR).2 This rally has left many investors questioning whether there is still any upside potential for either physical bullion or gold mining shares.

Recent Gold Market Drivers (2010-2016)

Recent Gold Market Drivers (2010-2016)

Source: Bloomberg, VanEck. Data as of June 30, 2016.

Will Gold Bull Market Continue?

We believe that, given the uncertainty of the current global economy, gold will continue to be an attractive option for investors seeking protection against systemic financial risks. Gold has historically generated positive returns in periods of economic stress and political/economic upheaval. Portfolio Manager and Gold Strategist Joe Foster addresses the multiple risks currently assaulting global markets in his recent blog post, Investment Demand Sustaining Gold's Run. These risks include overly accommodating central bank policies, economic malaise, currency turbulence, low equity returns, and continuing geopolitical turmoil. Notable tailwinds helping gold in 2016 have been a weaker U.S. dollar, no imminent threat of interest rate hikes, and rising commodities prices.

For many investors, the question at the moment is not whether to invest in gold, but rather how best to include it in their investment portfolios. Common wisdom has been that holding physical gold can be cumbersome and costly. Other ways to own gold without physically holding it include gold receipts, and shares of mutual funds/ETFs that provide access to gold bullion and/or gold mining equity shares. But some of the options tied to physical gold are subject to "paper gold" criticisms which assert that they do not have direct ownership of the underlying physical gold.

OUNZ: The Gold ETF That Delivers

VanEck offers a suite of gold funds, including an actively managed mutual fund and three specialty gold ETFs. VanEck Merk Gold Trust (NYSE Arca: OUNZ), one of these ETFs, provides investors with a convenient and cost-efficient way to buy and hold gold through an exchange traded product together with the option to take delivery of physical gold.

No other gold ETF offers this patented redemption feature. OUNZ's structure is considered ground breaking. It allows any investor to redeem shares, even in small amounts, in exchange for physical gold. For a fee, an investor can accept delivery of as little as one ounce of gold. The fee will vary depending on what type of gold coin or bar an investor wants to accept, and is in keeping with accepted gold redemption and handling fees.

Investor Comfort in Having Access to Physical Gold

In turbulent markets, like the ones we are experiencing today, OUNZ provides investors with the comfort of knowing that they can take delivery of their gold when they wish, but until they do, trade it with the ease of an exchange-traded product.

]]>
Investment Demand Sustaining Gold's Run https://www.vaneck.com/blogs/gold-and-precious-metals/investment-demand-sustaining-golds-run-august-2016/ Van Eck Blogs 8/9/2016 12:00:00 AM

For the month ending July 31, 2016

Gold's Resilience Continues in July

Following the June 23 Brexit vote when the U.K. chose to withdraw from the European Union, bond yields fell to record lows and gold rallied to two-year highs, reaching $1,375 per ounce on July 6. In the U.S., subsequent strong economic results in manufacturing, retail sales, and housing created U.S. dollar strength and gold consolidated its Brexit gains, declining to $1,310 per ounce on July 21. However, as was the case throughout the post-crisis expansion, good economic news doesn't last long and the month ended with disappointing durable goods and pending home sales reports, along with second quarter GDP growth of just 1.2%. The U.S. dollar reversed course and the gold market demonstrated its resilience, advancing to end the month with a $28.80 per ounce (2.2%) gain to finish at $1,351 per ounce.

Silver is fulfilling its role as a leveraged proxy for gold with a new post-Brexit high of $21.14 per ounce and a monthly gain of 8.7%. The buying in silver was led by China with heavy volumes on both the Shanghai futures and gold exchanges.

As we have pointed out repeatedly this year, and discussed in detail in our June update, gold companies are well managed, and gold stocks provide leverage to gold since valuations remain attractive. Therefore it is no surprise that stocks enjoyed another surge higher in July. The NYSE Arca Gold Miners Index1 (GDMNTR) gained 10.1% and the MVIS Global Junior Gold Miners Index2 (MVGDXJTR) gained 16.8%. Strong equity gains are typical in the early stages of a gold bull market.

Low Rates Force Investors to Take on More Risk

We are beginning to witness, once again, the unintended consequences of monetary policies that have remained too easy for too long. Because of extremely low rates, bonds no longer fulfill their historic purpose of capital preservation and portfolio security. A Wall Street Journal article by Timothy W. Martin published on May 31 shows that the expected return of a portfolio made up entirely of bonds was 7.5% in 1995. To achieve the same return in 2015, a portfolio would have needed to hold only 12.5% bonds and 87.5% in stocks, real estate, and private equity. This portfolio allocation would have carried nearly triple the volatility of the bond-only portfolio.

Ineffective Monetary Policies Creating Potential Future Issues

Policy makers seem to be focused on solutions to previous problems without realizing that excesses are going to create additional issues. For example, an odd thing happened after Brexit – stocks ignored the risks Brexit posed to the global economy and the S&P 500®3 advanced to all-time highs. Markets rallied in the belief that more central bank stimulus would be forthcoming. Bonds also moved to all-time highs. The traditional negative correlation between bonds and risk assets, including stocks, no longer applies thanks to meddling by central banks that has caused asset price inflation (or bubbles) in both these asset classes.

Negative yielding sovereign debt in Japan and Europe totals over $13 trillion now, according to a recent Bank of America Merrill Lynch analysis. We believe U.S. rates are not far behind; from a firsthand experience, I recently received a CD rollover notice from my local megabank branch with a yield of only 3 basis points (0.03%). Negative yields lock in a capital loss if held to maturity. The only way to come out ahead is when negative yields are accompanied by deflation in excess of the yield rate. However, deflation comes with its own drawbacks, namely, bank failures, job loss, and depression. Without deflation, there is a limit to how much further yields can fall and for how long they stay in place before savers abandon the banking system to hold cash, despite the inconvenience that option brings. Or perhaps as an alternative, they look to hold gold since it exists outside of financial authority, cannot be a target of financial repression, and carries virtually no counterparty risk.

As central banks buy up more bonds and more bonds move into negative yields, investors search among a smaller pool of substitutes and trades get crowded for higher risk alternatives. According to the Wall Street Journal, higher prices for stocks, bonds, and real estate have caused net wealth to swell to over 500% of national income in the U.S. This has happened only twice historically – just before the tech bust and just before the housing bust. By definition, black swan4 events are nearly impossible to predict. However, with the imbalances and extremes present in the markets today, we must assume that the odds are increasing for an unforeseen calamity. The further bond prices rise (and rates fall) the greater the risk is to bond values from even moderate increases in inflation and interest rates. One possible crisis scenario might involve higher than expected consumer price inflation that crushes negative yielding bonds, causing liquidity to dry up as investors rush for the exits and sell assets to cover losses.

Mervyn King, Governor of the Bank of England from 2003 to 2013, was interviewed in the World Gold Council's June edition of Gold Investor and said, "The risk is that we just muddle through with a prolonged period of very low growth. The longer that goes on, the more output we will have lost in the interim. And in the long run, it makes another crisis more likely because, if everyone is relying on monetary policy and it isn't the answer, we won't get back to a new equilibrium. We do need to make that jump at some point so the question is do we get there as a result of active, conscious policy decisions and cooperation between countries or will it only happen as the side-effect of another crisis."

Unlike 2008, Investors in 2016 are Acting Proactively

There was heavy investment demand for gold following the 2008 financial crisis. We are seeing a similar level of investment demand in 2016, as many are preparing their portfolios for the next possible crisis. Gold and gold shares declined with other markets in the massive selloff in 2008. However, both gold and gold equities bottomed in October 2008 and then made a strong recovery. The action in the current gold markets indicates that investors have become more proactive, buying gold as a hedge against future turmoil. This suggests that gold is now more broadly recognized as a hedge against financial stress. With this recognition, if there is another crash, perhaps gold will not see the same selling pressure as the broader markets.

With Selling Pressure Removed, Normal Gold Demand Trends May Reemerge

Historically, there is a seasonal pattern to gold prices dependent on physical demand trends. Often, there is weakness in the summer when jewelry demand, primarily from China and India, is low and trading volumes decline. Seasonal strength often occurs from August to January, beginning with the Indian festival season and ending with Chinese New Year. Gold demand from China has been weak and from India has been even weaker. The Indian Finance Ministry reported 218 tonnes of imports in the first half, a 52% decline from the first half of 2015. This is to be expected as Indian, and Asian demand overall, usually declines when the price is rising, as gold investors in these regions tend to wait for price weakness to restock. Changes to Indian demand may be coming though. The Indian monsoons have been good this year which boosts crop output and the ability of rural farmers to potentially increase their gold savings, and the Diwali festival begins October 30. In addition to the macro drivers, seasonal strength may provide a boost to gold prices as the New Year approaches. This summer, any seasonal price weakness has been offset by gold's appeal following the extraordinary Brexit rally which has delayed the return of the normal gold market pattern. This pattern has been absent for several years due to the relentless selling pressure during the gold bear market. However, shorting gold has been a very risky bet in 2016. Now that the gold bears are on the run, perhaps seasonality will again influence the market.


]]>
Munis: Market Views for the Second Half https://www.vaneck.com/blogs/muni-nation/muni-market-views-second-half-august-2016/ Jim shares his views, in a recent video, on why he expects municipal bond performance to continue to overcome negative headlines for the remainder of 2016.

]]>
Van Eck Blogs 8/9/2016 12:00:00 AM

The municipal bond marketplace has had a strong first six months of the year, undeterred by mixed economic signals and a Federal Reserve seemly stuck in a quagmire. Regardless of these issues, Jim believes the remainder of 2016 is likely to be similar to the first half, with attractive performance and strong demand, despite the dual distractions of Puerto Rico and the U.S. Presidential elections.

Watch Video Muni Market Views for Second Half of 2016

Jim Colby, Portfolio Manager, discusses his outlook on the second half of the year and explains why munis may to continue to perform well despite negative headlines.

Watch Now | Video Transcript

VIDEO TRANSCRIPT: Muni Market Views for Second Half of 2016

TOM BUTCHER: The municipal bond market has had a pretty good six months so far this year, despite negative headlines. What does the rest of the year hold for it?

JIM COLBY: The municipal marketplace has had an unusually strong first six months of the year, based upon what we anticipated way back in December 2015. The outlook for the remainder of the year is probably similar to what we have just experienced. We've come through six months during which every move by the Federal Reserve has been dissected. The wording of their statements, that is, in terms of whether they're going to raise rates at all this year.

Some aspects of the economy are strong and some are not, which doesn’t empower the Federal Reserve to make any moves anytime soon. Even if they do, I suggest that the outcome of the remaining six months of this year are going to be very similar to the beginning of 2016. Munis have had strong performance with continued strong demand and a modestly raised level of new issuance coming from states and municipalities that hasn’t overwhelmed demand in the marketplace. I think that performance will continue to be good.

During the first half of the year, general municipal bond performance was positive. It was up over 4%. That’s general market product. In high yield, the performance was better than that: up over 7%. We probably are not going to experience moments akin to those that occurred in the first six months of the year, e.g., Brexit and the passing of the Puerto Rico bill that staved off the inevitable default and a worrisome outcome similar to that of Detroit two years ago. Such elements notwithstanding, the market put in a solid performance and I think the remainder of the year also stands to potentially come out very well for munis.

BUTCHER: What do these strong inflows tell us?

COLBY: The inflows tell us a couple of things. First of all, investors are confident, or at the very least, in terms of the performance of the municipal marketplace, investors are confident that the returns and tax-free income they receive will be as good as, if not nominally better than, what they would receive elsewhere. Don't forget that in some of the strongest economies of Europe, there are negative interest rates. Even foreign investors, such as corporate, banking, and insurance institutions, are looking at the United States as a place to gain positive returns and positive cash flow. They've come to munis and recognize that munis comprise a very strong investment class. They enjoy positive returns. Foreign investors don't benefit from a tax exemption, but nevertheless, they may book some positive income. That has accrued to the strong demand for munis so far this year.

BUTCHER: Can we go back to Puerto Rico? Can you say some more about what's going on and how it's affecting the markets now?

COLBY: As many people know, Puerto Rico has defaulted on a good portion of their obligations, and what led up to the end of the second quarter of this year was an effort by Congress to pass a bill to somehow provide support to the struggling commonwealth. The bill got signed by Obama on June 30 and what it did was stay and prevent lawsuits from encroaching on the commonwealth and destroying the commonwealth's ability to operate independently.

However, the impact is severe, which means that investors holding commonwealth obligations are not going to get paid until the control board that was promised in the bill outlines a series of economic activities to enable the commonwealth to regain financial footing. Puerto Rico has been an enormous issuer of bonds in the municipal marketplace.

What's remarkable about all these events leading up to June 30 is that the marketplace as a whole has been able to set aside concerns for the outcome of Puerto Rico. Yes, it will have some negative impact upon some fund companies and holders of the commonwealth’s debt. For the most part though, the market has continued to perform outstandingly well. I think that over the next two or three years, until these issues get sorted out on behalf of the commonwealth, the municipal market will continue to operate and function very well without concern for one of its biggest issuers no longer being involved on a day-to-day basis.

BUTCHER: Thank you very much.

]]>
Investment Outlook: Commodities and Emerging Markets Bonds Shine https://www.vaneck.com/blogs/market-insights/investment-outlook-commodities-emerging-markets-bond-shine-august-2016/ Van Eck Blogs 8/8/2016 12:00:00 AM

Watch Video Investment Outlook: Commodities and Emerging Markets Bonds Shine  

Jan van Eck, CEO, shares his investment outlook.

Watch Now  


Commodities Rally Still Has Legs

TOM BUTCHER: As we enter the third quarter, how would you address the concerns of investors who fear they may have missed the commodities rally?

JAN VAN ECK: I think what we've seen so far in 2016 is investors are very cautious; the majority of inflows have gone into fixed income funds. After commodities bottomed in February, oil prices nearly doubled. Many investors worried that they had missed the investment opportunity entirely. It is indeed a question on many investors' minds.

We believe it would be strange if the commodities rally were to last only five months. It has been about five months since the bottom of commodity prices. If you consider past commodity bull markets, you'll find they have tended to last much longer. Additionally, commodity stocks as a percentage of the overall market are very low. Lastly, I think it is worth examining interest rate hiking cycles. We are in a very slow-motion cycle right now. Commodities is one of the best-performing asset classes during these cycles.

Only the Second Inning

BUTCHER: Could you elaborate?

VAN ECK: We had a very long bull market in the last ten years. It lasted almost 80 months. Most of the bull markets in commodities have tended to last around 30 months.

Commodity Bull Market Cycles

Source: VanEck; Bloomberg. Data as of June 30, 2016.

We're only five months into this one. The average commodity bull market lasts six times as long as what we've experienced thus far. To use a baseball analogy, we're in the second inning perhaps.

Valuations Suggest More Room for Energy to Climb

VAN ECK: Energy as a percentage of the overall S&P 500® Index is still near its lows of about 6%-7%. Energy stocks are still very inexpensive relative to what they have been as a percentage of the S&P 500® Index in other markets.

Past Patterns in Monetary Policy Bode Well

VAN ECK: My point about where we are in terms of interest rate hiking cycles may be controversial. The current cycle is slow and there is considerable debt. Slow growth is rampant in the global economic environment. In the prior eight interest rate hiking cycles, only once did commodities prices decline. The average return over all eight was an annualized 20%. The Fed raised rates last December and since then, despite a small lag, commodities and gold have risen. These developments fit the historical pattern.

Diversification Is Paramount

BUTCHER: What other opportunities might fixed income investors consider at this time?

VAN ECK: I believe the story is very different now from what it was at the beginning of the year. Six months ago credit was cheap. Corporate bonds were very cheap. Interest rates were high because investors were very concerned about defaults in energy bonds, as well as in retail and other areas. Those concerns seem to have abated. High yield has performed well this year but we don't see any screaming buys or outrageous risks.

What we do see is, as central banks have continued to buy bonds, interest rates around the world have hit multi-century lows. In that context, we think it makes sense for investors to diversify as prudently as they can.

Opportunities in Emerging Markets Debt

VAN ECK: Having said that, emerging markets debt is an area of interest to us in 2016. Interest rates are negative in Europe and Japan but they aren't negative in the emerging markets. Because emerging markets currencies are affected by commodity prices, there is likely less downside risk in emerging markets debt if commodities have bottomed. These factors make emerging markets debt more interesting to us now than six months ago. Economically speaking, emerging markets are on a different cycle from the U.S. or Europe, the developed markets. It's a diversified income stream that we consider pretty attractive to investors.

BUTCHER: Within the emerging markets, the individual countries are on different cycles as well.

Variety in Emerging Markets Debt Investments

VAN ECK: We've been working with emerging markets debt as a firm for 20 years. Our ETF lineup is the broadest in that asset class. The reason we have focused in this way is emerging markets debt is a huge asset class with myriad opportunities given an investor's risk and return tolerance. We have an investment grade offering, a high yield offering, dollar-based emerging markets debt, local currency debt, and an all-in-one too. Regardless of what you're looking for, I believe you can match opportunities in the asset class to your risk-return profile.

BUTCHER: Thank you very much.

]]>
Fallen Angels Continue to Outpace the Pack https://www.vaneck.com/blogs/etfs/fallen-angels-outpace-pack-august-2016/ Van Eck Blogs 8/2/2016 12:00:00 AM

Authored by Meredith Larson, Product Manager, ETFs

Fallen Angel Bonds Outperform Broad High Yield in the Second Quarter and YTD

Signature sector biases and higher credit quality contributed to divergent returns between fallen angels (+19.3%) and the broad high yield bond market (+12.1%) year to date as of July 31, 2016.1 Performance was fairly muted in July (+2.7%), as the 5-year U.S. Treasury yield ended July near where it began (+1 basis point) and WTI Crude fell $6.7 per barrel.2 However, fallen angel bonds posted a remarkable +9.1% return in the second quarter, as the 5-year U.S. Treasury yield fell 19 basis points and WTI Crude rose over $11 per barrel, and outperformed the broad high yield bond market (+5.9%) by 3.2%.3

Sector Bias, Credit Quality, and Bond Buybacks

Fallen angels have maintained their sector biases year to date, being meaningfully overweight the basic industry and energy sectors and underweight the healthcare sector, which positively contributed to outperformance relative to the broad high yield bond market. In addition, fallen angels' higher average credit quality and some notable tender offer activity positively contributed to outperformance. Read more about fallen angels' 2016 bond buybacks. Conversely, fallen angels' overweight in the banking, utility, and insurance sectors negatively contributed to relative performance versus the broad high yield bond market.

Basic Industry and Energy Sectors Drive Fallen Angel Outperformance YTD
Year-to-Date Top/Bottom Three Sector Performance Attribution

BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA) vs. BofA Merrill Lynch US High Yield Index (H0A0)

Source: FactSet. Data as of July 31, 2016. Past performance is no guarantee of future performance. Top and bottom three sector attribution of the BofA Merrill Lynch US Fallen Angel High Yield Index for fallen angels versus the BofA Merrill Lynch US High Yield Index for the broad high yield bond market. Figures are gross of fees, non-transaction based and therefore estimates only. Past performance is not indicative of future results. Attribution represents the opportunity cost of investment positions in a group relative to the overall benchmark.

Fallen Angel Investment Thesis

The investment thesis behind fallen angels is based on the premise that performance can be driven by sector themes, higher average credit quality, and the tendency of fallen angels to be oversold prior to entering the H0FA Index. The strong performance of fallen angels so far in 2016 is consistent with this thesis, and can be attributed, in particular, to the favorable commodities environment post the 2014/15 oil price collapse. Many fallen angels entered the H0FA Index at discounted prices over the past year and a half, mainly from the basic industry and energy sectors. These sectors are now meaningfully overweight, but have a higher average credit quality constituency, relative to the broad high yield bond market. This scenario is a prime example of the fallen angel thesis, and may help support how this subset of high yield bonds offers a sufficient combination of price appreciation and yield for a potentially optimal high yield bond allocation over the long term.

ANGL Outperformed Majority of Active Peers

VanEck VectorsTM Fallen Angel High Yield Bond ETF (ANGL), which seeks to track the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA), placed in the first percentile relative to actively managed high yield bond funds over multiple time horizons since its April 2012 inception.4

VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL) vs. Morningstar Active High Yield Bond Universe

VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL)

Source: Morningstar. Data as of June 30, 2016.
This chart is for illustrative purposes only. The performance data quoted represents past performance. Past performance is not a guarantee of future results. Performance information for the Fund reflects temporary waivers of expenses and/or fees. Had the Fund incurred all expenses, investment returns would have been reduced. Investment return and value of the shares of the Fund will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Fund returns reflect dividends and capital gains distributions. Performance current to the most recent month end is available by calling 800.826.2333 or on vaneck.com. VanEck Vectors Fallen Angel High Yield Bond ETF commenced on April 10, 2012. An investor cannot invest directly in an index. The results assume that no cash was added to or assets withdrawn from the Index. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown. The actively managed high yield bond category is represented by the Morningstar Open End Funds – U.S. – High Yield Bond category. See index descriptions below.

VanEck Vectors Fallen Angel High Yield Bond ETF received a three-year and overall five-star rating from Morningstar, as of June 30, 2016.5 ANGL was rated against 653 funds in Morningstar's high yield bond category based on total returns. Past performance is no guarantee of future results. Additional resources and information on VanEck Vectors Fallen Angel High Yield Bond ETF »

]]>
Russian Resilience: An Economy Driven by Pragmatism and Consistency https://www.vaneck.com/blogs/etfs/russian-resilience-economy-driven-pragmatism-consistency-august-2016/ If history has taught us one thing about Russia, it is that its resilience should not be underestimated. In 2016, Russian markets have staged a comeback, rising 8.49% in local currency (ruble) terms and 24.78% in U.S. dollar terms.

]]>
Van Eck Blogs 8/1/2016 12:00:00 AM

Authored by James Duffy, Product Manager, VanEck VectorsTM ETFs

If history has taught us one thing about Russia, it is that its resilience should not be underestimated. Its legendary winters have forged a determination in its people that, when tested, particularly by foreigners, sees them dig in for a long hard fight. After the end of the siege at Leningrad (January 1944), Russians proudly proclaimed "Troy fell, Rome fell, Leningrad did not fall." The length: 900 days. The toll: 670,000 to 1,500,000 people.1

Given the country's recent history it should come as no surprise that Russian markets are staging a comeback.

Russia in Recovery

The Russian economy may have contracted in the first quarter (1.2% growth year-on-year), but it was less than expected.2 During the same period, the economy benefited both from higher oil prices and a stabilization in the ruble's exchange rate. In June, stating steady inflation as a reason, the Bank of Russia lowered its key interest rate by 50 basis points to 10.5%.3 At the half year mark, Russia's stock market had risen 8.49% in local currency (ruble) terms for the six-month period and 24.78% in U.S. dollar terms.4 As of July 25, the MVISTM Russia Index (MVRSXTR) was up 23.21% YTD; at the same time, small-caps as measured by the MVIS Russia Small-cap Index (MVRSXJTR) soared 40.47% in the first half of the year.

2016 YTD Total Returns 12/31/2015 – 7/25/2016
MVIS Russia Index (MVRSXTR) versus MVIS Russia Small-Cap Index (MVRSXJTR)

Source: MVIS and VanEck.

Pragmatism and Consistency

Why does Russia remain resilient? On the economic front at least, two characteristics stand out: pragmatism and consistency.

A good illustration of Russia's pragmatism is the reaction of Minister of Finance Anton Siluanov at the beginning of March, to Moody's Investors Service placing Russia on review for a downgrade. Assigning no blame, Siluanov noted that the rating agency's move indicated "…the need to adapt the budget system to the new reality in the commodities market."5

When it comes to consistency, you need to look no further than the Central Bank of Russia. Following the imposition of sanctions, the central bank continued to opt for a more orthodox policy response than was initially expected. This has allowed Russia's currency to act as a shock-absorber, and it has worked. The ruble sold off almost 75% in 2015 and inflation at the end of this year could be as low as 7%. Russia continues to pay its debts despite having its market access severely restricted under sanctions and as a result the government's external debt has approximately halved in the past two years (falling to $31.5 billion).4

"Russian Markets Did Not Fail"

Russians may someday proclaim, Communism failed, Western Sanctions failed, but Russian markets did not fail. The Russian equity markets can be accessed through VanEck Vectors Russia ETF (RSX) and VanEck Vectors Russia Small-Cap ETF (RSXJ).

]]>
Energy Resilient, Gold Shines in 2Q https://www.vaneck.com/blogs/natural-resources/energy-resilient-gold-shines-july-2016/ Van Eck Blogs 7/21/2016 12:00:00 AM

2Q Hard Assets Strategy Review and Positioning

In the second quarter of 2016, the hard assets strategy's positions in Gold and Energy were, in particular, significant contributors to positive performance, with Gold leading Energy. Within the Energy sector, positive performance stemmed mainly from the Oil & Gas Exploration & Production (E&P) sub-industry; within this sector, only the Oil & Gas Refining & Marketing sub-industry detracted from performance, but only minimally. Only three other sub-industries detracted from performance during the second quarter, and, likewise minimally: Precious Metals and Minerals; Electrical Components & Equipment; and Fertilizers & Agricultural Chemicals.

2Q Performance Contributors

The top five contributing companies in 2Q came from Gold and the Energy sectors. The top two contributors were gold mining companies. The fact that gold miners continued to perform so well in 2Q provides, we believe, further confirmation that they came into 2016 considerably healthier than they had been for quite a while and truly deserved a valuation re-rating.

Agnico Eagle Mines1 benefited from strong operational performance, a continued focus on cost reduction, and engineering-related restructuring. Barrick Gold2 benefited from the restructuring it has been undertaking and its leverage to gold prices.

Within the Energy sector, Oil & Gas Exploration & Production company Newfield Exploration3 benefited from successful drilling results in central Oklahoma's STACK play; Oil & Gas Equipment & Services company Halliburton4 rose on the back of firmer oil prices and an uptick in drilling; and, Oil & Gas Exploration & Production company Cimarex Energy5 benefited from successful drilling in the Delaware Basin.

2Q Performance Detractors

The hard assets strategy's five biggest individual performance detractors came from the Fertilizers & Agricultural Chemicals and Diversified Metals & Mining sub-industries, and the Energy sector. CF Industries Holdings6 was hit by concerns around both Chinese production (which continued unabated) and the value of the Renminbi, in addition to concerns around nitrogen prices. Glencore7 suffered from profit taking after a successful first quarter and a moderation in key commodity prices. Valero Energy (sold by the strategy during the quarter) suffered from the rebound in crude oil prices. Oil & Gas Storage & Transportation companies Scorpio Tankers8 and Golar LNG9 suffered, respectively, with lower tanker rates and a softening in the global liquefied natural gas (LNG) market.

Brexit Decision Seen as a Defining Moment of 2Q

Despite the market spending most of the three-month period under the twin shadows and uncertainties of Brexit and the U.S. presidential elections, sentiment remained positive. Overall the environment was positive for commodities, particularly for gold. The most significant macroeconomic factor influencing commodities markets was the continued extraordinary accommodation extended by central banks around the world. In addition, supply and demand, particularly for oil and gas, continued to rebalance.

For many, the Brexit referendum on June 23, the result of which was the U.K. voting to reject continued membership of the European Union (EU), was seen as a defining moment. Perhaps somewhat surprisingly, Brexit's immediate effect was somewhat less than cataclysmic, and commodities have remained surprisingly resilient. It remains to be seen, however, just what the long-term effects of the vote will be.

Demand for Crude Oil Remains Strong

Despite lackluster prospects for economic growth in both Europe and the U.S., the demand for crude oil and, in particular, gasoline remained remarkably strong. The U.S. is now consuming almost 10 million barrels a day. The country's gasoline demand exceeds the unrefined crude oil demand of every country in the world except China.

Concerns that a flood of Iranian crude oil could swamp the market continued to prove unfounded. Albeit reasonably strong, supply from the country was, in no way enough to offset supply disruptions in the market, for exogenous reasons, during the quarter. These included pipeline outages in Nigeria, wild fires in Canada that hit oil sands production particularly hard, reduced supply from Libya on the back of persistent political uncertainty, and supply from Venezuela reduced still further because of both the country's dire economic circumstances and continued drilling challenges.

Industrial Metals Companies Continued to Restructure

Base metal companies continued to restructure during the quarter, cleaning up balance sheets, streamlining operations, and focusing more on profitability. In addition, they continued to sell off assets and reduce debt levels. On the back of the finding by the U.S. Department of Commerce that government subsidies and dumping were occurring, tariffs were imposed on imports of steel into the U.S., particularly those from China. U.S. steel stocks benefited accordingly.

Hard Assets Strategy Prudently Positioned for Brexit Impact

The U.K.'s historic Brexit decision on June 23 was clearly one of the most important events during the quarter. Currently our London-listed and GBP-denominated exposure represents around 4% of our strategy's exposure. We believe that we were prudently positioned going into the vote given a gold equities exposure of approximately 19%, one of the highest allocations since the inception of our hard assets strategy. Furthermore, the high-quality, companies (i.e., strong balance sheets and long-term structural growth stories) in our other sectors are likely to prove relatively resilient during the period of uncertainty that will follow the vote.

While global economic growth trends were put at risk by the result of the vote, we continue to believe that demand for commodities will likely remain solid in the face of moderate GDP progression. Further output constraint in crude, base metals, and some bulk materials could possibly be exacerbated by this murky outlook, but this may in turn tighten commodity markets and support prices. Given that the U.S. Federal Reserve is now not likely to raise interest rates, this should continue to put pressure on the U.S. dollar which may be stimulating to emerging markets and commodity demand.

Room for Tempered Optimism

While we still believe there is room for optimism, we also believe that this should still remain tempered when it comes to supply and demand rebalancing in the oil and gas sector. It remains, perhaps, too easy to fall into the trap of thinking that a 10%, or even a 50%, increase in a U.S. onshore oil rig count of fewer than 350 can restore the balance, and to forget that, to plumb its current depths, the rig count has actually dropped from its highs by a total of some 1,300 rigs. It is going to take an increase of considerably more than 150-200 rigs to bring back any growth in production. Maybe not all 1,300 rigs, but perhaps at least half of them. And for crude to be anywhere from $50 to $60 a barrel.

Inaugural VanEck Energy Renaissance Conference 2016 a Success

Finally, we held our inaugural VanEck Energy Renaissance Conference 2016, in Houston at the end of May to which we invited a number of leading CEOs from the space. One of the main themes we explored during the day was "Surviving and Thriving through the Current Downturn," with special reference to the oil and gas industry here in the U.S. The very fact that we could hold the conference and discuss this provides proof that there are such companies.

One of the main pillars of our investment philosophy continues to be to look for long-term growth and the structural enhancement in intrinsic value in the companies in which we invest. Even in today's market conditions this continues to be one of our guiding tenets. Since we remain convinced that positioning our strategy for the future, and not just reacting to current circumstance, is of paramount importance, our focus across the sectors in which we invest remains on companies that can navigate commodity price volatility and help grow sustainable net asset value.

Download Commentary PDF with Fund specific information and performance »


]]>
Emerging Markets End Quarter on High Note https://www.vaneck.com/blogs/emerging-markets-equity/emerging-markets-end-quarter-high-note-july-2016/ Emerging markets equities, and our investment strategy, performed relatively well in 2Q, despite the challenges of Brexit, negative bond yields, a sharp appreciation in the Japanese yen, and concerns about the rise of “populist politics”.

]]>
Van Eck Blogs 7/21/2016 12:00:00 AM Macro Turbulence Persisted in 2Q

At the end of first quarter of 2016, we observed: "This quarter has been one of more twists and turns in macro factors than we can, perhaps, remember." Three months later, as macro-driven turbulence continued, this statement still resonates. Markets have been challenged by the U.K.'s Brexit decision to leave the European Union (EU), negative bond yields, a sharp appreciation in the Japanese yen, and concerns about the rise of "populist politics". However, despite these various continuing risk events, there have been a number of factors which have contributed to the outperformance of the emerging markets asset class for the quarter and year-to-date.

One of the most important changes is that the U.S. dollar appears to have discovered a level of equilibrium, after a period of sharp appreciation. A strengthening U.S. dollar is not helpful for emerging markets. It negatively affects earnings, domestic liquidity, and translation of returns to U.S.-based investors. Commodities have rebounded across the board this year. Our strategy eschews investment in cyclically driven stocks, so while this is not helpful for relative performance (as discussed below), it tends to be positive for the asset class as a whole.

Large-Caps Outperformed Small-Caps Again

In emerging markets equities, the second quarter of 2016 witnessed some of the same dynamics and factors that dominated in 1Q. In particular, return dispersions between sectors and countries remained large, and large-caps continued to outperform small-caps. Commodities-related sectors and countries continued to rally (although less so than in the first quarter). Both the MSCI China and MSCI India Indices' performances improved in the second quarter, but have certainly not matched the year-to-date performance of their Latin America (LATAM) counterparts. It is worth noting that, so far this year, despite all the negative events and headlines, the MSCI EM Index is ahead of most major global indices, a marked contrast to the last five years. Gratifyingly, despite all this turmoil and confusion, and the outperformance of commodities-related sectors, our strategy was able to outperform its Index in the second quarter, clawing back a significant part of the first quarter underperformance, and continuing its long run outperformance of the asset class.

LATAM Outpaced Asia, Led by Brazil

On a country level, in the second quarter, LATAM emerging markets countries continued to outperform Asian emerging markets countries, led by Brazil, Peru, and Argentina. Brazil is still enjoying a post-impeachment run. Confidence in the economy has improved recently and Brazil's GDP forecast for 2017 has generally been upgraded and inflation forecasts cut. However, Brazil, as a commodity exporter, will continue to be sensitive to negative headlines regarding global growth. In addition, the structural issues relating to its fiscal accounts and lack of infrastructure will not be easily solved.

Peru performed well in the second quarter, following a positive presidential election cycle. The country also benefited from MSCI's decision to keep it in the MSCI EM Index. Argentina equities are still enjoying the country's return to global markets. Poland and Turkey were among the worst performers during the second quarter. Both countries have significant political issues to cope with, while suffering from the possible consequences of the Brexit vote.

Concerns about Capital Outflows from China Declined

The MSCI China Index was up slightly in the second quarter. Concern surrounding China's capital outflows has lessened, but there is still net depreciation pressure on the yuan (CNY). In some ways, mild, engineered depreciation versus a basket of currencies, while keeping a lid on capital outflow pressures, represents a positive outcome for China. Market concern has tended to focus more on the rapid increase in leverage that we have seen in China since the global financial crisis. While we do agree that there is a significant issue that will necessitate some hard decisions, we think that there are very significant differences in the nature of that debt and the management of the economy should prevent a systemic crisis in the foreseeable future.

As a reminder, our investments in China are firmly focused on the better, more sustainable parts of the Chinese equity story. We find areas such as tourism, education, healthcare, and e-commerce to be some of the healthier and more predictable places to makes investments in China. This contrasts with the more cyclical parts of China, involving commodities, heavy industry, and property, which may nevertheless have their "moment in the sun" from time to time.

Brexit Likely to Impact Eastern Europe

A major, unexpected event in the second quarter for world markets and currencies was, of course, the Brexit vote in the U.K. The direct, first order implications for emerging markets are relatively small. But the long term ramifications may be very significant. The uncertainty surrounding the future relationship that the U.K. has with the rest of Europe, and, indeed, the nature of European integration going forward, is unlikely to be helpful for either U.K. or European growth.

Eastern European countries, especially Poland and Hungary, will be impacted more directly, as they are recipients of European Union (EU) funds (the U.K. is a major contributor), remittances (many Eastern Europeans work in the U.K.), and trade. As for the rest of the emerging markets, the impact will likely be in the form of slower growth in Europe and the U.K., potentially affecting major trading partners and commodities exporters in the emerging markets.

2Q'16 Emerging Markets Equity Strategy Review and Positioning

On a country level, positioning in China was the main detractor from the emerging markets equity strategy's performance, followed by positioning in Russia and Hong Kong. On the positive side, India, Peru, and South Korea gave the strategy's relative performance a boost. On a sector level, industrials and information technology hurt the Fund's relative performance while financials added value.

2Q Performance Contributors

India  

In India, Yes Bank Limited1 and Axis Bank2 both made the list. Yes Bank, a high quality, private sector bank, benefited from both improving loan growth and widening lending spreads. This led to significantly positive results, driven also by the Bank's focus on retail, as opposed to commercial, business opportunities. In addition, as it becomes clear that the current government is unlikely to recapitalize the overly indebted state-owned banking sector, the well-managed private banks are well positioned to take considerable market share. Axis Bank is exposed to many of the above trends, but its performance in this quarter was driven as much by the recovery in the share price after the initial poor reaction from investors to its conservative provisioning announcement in the first quarter.

China  

Long-term portfolio position Chinese internet company, Tencent Holdings3 reported very strong first quarter revenue and profit numbers, and continued to be driven by its core games business. Upgrades to earnings and an increase in the share price quickly followed. It remains a core holding.

Peru  

In Peru, in addition to its improving asset quality, consistent performance, and asset growth, financial holding company Credicorp Ltd.4 benefited from an uptick in the commodities markets, together with the turnaround in the Peruvian market, during the six month period. This followed a second half in 2015 when uncertainty as to whether the country would be reclassified by MSCI Indexers weighed heavily on its stocks and the recent resolution of political uncertainty with the election of Pedro Pablo Kuczynski as the country's president.

Brazil  

Smiles SA,5 a Brazilian company, performed commendably in the first half of 2016. The company provides value-added operations to "air mile" programs in Latin America. The company has benefited both from being a Brazilian real-based stock, and from the country's recent recovery.

2Q Performance Detractors

China  

Chinese internet companies JD.com6 and Baidu Inc.7 were among the strategy's worst performers for the quarter. JD.com, an e-commerce company, disclosed some superficially negative data points regarding top-line sales which caused further multiple contraction. However, we believe the valuations do not fully reflect the considerable growth opportunities in the e-commerce sector in China and we are inclined to remain patient. Baidu suffered from regulatory issues surrounding advertising in the healthcare sector. The company was forced to cut back on revenue from this lucrative sector until resolution becomes clearer, hurting earnings.

Having been forced to change its business model, Hong Kong-listed, China-based Boer Power Holdings Ltd.,8 which provides electrical distribution solutions, faced increased business risk in our opinion. The company's leverage increased as it took on higher levels of accounts receivable. Although we have reduced our exposure to the company until the outlook becomes more predictable, we believe that it will continue to be a beneficiary of the development of a smarter grid in China.

CAR Inc.,9 based in Hong Kong, is the largest auto rental company in China and provides vehicles to U-Car, a partner providing "Uber-like" chauffeured car services in China. The issues around this company, and its recent poor performance, center on uncertainty surrounding the regulatory environment that has led U-Car to scale back its investment and, thus, use fewer CAR Inc. vehicles. The management remains focused, however, on the very valuable core rental business.

Taiwan  

Catcher Technology10 is one of the leaders in the high-end supply chain to the smart phone industry. The shares and earnings were both softer for the quarter in line with reduced sales in the sector overall and concerns over its metal casing that was supposed to be used in future smartphones.

Many Areas of Superior, Sustained Growth

We are constructive on the continuing outperformance of emerging markets in a global context. We continue to implement our philosophy of structural growth at a reasonable price. We find that there are many areas of superior, sustained growth that are essentially non-cyclical in nature and that should provide reliable opportunities for well-managed companies to exploit. In some places, demographics are very positive, and consumer preferences and labor skills continue to evolve quickly. Other countries are taking seriously the structural reforms and skills investment necessary to advance their economies from the middle income level.

Services and Financial Sectors Stand Out

We continue to be very excited by the services and financial sectors. Within these, we are interested in participating in companies where strong, innovative management teams are able to capitalize on dynamic change and extract real value, including e-commerce, internet services, healthcare, travel, and education, and very specific, consumer-focused, financial services business models.

Taking pockets of reliable structural growth in the emerging markets as a starting point, and then adding to these the expectation of a continued benign U.S. dollar environment, we believe should lead to decent relative returns in this growth challenged world. Volatility in commodities may help, or hurt, our relative performance at the margin, quarter by quarter. But, over the medium- to longer-term horizon, we continue to believe we are able to access superior non-cyclical, repeatable, risk-adjusted returns for our investors.

New Discoveries Merit Investments

We continue to discover, and invest in, great companies with strong competitive advantages. As we always point out, for periods of time, countries and sectors may drift in and out of favor with investors and cause us bouts of underperformance. However, great companies – regardless of their home country – usually have strong cash flows to invest consistently in their businesses, and compound long-term structural trends despite short-term periods of underperformance against either a benchmark or cyclical sectors. We remain disciplined during these periods and add to positions where valuations guide us, but we do not chase short-term trends or short-term shifts in investor preference.

Download Commentary PDF with Fund specific information and performance  

For a complete listing of the holdings in VanEck Emerging Markets Fund (the "Fund") as of 6/30/16, please click on this PDF. Please note that these are not recommendations to buy or sell any security.

 

Post Disclosure  

1Yes Bank Limited represented 2.94% of the Fund's net assets as of 6/30/16.  

2Axis Bank represented 2.12% of the Fund's net assets as of 6/30/16.  

3Tencent Holdings represented 3.11% of the Fund's net assets as of 6/30/16.  

4Credicorp Ltd. represented 2.38% of the Fund's net assets as of 6/30/16.  

5Smiles SA represented 1.10% of the Fund's net assets as of 6/30/16.  

6JD.com represented 2.92% of the Fund's net assets as of 6/30/16.  

7Baidu Inc. represented 1.75% of the Fund's net assets as of 6/30/16.  

8China-based Boer Power Holdings Ltd. represented 0.30% of the Fund's net assets as of 6/30/16.  

9CAR Inc. represented 1.19% of the Fund's net assets as of 6/30/16.  

10Catcher Technology represented 1.41% of the Fund's net assets as of 6/30/16.  

All 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 strategy. An index’s performance is not illustrative of the strategy’s performance. Indices are not securities in which investments can be made. The Morgan Stanley Capital International (MSCI) Emerging Markets Index captures large- and mid-cap representation across 23 Emerging Markets (EM) countries. With 836 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. The MSCI Emerging Markets Investable Market Index (IMI) captures large, mid and small cap representation across 23 Emerging Markets (EM) countries. With 2,628 constituents, the index covers approximately 99% of the free float-adjusted market capitalization in each country. MSCI All Country World Index (ACWI) captures large and mid cap representation across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries. With 2,483 constituents, the index covers approximately 85% of the global investable equity opportunity set.  

IMPORTANT DISCLOSURE  

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 views and opinions expressed are those of the speakers and are current as of the posting date. Videos and commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results.

Please note that Van Eck Securities Corporation offers investment portfolios that invest in the asset class(es) mentioned in this commentary. The Emerging Markets Equity strategy is subject to the risks associated with its investments in emerging markets securities, which tend to be more volatile and less liquid than securities traded in developed countries. The Emerging Markets Equity strategy's investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, including the takeover of property without adequate compensation or imposition of prohibitive taxation. The Emerging Markets Equity strategy is subject to risks associated with investments in derivatives, illiquid securities, and small or mid-cap companies. The Emerging Markets Equity strategy is also subject to inflation risk, market risk, non-diversification risk, and leverage risk. Please see the prospectus and summary prospectus for information on these and other risk considerations.

You can obtain more specific information on VanEck strategies by visiting Investment Strategies.

Investing involves risk, including possible loss of principal. An investor should consider investment objectives, risks, charges and expenses of any investment strategy carefully before investing. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation.

]]>
Rate Expectations Drive Emerging Markets Debt Rally https://www.vaneck.com/blogs/emerging-markets-bonds/rate-expectations-drive-emerging-markets-debt-rally-july-2016/ Van Eck Blogs 7/20/2016 12:00:00 AM Global emerging markets ("EM") debt, both hard and local currency, rebounded strongly in June after a significant retracement in May. One of the main drivers behind the resumption of the EM debt rally was yet another shift in interest rate expectations, following a very weak U.S. employment release on June 3. The U.K. Brexit vote on June 23 was an even more significant event, one that placed a very large exclamation point on the renewed expectations for "lower for longer."

Negative Rates Intensify the Hunt for Yield

As unpredictable as the Brexit decision was, the fact that the resulting selloff in risk markets reversed so quickly, yet rates continued to fall, was equally difficult to forecast. The net result has been that by early July, some $11.5 trillion in bonds were trading at negative rates, with 58% of the Barclays US Aggregate Bond Index1 trading below 1%. Thus, the hunt for yield continued as aggressively as ever. Given the impact that the more hawkish tone struck by the Federal Open Market Committee members had on debt markets in May, the rapidity of the shift back to extremely dovish expectations is somewhat unsettling and leaves one wondering how quickly expectations can swing back the other way.

Current Conditions Support Emerging Markets Debt

In the near term, the precarious position of European banks – a situation that has persisted but has moved in and out of focus over the last four years – in combination with a variety of risks to global growth prospects will likely keep the hawks at bay. While global growth statistics remain within muted expectations, EM debt and equity could remain the beneficiaries of additional capital flows for some time. The inflows to EM debt funds to date in 2016 are quite small relative to what left EM debt funds in 2015.

Under current conditions, we expect to see an acceleration of inflows during the second half of the year. Valuations, positive real rates of interest, and EM central banks with (conventional) policy flexibility are all supportive of the case for EM. The risks are many, including further growth deceleration and a reversal in the commodity price recovery. On the flip side, a rate shock, as unlikely as it may seem at the moment, could cause a sharp reversal in flows to various debt asset classes, including EM.

Brexit's Impact Hardest for Central and Eastern Europe

Within emerging markets, the Brexit impact, predictably, was felt most poignantly in Central and Eastern Europe. These countries have the highest dependence on Britain and the EU for trade. Romania, Poland, and Hungary were the laggards in the local currency space, while high beta countries such as Brazil, South Africa, and Colombia posted total returns (from both local interest rates and foreign currency movements) of between 10% and 15% in June alone. Despite recovering 1.8% in June, Mexico's local debt is the only major market with a negative return year-to-date return (-2%) for the first half of 2016, all due to persistent weakness in the peso. In hard currency markets, Venezuelan debt continued to recover, returning more than 12% in June. Brazilian, South African, and Colombian sovereign and corporate U.S. dollar-denominated bonds were among the top performers as well, particularly sovereign bonds with returns in excess of 5%. That being said, overall in June, credit spreads on hard currency EM debt were only marginally tighter (virtually unchanged in the corporate markets). Duration and the U.S. Treasury rally were very much the drivers of return.

10-Year Local Currency Sovereign Bond Yields (%)
as of June 30, 2016

 
Source: FactSet.

 

Download EM Debt Monitor PDF with Fund specific information and performance  

RELATED FUNDS  

VanEck Vectors ETFs
CBON   ChinaAMC China Bond ETF  
EMAG   Emerging Markets Aggregate Bond ETF  
EMLC   J.P. Morgan EM Local Currency Bond ETF  
HYEM   Emerging Markets High Yield Bond ETF  
IGEM   EM Investment Grade + BB Rated USD Sovereign Bond ETF  
IHY   International High Yield Bond ETF  
 
VanEck Funds
EMBAX   Unconstrained Emerging Markets Bond Fund: Class A  

Post Disclosure  

1The Barclays US Aggregate Bond Index is a broad-based benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency).

All data as of 6/30/2016. Source of all data: FactSet, Barclays, and J.P. Morgan.

Duration is a measure of the sensitivity of the price of a fixed-income investment to a change in interest rates.

The information herein represents the opinion of the author(s), 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.

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 a fund. An index's performance is not illustrative of a fund's performance. Indices are not securities in which investments can be made.

Please note that Van Eck Securities Corporation offers investment products that invest in the asset class(es) included in this commentary. Debt securities carry interest rate and credit risk. Bonds and bond funds will decrease in value as interest rates rise. Debt securities carry interest rate and credit risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer's financial health. Securities may be subject to call risk, which may result in having to reinvest the proceeds at lower interest rates, resulting in a decline in income. International investing involves additional risks which include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Changes in currency exchange rates may negatively impact the Fund's return. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict and social instability.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will generally decrease in value as interest rates rise. 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 contains this and other information, call 800.826.2333 or visit vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.  

 

]]>
Munis: High Drama on the High Wire https://www.vaneck.com/blogs/muni-nation/high-drama-high-wire-july-2016/ Thus far in 2016, the municipal bond market has continued to thrive despite headline drama. Jim Colby explains why munis have expertly navigated this "high wire" walk.

]]>
Van Eck Blogs 7/19/2016 12:00:00 AM For months, if not for years, the municipal market has been walking the "high wire" of confidence and performance, all while certain high profile issuers (Stockton, Detroit, and Puerto Rico) and external events filled the headlines with decidedly unflattering commentary and predictions. It seems that friends and fans of the muni asset class need to be reminded that their tax-free investment class continued, predominantly, to perform well in 2016. I believe that this, substantially, remains the case.

Positive Muni Performance in the First Half of 2016

As shown below, munis continued to offer attractive returns relative to other assets: the performance of the broad Barclays Municipal Bond Index was a positive 4.33%, and muni high yields were also strong with a 7.98% return, as measured by the Barclays High-Yield Municipal Bond Index. Munis outperformed Treasuries, investment grade corporates, and U.S. equities, all while providing the added benefit of federally tax-free yields. During this period, issuers, perhaps emboldened by the near historically low rate environment, came to market with over $200 billion in new bonds - a higher volume than a year ago.

Munis Offered Attractive Returns in the First Half of 2016
January 1, 2016 – June 30, 2016

Sources: Barclays and Bloomberg as of June 30, 2016. Treasuries are represented by the Barclays U.S. Treasury Index; investment-grade corporates by the Barclays US 1-5 Year Corporate Index; high yield corporates by the Barclays US Corporate High Yield Index; broad municipal bonds by the Barclays Municipal Bond Index; and high yield municipal bonds by the Barclays High Yield Municipal Index. Index performance shown is not representative of the performance of any specific investment. It is not possible to invest directly in an index. Past performance is no guarantee of future results.

Munis Continue to Thrive Amid Headline Drama

The backdrop drama narrative, which provided a springboard for the market to improve in the first half of 2016, centered on the uneven economic performance of our economy, which resulted in a hesitant Federal Reserve initiating no rate increases. Further, worldwide instability brought on by acts of terrorism and a most surprising Brexit vote in the United Kingdom, led to sharp rallies in U.S. Treasuries, with municipals following this lead.

At the same time, the drama that played out in the hallways of San Juan and Washington, which resulted in the signing of the PROMESA legislation (the Puerto Rico Oversight, Management, and Economic Stability Act) effectively creating a "stay" in politico-economic activities on the island, set the stage for a default of significant proportions of the Commonwealth's 15 issuers of tax-exempt securities. Yet the muni market continues (as I have suggested in prior posts) to avert its eyes from these recent negative events to generally deliver both reliable income streams and returns that compare favorably to many other asset classes. This might be the most underappreciated feature of municipals that investors seem to rediscover over and over again.

Munis Retain Their Popular Profile

The high wire walk that the muni market seems to have expertly navigated is likely to continue for the foreseeable future, in my opinion. With some sovereign yields in Europe in negative territory and foreign interest in munis stimulating demand, the asset class overall has retained its popular profile and is focused on the other end of the wire without concern for the roiling waters below.

 

RELATED ETFs
HYD High-Yield Municipal Index ETF
ITM Intermediate Municipal Index ETF
MLN Long Municipal Index ETF
PRB Pre-Refunded Municipal Index ETF
SHYD Short High-Yield Municipal Index ETF
SMB Short Municipal Index ETF
XMPT CEF Municipal Income ETF

 

Post Specific Disclosures

The Barclays High Yield Municipal Index covers the high yield portion of the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. The Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt bonds with a maturity of at least one year. The Barclays US 1-5 Year Corporate Index includes US dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between 1 and 5 years. The Barclays US Corporate High Yield Index represents the universe of fixed rate, non-investment grade debt. Eurobonds and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded but, Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue zeroes, step-up coupon structures, 144-As and pay-in-kind bonds (PIKs, as of October 1, 2009) are also included. The index includes corporate sectors. The corporate sectors are Industrial, Utility, and Finance, encompassing both US and non-US Corporations. The Barclays US Treasury Index represents the US Treasury component of the US Government index. The S&P 500® Index consists of 500 widely held common stocks covering industrial, utility, financial, and transportation sector; as an Index, it is unmanaged and is not a security in which investments can be made.

]]>
Investment Grade Emerging Markets Bonds: Higher Yield, Balanced Risk https://www.vaneck.com/blogs/etfs/investment-grade-emerging-markets-bond-higher-yield-balanced-risk-july-2016/ Emerging markets bonds is an asset class where investors often look for higher yields, and this year they have attracted special interest.

]]>
Van Eck Blogs 7/18/2016 12:00:00 AM

Authored by William Sokol, Product Manager, ETFs

Given the current exceptionally low interest rates in the U.S. and negative rates in other developed markets, investors are increasingly searching beyond global core fixed income asset classes for higher yields.

Emerging markets (EM) bonds is one asset class where investors often look for higher yields, and this year they have attracted special interest. Several tailwinds have helped the asset class thus far in 2016, including continued low interest rates in the U.S., a rebound in commodity prices, and expectations of relatively higher emerging markets economic growth versus developed economies. Furthermore, valuations were considered by many to be attractive at the beginning of 2016, following a few challenging years for the asset class.

Investors Should Weigh Higher Yields with Emerging Markets Risks

As with any investment in the emerging markets, investors must balance the additional yield which can be achieved with emerging markets bonds with incremental risks. These are primarily political and market related risks that can increase volatility. In addition, recent downgrades by credit rating agencies reflect increased credit risk in the broad emerging markets universe.

But emerging markets represent a diverse group of countries, and individually they carry varying levels of risk. Because of this, income-seeking investors may find opportunities by isolating the higher quality segment that exists within the emerging markets universe.

A potential solution for credit-conscious investors is to focus on the higher quality, investment grade subset of the broad U.S. dollar-denominated emerging markets universe, which accounts for about 54% of the market.1 This segment provides higher yields versus U.S. corporate investment grade bonds, allowing for additional income potential without additional credit risks. Also, U.S.-based investors limit the currency risk associated with emerging market local currencies, by investing in hard currency bonds.

A Compelling Yield Comparison
as of June 30, 2016

Source: IG EM Sovereigns represented by the investment grade subset of the J.P. Morgan EMBI Global Diversified Index. IG U.S. Corporates represented by the Barclays U.S. Corporate Bond Index. Global Core Bonds represented by the Barclays Global Aggregate Bond Index.

Investors may also want to consider a small allocation to BB rated emerging markets countries. These higher-rated high yield issuers provide incremental yield while also allowing investors to maintain exposure to "fallen angel" countries (whose credit ratings have dropped below investment grade) such as Russia and Brazil, which are among the largest emerging markets issuers. Along with the potential yield pickup, improving credit fundamentals may contribute positively to returns over time.

Complement Your Global Bond Portfolio

Adding U.S. dollar-denominated investment grade emerging markets bonds to a global bond portfolio can add yield and diversification, without a significant increase in credit and currency risk.

VanEck VectorsTM EM Investment Grade + BB Rated USD Sovereign Bond ETF ( IGEM) (the "Fund") provides access to the higher rated subset of the broad U.S. dollar-denominated emerging markets sovereign bond universe.

]]>
Gold Bull Market Gains Momentum https://www.vaneck.com/blogs/gold-and-precious-metals/gold-bull-market-gains-momentum-july-2016/ Several macroeconomic surprises raised global financial risks in June, and propelled gold. On June 24, the day following the historic Brexit decision, gold reached a new two-year high of $1,359 per ounce. Gold finished up 8.8% in June.

]]>
Van Eck Blogs 7/14/2016 12:00:00 AM

For the month ending June 30, 2016

Brexit Decision Boosts Gold

In June, several macroeconomic surprises around the globe raised financial risks, and propelled gold to new, near-term highs. On June 24, the day following the historic Brexit decision, gold soared to new two-year highs, reaching an intraday peak of $1,359 per ounce. Gold finished the month at $1,322.20 for a $106.87 (8.8%) per ounce gain. As has been the case all year, gold stocks reacted strongly to the move in gold bullion. The NYSE Arca Gold Miners Index (GDMNTR)1 advanced 22.7%, while the MVIS Global Junior Gold Miners Index (MVGDXJTR)2 gained 26.1%. Also, silver showed strong momentum gaining 17.0% in June to close the month at $18.71 per ounce, its highest level since September 2014.

Prior to Brexit, two earlier events in June supported gold. On June 3, the U.S. Department of Labor's May jobs report fell far short of expectations, continuing a pattern of declining job growth that began in March. The odds of a U.S. Federal Reserve rate increase tanked along with the U.S. dollar and gold advanced $34 per ounce to $1,244 per ounce. This allowed the metal to continue to establish a firm base above the technically important $1,200 level. On June 16, the Bank of Japan refrained from adding stimulus, disappointing markets that have become conditioned to expect economic life support from central banks. The Nikkei 225 Stock Average3 fell 3.1% and gold soared to a new intraday high for the year of $1,315 per ounce.

U.K.'s Brexit Move Defied Market Expectations

The United Kingdom's ("U.K.") decision on June 23 defied market expectations in passing the “Brexit” referendum to leave the European Union (EU). The financial and geopolitical ramifications of this were felt across financial markets, including stocks, bonds, and currencies. The U.K. and EU now has two years to work out the conditions of their divorce, and history has shown that few divorces end harmoniously. The level of uncertainty is high, and outcomes that damage growth and trade are easier to imagine than a win-win scenario. The ultimate risk in the longer term is the viability of the EU and the possibility that other countries may seek to exit or dismantle it. We hope for a more positive outcome and that Brexit acts as: 1) a wake-up call for the EU to become a more streamlined enabler of growth, rather than, in our view, the stifling super-state it has become, and; 2) a policy catalyst for the U.K. to again become a leader in trade and commerce that countries seek to emulate.

Gold Investors are Being Proactive, Rather Than Reactive

Throughout June, strong investment demand continued, as demonstrated by inflows into gold bullion exchange traded products (ETPs). Inflows have not been this strong since 2009 when investors sought out bullion after the subprime credit crisis. A key difference in today's market is that investors are being proactive rather than reactive. Many are seeing the looming potential for another financial crisis and making a strategic allocation to bullion as a hedge against systemic risk.

Our Gold Bull Market Conviction Strengthens

Last year we commented on the depth and duration of the gold bear market being on par with the worst in history and we began to adjust our strategy in anticipation of a turnaround. This year we have highlighted the strength and resilience of the gold market. In our last monthly update, we gained the conviction to declare a new bull market. Given the events of the first half, it is not hard to imagine a robust market for the remainder of the year. We believe gold will test the $1,400 per ounce level in the second half of 2016 and we do not believe it is likely to end there.

In addition to EU uncertainties on the back of Brexit, there are many other reasons we believe gold is reentering a secular bull market:

Monetary Policies – Unconventional monetary policies are not working as planned, causing central banks to resort to even more radical and unproven tactics with unknown consequences. According to a Fitch Ratings report, there is now over $11 trillion worth of sovereign debt with negative yields. The European Central Bank (ECB) started buying high yield corporate (junk) bonds on June 8.

Fiscal Policies – Global non-financial debt-to-GDP ratios have risen to new highs. In the U.S., total non-financial debt/GDP has reached 250%, helped by $1.2 trillion in student loans, many of which may never be repaid. China has total debt of approximately 225% of GDP, with corporate debt alone comprising an astounding 145% of GDP.

Economic Malaise – Global growth has been unable to muster strength, even with massive central bank stimulus and cheap energy provided by the historic crash in oil prices.

Currency Turbulence – No government wants a strong currency and Brexit has caused unwanted volatility that may bring destabilizing intervention.

U.S. Elections – At this time, our view is that there appears to be no good outcome in the upcoming presidential election. A Clinton victory is likely to bring a continuation of Obama policies that have resulted in a weak economy, rising debt, weak productivity, lack of business formation, and divisive politics. A Trump victory brings uncertainty and the potential for destabilizing policies if his rhetoric on trade, immigration, and debt service are pursued.

Low Returns – The six-year bull market in U.S. stocks appears to be over. The S&P 500® Index4 has struggled since reaching an all-time high in June 2015. Bonds no longer provide safe and steady returns. Investors may seek alternatives to help preserve wealth.

All of these developments can create risks for mainstream investments that potentially drive investors to gold as a currency hedge, store of wealth, or for insurance against financial and geopolitical turmoil. We are not promoting gloom and doom; however, as gold advocates, our role is to point out potential risks to an investment portfolio. Unfortunately, it seems that risks abound as a result of a financial system that has become overburdened with government intervention that stifles enterprise and free markets.

What to Expect for Gold in Second Half

If the fundamentals are supportive of a gold bull market, where might we expect the gold price to go in the future? For that we look at certain price chart patterns. Markets usually trend higher or lower over periods measured in months or years. The trends are defined by a sequence of higher highs and higher lows in a bull market, and lower highs and lower lows in a bear market. With the gold move following Brexit, a new gold trend may be emerging (Chart A). This trend has broken the 2013 – 2015 bear market trend; its trajectory is similar to the post-crisis trend from 2008 – 2011. In fact, some of the drivers, such as central bank intervention, increasing debt, and EU turmoil are the same. This indicates that gold has completed a mid-cycle correction and is resuming the secular bull market that began in 2001.

Chart A: Emergence of New Gold Price Trend
Gold Bullion Prices, 2008 to 2016

Emergence of New Gold Price Trend

Source: Bloomberg, VanEck Research.

Gold Stocks Still Have Upside

For an idea of where gold stocks might be heading, we use a plot of gold versus the GDMNTR Index. Chart B shows the relationship of gold stocks to gold bullion since 2012, which is roughly the time in which managements at many gold firms turned their companies around to become more efficient and focused on returns. The correlation5 statistic of 0.97 is a near perfect 1.00, which shows the strong relationship between gold and gold stocks.

Chart B: Gold Bullion versus Gold Shares (GDMNTR)
2012 to 2016 (Weekly Close)

Gold Bullion versus Gold Shares (GDMNTR)

Source: Bloomberg, VanEck Research.

In the first half of 2016 gold advanced $260 per ounce or 24.6%. The GDMNTR has gained 102.6% over the same period, leading many investors to question whether gold stocks have any upside left. While we do not expect such heady gains going forward, given the tight relationship between gold and gold stocks, we can use this trendline to estimate potential stock gains at higher gold prices. If gold were to advance another $260 (19.7%) from the June 2016 close, it would reach $1,582 per ounce. A trendline plot at $1,582 gives a GDMNTR value of 1,135, an additional 47% gain from the June close of 769. This beta, or leverage, to the gold price is a result of the strong cash generation that comes from higher gold prices.

Valuations are Important: P/CF Averages are Still Below Peak

It is also important to consider valuations. The performance of gold stocks has resulted in a strong increase in price-to-cash flow (P/CF) in 2016, as shown in Chart C. However, gold stocks became oversold in the recent bear market, driving valuations to historic lows. The strong stock gains in 2016 have yet to return gold stocks to their long-term P/CF averages, and they remain far below peak valuations.

Chart C: Price-to-Cash Flow of Senior- and Mid-Tier Producers, 2006 to 2016

Price to Cash Flow of Senior and Mid-Tier Producers

Source: Bloomberg, RBC Capital Markets.

Download Commentary PDF with Fund specific information and performance »


]]>
Brexit Creates Mid-Summer Opportunities https://www.vaneck.com/blogs/moat-investing/brexit-creates-mid-summer-opportunities-moats-july-2016/ Van Eck Blogs 7/13/2016 12:00:00 AM

For the Month Ending June 30, 2016

Performance Overview

U.S. moat-rated companies have posted impressive performance thus far in 2016, but their wide performance gap tightened in June amid the recent Brexit-induced global turmoil. For the first month this year, the U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR) trailed the S&P 500® Index (-1.99% vs. 0.26%) in June but maintained its relative outperformance year-to-date (12.78% vs. 3.84%). International moats fared similarly in June with the Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN) lagging the MSCI All Country World Index ex USA (-4.68% vs. -1.53%). While Brexit took a toll on global equity prices, the U.K.'s decision to leave the European Union has heightened the importance of investing in U.S. and international moat companies that possess sustainable competitive advantages at attractive prices, like those that Morningstar seeks to identify.

U.S. Domestic Moats: Brexit Effects and the Microsoft-LinkedIn Connect

The Brexit decision that came at the end of June erased hard-earned early-month MOAT returns. In particular, large financial sector companies such as State Street Corporation (STT US), Bank of New York Mellon Corporation (BK US) and U.S. Bancorp (USB US), experienced the greatest spillover effect of Brexit. The performance of healthcare companies continued to be mixed. While Cerner Corporation (CERN US), Ely Lilly and Company (LLY US), and Amerisource Bergen Corporation (ABC US) contributed positively, biotech giants such as Gilead (GLD US), Amgen (AMGN US), and Biogen (BIIB US) detracted from performance. Notable within information technology sector, Microsoft's (MSFT US) announcement to acquire LinkedIn (LNKD US) boosted the performance of the professional networking site.

International Moats: Opportunities in Several Countries

As expected, the Brexit decision had a greater impact on international moat companies in June, and overall, negative outweighed positive performance. U.K. financials lead the negative performance group followed by Hong Kong, French, and Australian financial, consumer discretionary, and information technology sector companies. On a positive note, the materials and utilities sectors helped to offset the negative effects of Brexit. Companies from Singapore, Japan, New Zealand, and Germany were among the positive contributors to performance.



(%) Month Ending 6/30/16

Domestic Equity Markets

International Equity Markets

(%) Month Ending 6/30/16

Morningstar
Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers
Constituent Ticker Total Return
LinkedIn Corporation Class A
LNKD US
38.64
Cerner Corporation
CERN US
8.82
Eli Lilly and Company
LLY US
6.62
AmerisourceBergen Corporation
ABC US
4.78
Starbucks Corporation
SBUX US 3.27

Bottom 5 Index Performers
Constituent Ticker Total Return
Bank of New York Mellon Corporation
BK US
-7.63
CBRE Group, Inc. Class A
CBG US
-11.29
State Street Corporation
STT US
-13.94
Biogen Inc.
BIIB US
-16.54
Jones Lang LaSalle Incorporated
JLL US
-17.32

View MOAT's current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Top 5 Index Performers
Constituent Ticker Total Return
CapitaLand Commercial Trust CCT SP 8.55
Symrise AG SY1 GR 8.22
Safran SA SAF FP 5.69
SoftBank Group Corp. 9984 JP 5.52
CapitaLand Limited CAPL SP 5.03

Bottom 5 Index Performers
Constituent Ticker Total Return
BNP Paribas SA Class A BNP FP -16.40
KBC Groupe SA KBC BB -17.63
Kingfisher Plc KGF LN -19.34
Henderson Group plc HGG LN -27.72
Lloyds Banking Group plc LLOY LN -31.06

View MOTI's current constituents

As of 6/17/16

Morningstar
Wide Moat Focus Index (MWMFTR)

Index Additions
Added Constituent Ticker
Polaris Inds Inc. PII US
AmerisourceBergen Corp. ABC US
Tiffany & Co. TIF US
Stericycle Inc. SRCL US
VF Corp. VFC US
Wells Fargo & Co. WFC US
Berkshire Hathaway Class B BRK.B US
Twenty-First Century Fox Inx. FOXA US
Harley-Davidson Inc. HOG US
United Technologies Corp. UTX US
Starbucks Corp. SBUX US
Microsoft Corp. MSFT US
Emerson Electric Corp. EMR US
American Express Co. AXP US
Salesforce.com CRM US
Time Warner inc. TWX US
Lilly Eli & Co. LLY US
Western Union Co. WU US
Compass Minerals Intl. CMP US
Cerner Corp. CERN US
Amazon.com Inc. AMZN US

Index Deletions
Deleted Constituent Ticker
St. Jude Medical STJ US

View Latest MOAT Reconstitution Report
View MOAT's list of current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Index Additions
Added Constituent Country
Mgm China Holdings Ltd. China
Bayerische Motoren Werke BMW Germany
National Australia Bank Australia
Crown Resorts Ltd. Australia
Platinum Asset Management Ltd. Australia
Westpac Banking Corp. Australia
Carnival Plc. United Kingdom
Wynn Macau Ltd. Hong Kong
Wipro Ltd. India
Linde Ag. Germany
Kering Ord. France
Tata Motors Ltd. India
Amp Ltd. Australia
Commonwealth Bank of Australia Australia
Power Financial Corp. Canada
London Stock Exchange Group United Kingdom
United Overseas Bank Ltd. Singapore
Nordea Bank Ab. Sweden
Svenska Gandelsbanken Ab. Sweden
Safran Sa. France
Softbank Group Corp. Japan
Computershare Ltd. Australia
Seven & I Holdings Co. Ltd. Japan
Petrofac Ltd. United Kingdom
Capitaland Mall Trust United Singapore

Index Deletions
Deleted Constituent Country
Bank of Nova Scotia Halifax Canada
Toronto-Dominion Bank Canada
CI Financial Corp Canada
HSBC Holdings Plc. United Kingdom
Centrica United Kingdom
UBS Group Ag. Switzerland
Novartis Ag. Switzerland
Swatch Group. AG. B Switzerland
Richemont, Cie Financiere A Br. Switzerland
Loof Holdings Ltd. Australia
Ainsworth Game Technology Ltd. Australia
China Merchants Bank Co. Ltd. China
China Construction Bank Corp. China
BOC Hong Kong Holdings Ltd. China
China Mobile Ltd. China
China Telecom Corporation Ltd. China
China State Construction International Holdings Ltd. China
Dongfeng Motor Group Co. China
Credit Agricole SA. France
Technip SA. France
Mobile Telesystems PJSC Russia
Embraer SA. Brazil
Grifols SA. Spain
Sun Hung Kai Properties Ltd. Hong Kong
Contact Energy Ltd. New Zealand

View Latest MOTI Reconstitution Report
View MOTI's list of current constituents



]]>
Fallen Angels Boosted by Bond Buyback Premiums https://www.vaneck.com/blogs/etfs/fallen-angels-boosted-bond-buyback-premiums-july-2016/ Van Eck Blogs 7/8/2016 12:00:00 AM

Authored by Meredith Larson, Product Manager, ETFs

Fallen angel bonds, high yield bonds originally issued with investment grade credit ratings, are generally known for offering potential value. A big source of this value has been the tendency of fallen angels to be oversold, to below what may be considered fair value, leading up to their downgrade to high yield.

However, a less obvious source of value for fallen angels can arise when the underlying corporation engages in a bond buyback, typically in the form of a public tender. Bond buybacks are a form of “liability management” that can help companies tidy up their balance sheets, improve their credit standings and ratings, and attract and retain investors. Companies use buybacks either to retire debt at a discount or to reduce costs simply by buying back a higher yielding bond and then issuing a new bond at a lower interest rate.

How Buybacks Add Value

Companies typically establish a tender offer price that is a premium to a bond's current price in order to entice investors to sell. As of June 30th, 11 fallen angel companies had issued tender offers year to date, boosting their bonds' prices by 5%, on average, between the day prior to and the day after the tender offer. Mainly from basic industry and energy sector issuers, five of the 11 firms were 2016 fallen angel entrants: Ensco, Encana, Noble Holdings, Anglo American Capital, and Southwestern Energy Company.

As shown in the bar chart below, bonds with tender offers contributed +243 basis points (bps) to the 16.18% year-to-date return of the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA), as of June 30th. By contrast, the BofA Merrill Lynch US High Yield Index (H0A0) returned 9.32%, of which just +57 bps can be attributed to bonds with tender offers in 2016.

YTD Return Contribution from Bonds with Tender Offers
As of June 30, 2016

Source: FactSet. Past performance is no guarantee of future performance. Contribution is presented for the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA) versus BofA Merrill Lynch US High Yield Index (H0A0) for the broad high yield bond market. Figures are gross of fees, non-transaction based and therefore estimates only.

A greater proportion of the H0FA Index than the H0A0 Index has been impacted by bond buybacks. As of June 30th, 10.5% of the H0FA index's market value was comprised of bonds that had issued tender offers year to date, versus the broad high yield bond market's 3.3% (H0A0). One major difference for fallen angel investors is that the debt issued to finance buybacks does not qualify for the H0FA index, since the new bonds would typically be issued as high yield. As such, fallen angel investors are not financing the buyback by buying new debt.

Companies recognize the value in buying back bonds for a variety of reasons; for investors it signals both the companies' willingness and ability to meet their debt obligations. For fallen angels, bond buybacks have served as another source of value so far this year. We believe bond buybacks offer another compelling reason for investors to look at the potential of this asset class.

]]>
Spin-Off in the Spotlight: Associated Capital Group (NYSE: AC) https://www.vaneck.com/blogs/etfs/spin-off-associated-capital-group-july-2016/ Van Eck Blogs 7/1/2016 12:00:00 AM

Written by Horizon Kinetics' Research Analysts and CFA Charterholders Ryan Casey and Salvator Tiano, who together bring more than 20 years of combined industry experience to their research roles focusing on domestic and international spin-offs.

Spin-Off Company: Associated Capital Group, Inc. (NYSE: AC)
Parent Company:
Gabelli Asset Management (NYSE: GBL)

Spin-Off Date: December 1, 2015
GSPIN Index Inclusion Date: April 1, 2016

Associated Capital Group, Inc. ("Associated Capital"; NYSE: AC) was first added to the Horizon Kinetics Global Spin-Off Index (the "Index") on April 1, 2016, after being spun off from Gabelli Asset Management ("GAMCO"; NYSE: GBL) in November 2015. The company has two divisions: institutional research, which is a mature business with low growth prospects, and alternative investments, which is a potentially high-growth operation.

The Associated Capital spin-off was conceived as a way to liberate the alternative investment operations from GAMCO and provide it with the opportunity for unfettered growth. This division managed $1.1 billion of client assets in merger arbitrage and event-driven value strategies as of March 31, 2016. Although this constituted less than 3% of GAMCO’s total assets under management (AUM) at the time of the spin-off, the division was growing, as the remainder of GAMCO was facing redemptions. Had the alternative investment division become successful as a part of GAMCO, its value might have been diluted. As a separate, publicly-traded entity, however, this should no longer be the case.

AUM and Net Income Growing, Despite Operating Losses

Associated Capital is still immature in that current revenues have been insufficient to cover operating expenses. The company has progressively increased its AUM, but it has still produced operating losses, although its net income has been slightly positive as a result of investment gains and interest income. For this reason, the company’s shares cannot be said to be undervalued based on traditional valuation measurements such as its price-to-earnings multiple. Instead, the investment might be better understood from a risk versus return perspective.

The company was capitalized with a large amount of liquid assets, including cash, common stock, and mutual funds at the time of the spin-off. In total, there were $813 million of assets on its balance sheet (as of 3/31/2016), of which cash and other marketable investments accounted for $616 million, or about 75% of the total. Thus, it is clear that GAMCO infused Associated Capital with enough assets to sustain the company until it can grow its AUM to the point of self-sufficiency. With operating losses of $15-$20 million per year, the company’s cash balance alone ($203 million) could fund such losses for more than a decade.

Associated Capital’s adjusted book value was approximately $40 per share as of March 31, 2016, meaning that at current prices, the company trades well below 1x book value. Although ongoing losses might erode shareholders’ equity, these losses have been small to date; therefore, it can be argued that the investment risk is limited, as an investor would likely be protected from a meaningful loss given the company’s ample balance sheet assets.

Promising Growth Potential

Investment management services is a business with high operating leverage. In principle, the marginal cost of managing an additional dollar of AUM is, for all practical purposes, nil. When an investment firm increases its assets from $1 billion to $5 billion, expenses do not increase fivefold, although incentive compensation within the firm typically rises. Consequently, we believe that Associated Capital’s earnings have the potential to rise rapidly even if AUM growth is modest; this is especially so, since it is eligible to earn performance fees. As Associated Capital’s AUM is just $1.1 billion (as of 3/31/16), we believe that its growth potential is considerable.

View Current SPUN Fund Holdings

View Current GSPIN Index Holdings

]]>
China A-Shares Denied MSCI Green Light https://www.vaneck.com/blogs/etfs/china-a-shares-fail-from-msci-june-2016/ On June 14, in a surprise decision to many investors, MSCI again denied mainland Chinese equities (China A-shares) a seat at the global indexing table, excluding A-shares from its benchmark MSCI Emerging Markets Index.

]]>
Van Eck Blogs 6/30/2016 12:00:00 AM

Authored by James Duffy, Product Manager, VanEck Vectors ETFs

On Tuesday, June 14, MSCI, the world's largest indexing firm, once again refused China A-shares a seat at the global indexing table ( read MSCI's press release). With its decision, MSCI sent a clear message that it believes that Chinese A-shares still do not offer investors enough accessibility, liquidity, and transparent ownership to be included in the MSCI Emerging Markets Index.

The result is that China, currently the second largest economy, is still being viewed by some as a regional rather than a global equity player. While this was a blow to Chinese regulators, international markets did not react significantly to the decision. What is at stake? Given that nearly $1.5 trillion in global assets currently track the MSCI Emerging Markets Index, including China A-shares in the Index could potentially funnel billions of dollars into the mainland Chinese stocks.

China's Measures for Inclusion Fall Short

The outcome of MSCI's decision came as a surprise to many. For the past year, the Chinese Securities Regulatory Commission (CSRC) has been working with MSCI decision makers to achieve inclusion of China A-shares in the Index. Although positive developments have been made toward opening China's capital markets, they may not have been enough for this round.

According to MSCI, its decision was largely driven by feedback received from market participants during MSCI's consultation period. MSCI officials had identified critical issues that needed to be addressed by the Chinese regulators for inclusion in the Index, including clarification on beneficial ownership of investments, further liberalization of the quota allocation process and capital mobility restrictions, voluntary stock suspensions, and pre-approval requirements by the Shanghai and Shenzhen stock exchanges, in MSCI's view.

Chinese Regulators Make Progress

The general consensus is that while progress has been made by Chinese regulators, these changes either fall short of what is needed or that participants will need more time to assess the effectiveness of the changes. MSCI did leave open the possibility of adding A-shares outside of its regular review cycle, but only if significant changes were made. MSCI also stressed that if and/or when an inclusion of China A-shares is announced, implementation would not occur for at least 12 months. However, given that "additional time needed to assess the effectiveness" has been cited multiple times as part of the feedback, we believe that an off-cycle addition is unlikely.

Looking ahead, this may mean that it could take until June 2018 at the earliest for A-shares to be included, even partially, in the MSCI Emerging Markets Index. As MSCI has stated consistently, the process is likely to happen gradually, with the first step reflecting a partial 5% A-shares inclusion as shown in the pie charts below.

MSCI Emerging Markets Index
Country Weights - Actual

Source: MSCI, as of June 10, 2016.
MSCI Emerging Markets Index
Country Weights - Hypothetical
Partial (5%) A-Shares Inclusion
Source: MSCI, as of June 10, 2016.
]]>
Munis: Expect More from Your Munis https://www.vaneck.com/blogs/muni-nation/expect-more-from-munis-june-2016/ At VanEck, we believe investors should expect more from their municipal investments. Our suite of municipal bond ETFs was built precisely with this in mind.

]]>
Van Eck Blogs 6/23/2016 12:00:00 AM Municipal bond performance has been impressive year-to-date in 2016. Muni bonds have provided a haven from the volatility in the general stock market. In addition to recent performance, we'd like to note that the municipal bond market also offers a diverse set of individual opportunities that may appeal to investors looking for more customized exposure.

At VanEck, we believe investors should expect more from their municipal investments. Our suite of municipal bond ETFs was built precisely with this in mind. The graph below shows the striking range of opportunities the suite offers – from short-duration to high credit quality, and from long-duration to high-yield.

Our innovative suite of seven municipal income ETFs offers investors the ability to exercise control over their portfolio yield, duration, and credit exposure at different points in the interest rate cycle.

VanEck Municipal Income ETFs by Yield and Duration
as of June 20, 2016


Click here for standardized performance and performance current to the most recent month-end.
Source: VanEck Research. As of June 20, 2016. The performance data quoted is past performance which is no guarantee of future results and current performance may be lower or higher than the performance quoted. Investment returns and ETF share values will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end is available by calling 800.826.2333 or by visiting vaneck.com/etfs. Modified Duration measures a bond's sensitivity to interest rate changes that reflects the change in a bond's price given a change in yield. 30-Day SEC Yield is a standard calculation developed by the Securities and Exchange Commission that allows for fairer comparisons among bond funds. It is based on the most recent 30-day period. This yield figure reflects the interest earned during the period after deducting a Fund's expenses for the period. In the absence of expense waivers or reimbursements, the 30-Day SEC Yield for XMPT would have been 4.71%.

Yield Curve-Focused

Our investment grade, AMT-free, municipal ETF product offerings seek to track indices that reflect a unique segmentation of the municipal yield curve: Short (years 1-6: AMT-Free Short Municipal Index ETF - SMB); Intermediate (years 6-17: AMT-Free Intermediate Municipal Index ETF - ITM); and Long (years 17-30: AMT-Free Long Municipal Index ETF - MLN). These indices have maturity segments that are longer than those traditionally used by some asset managers. We believe this may allow investors to maximize the potential yield available in each part of the yield curve.

Credit-Focused

Our credit-focused municipal ETF product offerings seek to track indices that include both the highest credit quality available in the municipal asset class (pre-refunded: Pre-Refunded Municipal Bond ETF - PRB) and municipal high yield – short (years 1-12: Short High-Yield Municipal Index ETF - SHYD) and all maturity (years 1-30+: High-Yield Municipal Index ETF - HYD). The high yield indices include an investment grade component to help enhance liquidity.

Smart Beta

Our smart beta municipal ETF (CEF Municipal Income ETF - XMPT) seeks to track an index that includes closed-end funds that hold municipal bonds (CEFs).

We believe that, with their yield curve, credit and smart beta focuses, our suite of municipal income ETFs provide investors with a way to access the potential opportunities within municipal fixed income and to "get" more from their munis.

]]>
Attractive Yields and Value in High Yield Emerging Markets Bonds https://www.vaneck.com/blogs/etfs/attractive-yields-value-high-yield-emerging-markets-bonds-june-2016/ High yield emerging markets corporate bonds have had a strong start to 2016. They offer unique benefits to investors and can provide an income-producing complement to an investment in emerging markets equities.

]]>
Van Eck Blogs 6/22/2016 12:00:00 AM

Authored by William Sokol, Product Manager, ETFs

Strong Relative Performance

High yield emerging markets corporate bonds have had a strong start to the year, outperforming emerging markets equities with a 7.75% year-to-date return at the end of May.

Longer term, the asset class has returned on average 7.40% per annum over the past 10 years (for the period ending 5/31/2016), outperforming both U.S. high yield corporates and emerging markets equities. Given this attractive long-term performance, it's worth taking a closer look at the potential value that this asset class can provide.

Performance Comparison: Average Annual Total Returns as of 5/31/2016

Asset Class YTD % 1 YR % 3 YR % 5 YR % 10 YR %
HY Emerging Markets Corporat