VanEck Blog https://www.vaneck.com/templates/blog.aspx?pageid=12884907249?blogid=2147483856 Insightful, Weekly Commentary on the Municipal Bond Markets 2017-12-14 en-US A Look into Digital Assets, An Emerging Asset Class https://www.vaneck.com/blogs/digital-assets/an-emerging-asset-class/ Jan van Eck, CEO, and Gabor Gurbacs, Director, Digital Assets Strategy, at VanEck, recently responded to questions regarding the potential and the challenges of the digital assets and current Bitcoin boom.

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VanEck Blog 12/14/2017 12:00:00 AM

Jan van Eck, CEO, at VanEck, and Gabor Gurbacs, Director, Digital Assets Strategy, at MVIS, recently responded to questions regarding the potential and the challenges of the digital assets and current bitcoin boom. The following Q&A includes highlights from this wide-ranging discussion.  

What are digital assets?

Digital assets are based on a shared database technology called "distributed ledgers" and represent a variety of uses. Cryptocurrencies, like traditional currencies, are meant to be a store of value. Bitcoin is the most widely recognized cryptocurrency, and has become known as a form of "digital gold".

Not all digital assets are designed to be currencies. Rather, many are similar to shared applications that are either a technology platform or have a specific function. For example, digital assets can track land ownership or music rights, or allocate resources like computer storage or Wi-Fi bandwidth. They can also act as a platform for "smart contracts". Tokens work like airline miles or Starbucks rewards — they are only valuable in a specific program or system.

Basically these applications are technology investments. One has to determine if this is the next way of structuring data on the Internet. The appeal is being "permissionless" (anyone can join), having a lower cost, and not being controlled by a company. Digital assets can proliferate like smartphone apps, resulting in fast growth.

Skeptics view digital assets as opaque. What can they be used for and who will accept them?

Actually, digital assets are radically transparent, with publicly available codes and transactions. Codes can be copied by virtually anyone with the technology and desire to do so. Digital asset users are trackable by public keys (although personal identities are confidential).

Digital currency or coins have countless applications. The use of coins and how they are accepted are typically described on the applicable website, and on sites like Medium, Reddit, and Telegraph. The technology is also arduously explained on YouTube.

How do digital assets have value without cash flow?

Certainly there are investors who value assets based solely on current cash flow. However, assets exist (such as currencies) that are priced based on crowd-perceived value. Precious metals and modern art are obvious examples. Will a Monet, Basquiat or a Degas go to zero?

Bitcoin has attracted a widespread group of investors who, among other views, do not trust central governments. Other than acceptance by millions of investors globally, there is no reason why bitcoin is special.

There is potential that blockchains popularize and generate income streams. However, we are at a very early stage, similar to the early days of the Internet. One must have an aggressive growth risk tolerance to consider investing in early stage companies, much like an angel round or a series A.1  

Are you worried about criminal activity and the notion of untraceable currency?

Any widespread criminal activity is cause for concern. However, immutable, transparent, publicly accessible data records (blockchains) are one of the most attractive features of digital currencies.

The vast majority of digital currencies leave traceable data-crumbs on the web, with some explicitly designed for traceability. The recent dark market busts (AlphaBay, Hansa, and Silk Road) can be directly tied back to the traceability of digital currencies and the breadcrumbs criminals left. Shutting down dark markets is a much more difficult task in a cash-only economy.

Isn't money supply better controlled by an established, trusted source?

Paper or "fiat" money has a long history of being devalued by governments: Weimar Germany, the U.S. in the 1970s, Argentina, Brazil, and many other countries today. Contrarily, there is no central power which can arbitrarily decide to create more bitcoin. This transparency alone brings incredible value compared to fiat currencies.

Bitcoin is a slow and volatile form of money. How can it be a real currency?

Bitcoin is slow by design, and is not meant for transactions. Blocks (collections of transactions) need several minutes to process. Bitcoin will never be as fast as Visa or the NYSE which process thousands of transactions per second. Further, bitcoin transactions may result in embedded gains or losses, and therefore tax consequences. Like gold, digital gold is not designed for transactions.

Do you agree that investing in a blockchain makes more sense than in bitcoin?

In a way, this is an odd position. One could argue that bitcoin and cryptocurrencies are way ahead of other blockchain applications, in that they are accepted by millions of investors. Almost no blockchain technologies are widely used . . . yet.

Can one short bitcoin?

One of the theories behind bitcoin's price rise is that it cannot be shorted. However, we believe this to be incorrect. Investors can short bitcoin on the digital asset exchange, BitMEX. Approximately, $1 to $2 billion of notional bitcoin trades daily on BitMEX.

Is bitcoin a bubble that can go to zero?

No doubt that bitcoin is in a speculative updraft that will end one day. But the huge percentage price increases themselves prove nothing — remember the initial price of Alibaba, Amazon, or Google stock? These companies were started in garages. Apple stock was probably valued at $0.01 per share when it started and rose thousands of percent before its IPO.

Interestingly, if bitcoin were to go to zero, we believe it is unlikely to create systemic financial risk. This is due to the fact that we believe bitcoin exposure of financial institutions is limited to market-making and trading firms. There is greater system risk in the European debt markets, where junk bonds have lower interest rates than U.S. government debt despite debt levels being very high. A disruption in those markets would directly affect the financial system and stock and bond markets.

Should one buy bitcoin?

The decision to buy bitcoin is based on one's own investment goals, time horizon and risk tolerance. Below are a few ideas to discuss with one's financial advisor:

  • Technology investments are often appropriate for aggressive investors with a long-term time horizon. Digital assets represent a new kind of technology, but they are mainly unproven. Unfortunately, publicly listed stocks are not a great way to own digital assets. The most direct play today is semiconductor stocks which are benefiting from blockchain-related demand.
  • Aggressive investors may think about allocating a small percentage of their portfolios to digital assets. For example, hedge fund manager Mike Novogratz has mentioned a 1% to 3% allocation may be appropriate.
  • If nervous about missing the run, consider taking a small initial position in digital assets and go from there. Going through the steps of buying bitcoin is a worthwhile learning experience in itself.
  • The trading range expectation is wide. We’d be surprised if bitcoin fell more than 80%, but it could get to a trillion dollar market cap — compared to a $7+ trillion market cap for gold — which is still up 4 to 5 times.

Picture of bitcoins and other Crytocurrencies  

Nothing contained herein is intended to be or to be construed as financial advice. Investors should discuss their individual circumstances with appropriate professionals before making any investment decisions.  

What should financial advisers do?

Firstly, financial advisors (FAs) should understand the potential of distributed ledger technology. One does not have to like or buy bitcoin, but to wave off the whole thing as a fraud is probably wrong. Large U.S. corporations are investing in blockchain-related projects, and, given that Coinbase has over 10 million U.S. clients, it is likely that an FA's client has bought bitcoin and is sitting on nice gains.

Secondly, FAs should advise clients to size their digital asset exposure intelligently. Probably zero or a range of over 5%-10% are not right. And better to buy over time than buy all at once. Lastly, FAs should absolutely make sure that clients are reporting digital asset gains on their tax forms.

MVIS CryptoCompare Digital Assets Indices
Performance Comparison

Chart of MVIS CryptoCompare Digital Assets Indices  

Source: MV Index Solutions GmbH (MVIS®). MVIS is a wholly owned subsidiary of Van Eck Associates Corporation. Data as of December 7, 2017. Not intended to be a forecast of future events, a guarantee of future results or investment advice.

It is not possible to invest directly in an index. Indices are not securities in which investments can be made. Exposure to an asset class represented by an index is available through investable instruments based on that index. MVIS CryptoCompare Bitcoin Index measures the performance of a digital assets portfolio which invests in bitcoin. MVIS CryptoCompare Digital Assets 10 Index is a modified market capweighted index which tracks the performance of the 10 largest and most liquid digital assets.

MVIS does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index. MVIS makes no assurance that investment products based on the index will accurately track index performance or provide positive investment returns. MVIS is not an investment advisor, and it makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any of the statements set forth in this document.
 
 


 

Additional Resources

 
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Taxes and Tightening Could Brighten Gold’s Shine https://www.vaneck.com/blogs/gold-and-precious-metals/could-brighten-after-taxes-tightening/ The ramifications of tightening and the proposed tax overhaul could hamper the economy in the long-term adding support to gold. 

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VanEck Blog 12/12/2017 12:00:00 AM

Contributors: Joe Foster, Portfolio Manager and Strategist, and Imaru Casanova, Deputy Portfolio Manager/Senior Analyst for the Gold Strategy

Small Changes for Gold Price and Equities in November as ETP Demand Increases

The gold price changed very little during the month of November, managing to post a small gain of 0.30% and closing at $1,274.94 per ounce on November 30. U.S. economic data releases were mixed during the month with positive indicators offset by some negative surprises. Positive releases included stronger than expected industrial production and capacity utilization, as well as stronger leading indicators including the Chicago Fed National Activity Index1 which exceeded expectations by a wide margin and the U.S. Conference Board Consumer Confidence Index2 (CCI) which soared to a 17-year high. On the negative side, updates included a weaker October jobs report, below consensus Empire Manufacturing Index3 figures, softer retail sales, and disappointing November Purchasing Managers' Index (PMI).4

The U.S. Dollar Index5 (DXY) was down 1.6% in November and a weaker dollar provided support for gold during most of the month. Gold traded intraday as high as $1,299 per ounce on November 27, but failed to break through the $1,300 resistance level. In November, the gold markets seemed to reflect strong uncertainty around the outcome of the U.S. tax bill. Gold prices fell at month end following strong U.S. 3Q GDP growth revised data that surprised the markets, lifted equities, and eroded demand for bullion as a safe haven.6 On December 1, gold was pushed higher as reports emerged that former national security adviser Michael Flynn pleaded guilty to making false statements and was cooperating with the FBI's investigation into Russian interference in the U.S. elections. However the rally was cut short by news of the U.S. Senate passing the proposed tax reform bill, and as we write, on December 4, gold is trading back at approximately $1,275 per ounce.

Demand for gold bullion-backed exchange traded products (ETPs) picked up again in November, after a fairly flat October, with holdings up about 0.6% for the month and 11.6% year to date as of November 30. We track the flows into the gold bullion ETPs since we believe investments in these products typically represent longer-term, strategic investment demand for gold and as such provide an excellent proxy for the direction of the gold market.

With gold lacking strength, gold stocks ended the month slightly down. The NYSE Arca Gold Miners Index7 (GDMNTR) fell 0.26%, and the MVIS Global Junior Gold Miners Index8 (MVGDXJTR) dropped 0.95% during the month. The junior companies continue to underperform their larger peers this year. This, combined with the growing need for larger companies to replace their reserves, we believe, increases the appeal of the juniors as acquisition targets, which in turn enhances their valuation.

Rate Hike Already Priced into the Market, but Ramifications Could Support Gold Long-term

Gold has traded range bound in 2017, fluctuating in the $1,200 to $1,300 per ounce range for most of the year. So far, the gold price has averaged $1,257 in 2017, reaching a high of $1,349 on September 8. Since then, gold has dropped by more than 5% to trade at approximately $1,275 as of December 4. The Federal Reserve rate outlook has been one of the main factors lifting or depressing the gold price. The implied probability of a December hike stayed above 90% during November, and is currently near 100%. With fewer than ten days to go before the next Federal Open Market Committee (FOMC) rate decision on December 13, we estimate the widely expected next rate increase has been fully or almost fully priced in by the gold markets, but we would not be surprised to see further weakness from here. For reference, the 7-trading day period leading to the December 2016 rate hike announcement, saw gold prices drop 2.4%, while prices ended up unchanged during the same period around the December 2015 rate hike. In both cases, weakness ahead of the announcement was followed by strong rallies in the first two months of the following year.

The December rate hike is widely anticipated, and no doubt it is interpreted by the markets as U.S. dollar positive and therefore, gold negative. However, what is likely not anticipated or priced in by the markets is the longer-term impact that further monetary tightening could have on what we believe is a late-cycle economy. Namely, that the tightening policy could end up helping push the U.S. economy into the next recession. In addition, we believe, the burden from increased fiscal deficits resulting from U.S. tax reform would further hamper the economy in the longer term. We expect gold to continue to form a base, trading in the $1,200 to $1,350 per ounce range, with a longer-term view that increased financial risk deriving from a potentially weaker or slowing U.S. economy, as well as heightened global geopolitical risk and political struggles in Washington D.C., could drive gold much higher.

Despite High Scrutiny, Disconnect Exists Between Mining Safety and Market Perception

A recent report by the Mining Journal's The World Risk Report identifies social license, environmental management, project permitting, and mine closure as the most difficult operating risks miners have to manage, ahead of skills availability, cost inflation, and geological risk. The findings, which were based on survey responses from resource companies and resource services firms globally, do not surprise those of us covering the industry and familiar with the increasing time, capital, management oversight, and other resources that are dedicated to these areas throughout all stages of a project. It is understandable that mining companies are subject to very high scrutiny given the nature and scale of their operations. But there seems to be a disconnect between what the companies are doing to manage the environmental and social impact of their operations and the broader market's perception. In general, it seems miners as a group enjoy a reputation of being irresponsible or negligent in these areas, and we think this is unjustified. Of course, accidents happen, and no economic operation will ever be 100% protected. A recent tailings dam9 failure in Brazil, at an operation owned by two mining majors, is an example of the serious impact those accidents can have. But it is unfair, in our opinion, to let these events put all miners in the irresponsible category.

A Closer Look at a Mining Project Timeline and the Extensive Impact Analysis

A look at a mining project's timeline reveals the amount and level of work dedicated to assessing the impact of the project on the environment and surrounding communities, and creating a plan to help minimize any negative impact and manage risks. The scope of the work obviously varies depending on the location of the project and the complexity and scale of the operation. The entire process, including gathering of data, studies, testing, engineering design, community consultations, preparation, submittal, revisions, and final approval of environmental impact studies and other permits required to be awarded an operating license, generally takes several years and can take as long as a decade or more.

Take the Donlin Gold project, for example, owned by NovaGold Resources (0.7% of net assets*) and Barrick Gold (1.3% of net assets*). A schematic depicting the estimated development timeline for the project is shown below.

Donlin Gold Project Estimated Development Timeline

1) Donlin Gold data as per the second updated feasibility study. Projected average annual production represents 100% of which NOVAGOLD's share is 50%. For illustrative purposes only.

The Environmental Impact Statement (EIS) process alone is projected to take six years. In addition, extensive environmental studies were carried out as part of an exploration and studies period that took 16 years to complete. The EIS process, as described by NovaGold, will require more than 100 permit applications and involves: an explanation of the purpose and need for the mine and the benefits to local stakeholders; analysis of several design and development options; analysis of the potential physical, biological, social, and cultural impacts and potential measures to help reduce or eliminate such impacts. In addition to this process, the project needs to obtain from other agencies air quality permits, pipeline authorizations, water use and fish habitat permits, waste management, reclamation and closure plan permits, and other approvals.

This comprehensive analysis includes all the work the companies are required to do prior to, during, and after the life of the mine. Companies are usually required to have a detailed plan for rehabilitation of the mine site after closure, including environmental monitoring that extends for long periods of time following closure. In addition, companies usually require provisions (e.g., a reclamation bond) to secure funds towards rehabilitation. And although they are not always required to, many of the companies we invest in work hard to develop skills, programs, and businesses that continue to deliver value for the local communities well beyond the life of the mine.

Companies also set targets and measure and report their environmental, social, health, and safety performance in detail. The level of detail and quality of this type of reporting vary, but most of the gold companies in our research universe have a detailed sustainability report and/or sections of their websites dedicated to it. For comparison, we decided to look up Apple's 2016 Environmental Responsibility report, and were pleased to find that, at 58 pages, it is less than half the size of Newmont's Beyond the Mine 2016 Social and Environmental report.

How well companies manage their social and environmental responsibilities and risks is increasingly more important and critical to their ability to operate and generate shareholder value. Mining companies simply do not have a choice but to spend the time and capital it takes to make sure they can meet their obligations. Hopefully, with time, this will also lead to an improved reputation for the sector.

Download Commentary PDF with Fund specific information and performance

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A Comeback Story for Moats in November https://www.vaneck.com/blogs/moat-investing/comeback-story-for-moats-november/ International moats fell in line with the broad foreign markets, while domestic moats recovered and outpaced stocks across the U.S.

 

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VanEck Blog 12/11/2017 12:00:00 AM

For the Month Ending November 30, 2017

Performance Overview

International moats, as represented by the Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN, or "International Moat Index"), ended November in line with the MSCI All Country World Index ex-USA (0.80% vs. 0.81%). The International Moat Index remains 3.71% ahead year-to-date. The U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR, or "U.S. Moat Index") bounced back in November after several underwhelming months, outpacing the broad U.S. markets as represented by the S&P 500® Index (4.30% vs. 3.07%).

International Moats: Balancing the Scale

Cameco Corp. (CCO CN, +15.53%), which has displayed volatility in recent months, saw its price increase in November following its announcement of uranium production cuts. These cuts, among others across the industry, reaffirmed Morningstar's expectation of future uranium price increases which may benefit Cameco Corp. in the long-term. China's largest internet service provider and WeChat operator, Tencent Holdings Ltd. (700 HK, +13.66%), saw its Morningstar fair value estimate increase by approximately $19 in November. Much of that driven by Morningstar's revised view of the company's growth and margins. Regionally, the International Moat Index benefited from strong contributions from Asia. While financials and real estate companies provided strong contributions, many of these were offset by negative contributions from companies in the healthcare and information technology sectors. Performance out of Sweden, United Kingdom, and Mexico was weak.

U.S. Domestic Moats: Recovery Stories

L Brands, Inc. (LB US, +31.88%) recovered in a big way throughout the month, following a difficult summer. Morningstar equity analysts pointed out recently that the company's performance metrics are trending in the right direction despite some problems with its Victoria's Secret and Bath & Body Works brands. Morningstar's fair value estimate for L Brands was adjusted down in August from $71 to $69 following weaker-than-expected near-term earnings and remains at $69 following third-quarter earnings. Consumer discretionary, led by L Brands, was the top contributing sector for the U.S. Moat Index, followed by strong contributions by healthcare and financials companies. Industrials was the only sector to detract from index performance, driven primarily by negative performance from General Electric Co. (GE US, -9.28%). Morningstar's fair value estimate for GE was reduced in November from $29 to $26 as the company continues to grapple with a long-term restructuring effort.

 

(%) Month Ending 11/30/17

Domestic Equity Markets

International Equity Markets

(%) As of 11/30/17

Domestic Equity Markets

International Equity Markets

(%) Month Ending 11/30/17

Morningstar
Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers
Constituent Total Return
L Brands Inc 31.88
Twenty-First Century Fox Inc Class A 22.14
CVS Health Corp 11.78
T. Rowe Price Group Inc 10.79
AmerisourceBergen Corp 10.76

Bottom 5 Index Performers
Constituent Total Return
General Electric Co -9.28
Guidewire Software Inc -6.99
Stericycle Inc -6.41
Cardinal Health Inc -4.38
Zimmer Biomet Holdings Inc -3.72

View MOAT's current constituents
View MWMZX's current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Top 5 Index Performers
Constituent Total Return
Cameco Corp 15.53
Tencent Holdings Ltd 13.66
MGM China Holdings Ltd 13.30
Kao Corp 10.48
CapitaLand Commercial Trust 10.18

Bottom 5 Index Performers
Murata Manufacturing Co Ltd -12.95
Elekta AB B -12.90
SINA Corp -9.18
Telefonica Brasil SA Pfd Shs -5.90
Cemex SAB de CV -5.89

View MOTI's current constituents

As of 9/15/17

Morningstar
Wide Moat Focus Index (MWMFTR)

Index Additions
Added Constituent Ticker
Patterson Cos Inc PDCO US
General Electric Co GE US
Cardinal Health Inc CAH US
Mondelez International Inc MDLZ US
Medtronic plc MDT US
Schwab Charles Corp SCHW US
Western Union Co WU US
Veeva Systems Inc A VEEV US
Pfizer Inc PFE US
Merck & Co Inc MRK US

Index Deletions
Deleted Constituent Ticker
Cerner Corp CERN US
Guidewire Software GWRE US
Gilead Sciences Inc GILD US
Varian Medical Systems Inc VAR US
Quintiles IMS Holdings, Inc. Q US
Yum! Brands Inc YUM US
Jones Lang Lasalle Inc JLL US
State Street Corp STT US
Mastercard Inc A MA 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
Cameco Corp Canada
SoftBank Group Corp Japan
Lloyds Banking Group Plc United Kingdom
Roche Hldgs AG Ptg Genus Switzerland
Millicom Intl Cellular S.A. - SDR Sweden
Enbridge Inc Canada
Embraer S.A. Brazil
QBE Insurance Group Ltd Australia
Telecom Italia SpA Italy
Orange France
Samsonite International SA Hong Kong
East Japan Railway Co Japan
Hoshizaki Electric Co Ltd Japan
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. Mexico
Canadian Pacific Railway Ltd Canada
China Resources Gas Group Ltd. China
America Movil SAB de CV L Mexico
Fanuc Co Japan
Nordea AB Sweden
Commonwealth Bank Australia Australia
Airbus SE France
Gas Natural SDG SA Spain
Inditex SA Spain
Luxottica Group SpA Italy
Westpac Banking Corp Australia
Magellan Financial Group Limited Australia
Siemens AG Germany
HeidelbergCement AG Germany

Index Deletions
Deleted Constituent Country
Carnival Plc United Kingdom
GlaxoSmithKline United Kingdom
Shire Plc United Kingdom
Tata Motors Ltd India
Dongfeng Motor Group Co. Ltd. - H Shares China
China Mobile Ltd. China
China Construction Bank Corp H Shares China
Beijing Enterprises Holdings Ltd. China
Genting Singapore Plc Singapore
CapitaLand Commercial Trust Singapore
Capitaland Ltd Singapore
United Overseas Bank Singapore
Singapore Exchange Ltd Singapore
Rakuten Inc Japan
Nippon Tel & Tel Corp Japan
KDDI Corp Japan
Telstra Corp Ltd Australia
Ramsay Health Care Ltd Australia
Iluka Resources Ltd Australia
DuluxGroup Ltd Australia
Ioof Hldgs Ltd Australia
Novartis AG Reg Switzerland
Potash Corp of Saskatchewan Canada
Baytex Energy Corp. Canada
Ambev S.A. Brazil
Sun Hung Kai Properties Ltd. Hong Kong
Swire Properties Ltd Hong Kong
KION Group AG Germany

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



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Ahead of the Curve: Bitcoin Futures https://www.vaneck.com/blogs/digital-assets/bitcoin-futures-ahead-of-the-curve/ Gabor Gurbacs, Director of Digital Assets Strategy at VanEck, analyzes the bitcoin futures curve before the launch of trading in CBOE bitcoin futures on December 10, 2017.

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VanEck Blog 12/8/2017 12:00:00 AM

Recent bitcoin futures contract announcements from CBOE, CME, and Nasdaq have generated tremendous interest in digital assets. Bitcoin futures have been highly anticipated as they will provide traditional financial institutions with one of the first opportunities to meaningfully participate in the digital asset space via a regulated investment framework. It is an opportunity for Wall Street to catch up with Main Street on bitcoin. With the impending launch of U.S.-listed bitcoin futures, investors may wonder what the bitcoin futures curve might look like. Using information from existing digital asset derivative trading platforms such as Bitmex, OKCoin, CryptoFacilities, and BTCC (all exchanges outside of the Commodity Futures Trading Commission purview), MVIS Research has constructed an approximate curve based on non-U.S. bitcoin futures trading on these exchanges. These are real trading platforms revealing real volume.

What is a futures curve?

A futures curve shows the forward expectation of an asset’s price. Future rates of an asset can be calculated by extrapolating price from the risk-free theoretical spot rate of the asset. For example, one might calculate the possible future rate of an asset for the short (<1 month), medium (1-3 months) and long term (>3 months). In other words, future curves represent the demand for a specific asset and therefore the expected price evolution for the asset projected into the future. The curve is constructed from a discrete set of data points for various maturities. Initially, futures curves were used for hedging purposes, but with the evolution of the investment management industry, futures curves have become basic investment instruments not only for traditional commodities but also for new emerging asset classes.

Bitcoin Futures Curve and Analysis

Currently there are a several digital asset trading platforms that provide investors with forms of derivative products such as futures, so one could estimate and synthesize the discrete futures curve from the averages of various curves. MVIS research used BitMEX, OKCoin, CryptoFacilities, and BTCC as sources, to construct and approximate bitcoin futures curve based on non-U.S. bitcoin futures trading on these exchanges.

Estimated Bitcoin USD Futures Curve
Data as of 12/8/2017

Chart of Estimated Bitcoin USD Futures Curve

Source: MV Index Solutions GmbH (MVIS®). MVIS is a wholly owned subsidiary of Van Eck Associates Corporation. Data as of December 8, 2017 (synthesized data from BitMEX, OKCoin, CryptoFacilities, and BTCC which represents non-U.S. listed bitcoin futures trading on these exchanges). Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.  

The above futures curve shows that in the short term (< 1month) bitcoin-USD futures prices tend to be at or higher than the respective spot prices, with the highest premium to spot reached for futures maturing in approximately 9 days. In the mid term (1-3 months), bitcoin futures prices increase rapidly with mid prices at a premium of approximately 2% compared to the spot price. In the long term (>3months), premiums are positive and prices increase with a relatively stable velocity. Long term prices are at a slightly higher level compared to mid-term maturities. The absolute difference between long-term and short-term premium is positive, revealing an overall positive view about bitcoin among investors for the future. To summarize, this curve reflects modest investor optimism in the short term, due to a possibly high level of volatility around the launch of U.S.-listed bitcoin futures contracts, and an increasingly positive view on bitcoin-USD rates in the medium and long term. In the distant future (>3months) the curve may reflect a belief that the long-term true value of bitcoin will be at a higher level than today, possibly due to increased institutional participation and the maturation of digital assets as a potential asset class.

The Road to a New Asset Class

U.S.-listed bitcoin futures contracts may aid institutional investor participation and enable hedging while also potentially helping digital assets develop into an asset class of their own. Currently digital assets trade on platforms that lack proper execution mechanisms, governance, and standard financial industry practices. Futures contracts push trading volume towards regulated exchanges with proper governance, controls and state of the art execution mechanisms. Futures contracts also remove the arduous requirement for investors to custody “physical” bitcoin, which is a major obstacle. In some ways, bitcoin futures are an early attempt to integrate digital assets into the mainframe financial system. With such integration, regulators might also gain a greater understanding of and steadier grasp on digital assets. This may enable the creation of more explicit guidance and regulation around the space. While it is early innings for digital assets, U.S.-listed bitcoin futures may pave the way for a potentially safer, more reliable, and better governed digital asset space and regulated investment vehicles.

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Munis: A Path to Bridge the Wealth Gap https://www.vaneck.com/blogs/muni-nation/path-to-bridge-the-wealth-gap/ The economic recovery across the U.S. following the “Great Recession” has been uneven and the widening wealth gap highlights the importance of the municipal bond market.

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VanEck Blog 12/1/2017 12:00:00 AM

In this blog we look at the uneven economic recovery from the "Great Recession" across the U.S. and consider how the widening wealth gap highlights the importance of the municipal bond market.

The American economy's recovery from the "Great Recession" has been widely reported1 as "uneven".2 But what does this actually mean in practice? What does it have to say about the importance of the municipal bond market?

Job and Economic Growth Concentrated in Prosperous Zip Codes

A widely cited recent study3 from the Economic Innovation Group helps quantify just how uneven the recovery has been. The study, which examined the years from 2011 to 2015, looked at seven key metrics to evaluate the economic health of communities by zip code throughout the U.S.: adults without a high school diploma, poverty rates, prime-age adults not working, housing vacancy rates, median income ratios, changes in unemployment, and changes in business establishments. It then divided these zip codes up evenly into five categories: Prosperous, Comfortable, Mid-Tier, At Risk, and Distressed.

According to the report, while the U.S. "added 10.7 million jobs and 310,000 business establishments" from 2011 to 2015, this growth was heavily concentrated in prosperous zip codes. Although these prosperous communities accounted for just 29% of the nation's jobs in 2011, they captured 52% of the new jobs created and 57% of the new business establishments nationwide through 2015. On the other hand, the lowest-tier zip codes falling in the "distressed" category lost more than 17,000 businesses in the same period.

The Most Prosperous Cities Tend to be Booming Tech Hubs or Sunbelt Destinations

So where are these prosperous zip codes, and how do they differ from their distressed counterparts? It may come as little surprise that the most prosperous cities tend to be booming tech hubs or Sunbelt4 destinations. Of the 100 largest cities in the U.S., the ten most prosperous, when measured by the study's metrics, are scattered throughout the west coast (Irvine, CA; San Francisco, CA; Seattle, WA; San Jose, CA;) and southwest (Gilbert, AZ; Henderson, NV; Scottsdale, AZ), as well as two in Texas (Plano and Austin). The ten most distressed large American cities, on the other hand, are largely concentrated throughout the rust belt (e.g., Cleveland, Newark, Buffalo, Detroit, Toledo, Milwaukee), with just one in the south (Memphis), and two in the west (Stockton, CA and Tucson, AZ).

The Greatest Wealth Divide: Urban versus Rural Communities

The greatest wealth divide, however, becomes most apparent when urban and rural communities are compared. Among counties with populations greater than 500,000, 50% are prosperous. However, just 14% of counties with populations below 100,000 fall in the same category. Counties with small populations are 11 times more likely to be distressed than larger ones.

This urban-rural wealth divide lies at the core of skyrocketing wealth inequality in the United States. To start with, residents of poorer areas may not find it so easy to relocate5 to more prosperous parts of the country where many new jobs are being added. As prosperous urban centers have added jobs, they have become increasingly expensive, with rents in some cases tripling or quadrupling. Cheaper areas may be more livable from a cost perspective, but they are falling short in attracting the economic growth that powers job creation. Indeed, cities where rent is cheap like St. Louis, MO or Jackson, MS have some of the weakest economies in the nation.

Northeast U.S. Continues to Host Majority of Highest Income Counties

Even among prosperous cities, there is a further geographic concentration of wealth and opportunity. Of the 75 highest income counties in the U.S., 44 were located in the Northeast as of 2012, running in a nearly continuous band from Boston to Washington DC. On the other hand, 97% of the poorest counties in the country (with median family incomes below $35,437) were in the south.

The Importance of the Municipal Bond Market

All this said, what is the role for the municipal bond market? Depending on where you look the picture painted is one that is very mixed. The economic picture looks bright for large, prosperous metropolitan areas where, with access to private capital, they continue to power economic growth, generate new businesses, jobs and their tax base. But the situation is not quite so positive for the more distressed parts of the country. These are, quite literally, being left behind in terms of both job growth and access to business formation as the ever-widening wealth gap leaves many municipalities languishing with diminished tax bases and stressed social services.

It seems to me, however, that the inescapable, but fortunate, reality is that the municipal marketplace offers a critically important financing vehicle to those communities lacking the benefits of their larger, wealthier brethren. If finances are managed appropriately, cities like Cleveland, Newark, and Buffalo can achieve access to the same costs of capital as do large metropoles such as Los Angeles and New York City. Investing in important, new infrastructure for retaining and attracting new business is not the exclusive opportunity of the rich. True, tax exempt issuance does not bridge the wealth gap, but it does offer communities an important building block for underpinning a long term-path for potential growth. As the forgoing suggests, the utilization of tax exempt financing across the broad national expanse of less wealthy municipalities is one small, but critically important element to offset the wealth divide.

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Quality and Valuation a Dynamic Duo in Global Moats https://www.vaneck.com/blogs/moat-investing/quality-valuation-dynamic-duo-global-moats/ The performance of VanEck Vectors® Morningstar International Moat ETF (MOTI®) tells an impressive story about the importance of not only identifying quality companies with sustainable competitive advantages but also factoring in valuation to

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VanEck Blog 11/30/2017 12:00:00 AM

The performance of VanEck Vectors® Morningstar International Moat ETF (MOTI®) tells an impressive story about the importance of not only identifying quality companies with sustainable competitive advantages but also factoring in valuation to determine the right entry points. These are the basic tenets of Morningstar’s moat investing philosophy, which is based on the economic moat concept that can be traced back to Warren Buffet.

Morningstar has a history of well-regarded U.S. equity research and has built a similar reputation in markets outside the United States. An international strategy based on the firm’s rigorous equity research process has performed well in recent years.

Across the Drawbridge to Global Moats

Building on the success and popularity of VanEck Vectors® Morningstar Wide Moat ETF (MOAT®) and its underlying index’s approach to investing in the U.S., VanEck launched MOTI in 2015 to expand investor access to Morningstar’s core equity research in the international arena.

MOTI seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN). The index is intended to track the overall performance of companies outside the U.S. with sustainable competitive advantages that are also attractively priced, according to Morningstar's equity research team.

While MOTI’s performance these past 12 months alone has been notable, its returns since inception have been equally impressive. As of September 30, 2017, MOTI has performed near the top of its Morningstar peer group – US Fund Foreign Large Value category. MOTI ranked in the 4th percentile (13th of 316 funds) for the last year and ranked in the 6th percentile (22nd of 324 funds) since its inception on July 13, 2015, based on total returns.

Cumulative Return Since MOTI's Inception
July 13, 2015 - September 30, 2017

Cumulative Return Since MOTI's Inception Chart

Source: The Morningstar. Click here to view performance current to the most recent month end.


MOTI Expenses: Gross 1.62%; Net 0.56%. Expenses are capped contractually at 0.56% until February 1, 2018. Cap excludes certain expenses, such as interest.

Performance data quoted represents past performance which is no guarantee of future results and which may be lower or higher than current performance. Performance current to the most recent month end available by calling 800.826.2333 or by visiting vaneck.com. Investment returns and ETF share values will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. ETF returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV.

The category average is calculated using a weighted average of the NAV return of the share classes of the funds within the category and reflects the reinvestment of all dividends and fees and expenses applicable to the funds in the category, but does not reflect the payment of transaction costs that are associated with an investment in the funds. A category average’s performance is not illustrative of an investment in all of the funds in that category. Category averages are not securities in which investments can be made. Results reflect past performance and do not guarantee future results.

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Healthcare Weighs on Global Moats https://www.vaneck.com/blogs/moat-investing/health-care-weighs-global-moats/ U.S. and International moats struggled in October trailing broad markets. Healthcare weighed on both and companies from Europe and Latin America pulled down international moats.

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VanEck Blog 11/28/2017 12:00:00 AM

For the Month Ending October 31, 2017

Performance Overview

Global moat stocks trailed their respective broad markets in October. International moats, as represented by the Morningstar® Global ex-US Moat Focus IndexSM ( MGEUMFUN, or "International Moat Index"), ended the month in negative territory with a return of -0.80% compared to 1.88%% for the MSCI All Country World Index ex-USA (MSCI ACWI ex-USA). The U.S.-oriented Morningstar® Wide Moat Focus IndexSM ( MWMFTR, or "U.S. Moat Index") lagged the S&P 500® Index for the month (0.36% vs. 2.33%).

International Moats: healthcare, energy, and materials weigh down performance

Fanuc Corp. (6954 JP, +14.62%), the world's largest computer numerical control systems and industrial robots manufacturer, was the leading index performer for the month. Fanuc revenue and operating income beat consensus estimates for the quarter and its intangible assets and cost advantage allowed the company to maintain its leading market share, according to Morningstar equity analysts. Financials and companies in Asia were strong contributors to International Moat Index for the month. That, however, was not enough to overcome poor performance in the healthcare, energy, and materials sectors as well as negative returns from companies in Mexico and developed European countries. Forklift producer Kion Group AG (KGX GR, -16.38%) struggled in October but Morningstar equity analysts maintained their fair value estimate indicating shares were undervalued by about 13%. Narrow moat rated uranium miner Cameco Corp. (CCO CN, -15.62%) also struggled in October as uranium spot prices have dropped roughly 18% since the beginning of the year, according to Morningstar equity analysts.

U.S. Domestic Moats: GE's struggle and nowhere to hide in healthcare

Despite strong performance from several consumer discretionary constituents such as Amazon.com, Inc. (AMZN US, +14.97%) and Polaris Industries, Inc. (PII US, +13.19%), the U.S. Moat Index lagged the broader market due to underperformance of several companies within the healthcare sector and an underweight to information technology companies. General Electric Co. (GE US, -16.63%) continued to grapple with what could potentially be a long-term restructuring plan to address costs and properly allocate capital. Despite its poor performance, Morningstar equity analysts see GE's economic moat as on display resulting in formidable barriers to entry for competition. Three of the five worst performing U.S. Moat Index constituents were from various sub-industries of the healthcare sector: Merk & Co., Inc. (MRK US, -13.96%), Allergan PLC (AGN US, -13.53%), and McKesson Corp. (MCK US, -10.24%).

 

(%) Month Ending 10/31/17

Domestic Equity Markets

International Equity Markets

(%) As of 10/31/17

Domestic Equity Markets

International Equity Markets

(%) Month Ending 10/31/17

Morningstar
Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers
Constituent Total Return
Amazon.com Inc 14.97
Polaris Industries Inc 13.19
Microsoft Corp 11.67
VF Corp 9.56
Salesforce.com Inc 9.55

Bottom 5 Index Performers
Constituent Total Return
General Electric Co -16.63
CVS Health Corp -15.17
Merck & Co Inc -13.96
Allergan PLC -13.53
McKesson Corp -10.24

View MOAT's current constituents
View MWMZX's current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Top 5 Index Performers
Constituent Total Return
Fanuc Corp 14.62
DBS Group Holdings Ltd 9.06
SoftBank Group Corp 8.47
Tata Motors Ltd 7.60
Airbus SE 7.54

Bottom 5 Index Performers
KION GROUP AG -16.38
Cameco Corp -15.62
Embraer SA -15.31
Cemex SAB de CV CPO Terms:2 Shs-A- & 1 Shs-B- -10.64
Nordea Bank AB -10.63

View MOTI's current constituents

As of 9/15/17

Morningstar
Wide Moat Focus Index (MWMFTR)

Index Additions
Added Constituent Ticker
Patterson Cos Inc PDCO US
General Electric Co GE US
Cardinal Health Inc CAH US
Mondelez International Inc MDLZ US
Medtronic plc MDT US
Schwab Charles Corp SCHW US
Western Union Co WU US
Veeva Systems Inc A VEEV US
Pfizer Inc PFE US
Merck & Co Inc MRK US

Index Deletions
Deleted Constituent Ticker
Cerner Corp CERN US
Guidewire Software GWRE US
Gilead Sciences Inc GILD US
Varian Medical Systems Inc VAR US
Quintiles IMS Holdings, Inc. Q US
Yum! Brands Inc YUM US
Jones Lang Lasalle Inc JLL US
State Street Corp STT US
Mastercard Inc A MA 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
Cameco Corp Canada
SoftBank Group Corp Japan
Lloyds Banking Group Plc United Kingdom
Roche Hldgs AG Ptg Genus Switzerland
Millicom Intl Cellular S.A. - SDR Sweden
Enbridge Inc Canada
Embraer S.A. Brazil
QBE Insurance Group Ltd Australia
Telecom Italia SpA Italy
Orange France
Samsonite International SA Hong Kong
East Japan Railway Co Japan
Hoshizaki Electric Co Ltd Japan
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. Mexico
Canadian Pacific Railway Ltd Canada
China Resources Gas Group Ltd. China
America Movil SAB de CV L Mexico
Fanuc Co Japan
Nordea AB Sweden
Commonwealth Bank Australia Australia
Airbus SE France
Gas Natural SDG SA Spain
Inditex SA Spain
Luxottica Group SpA Italy
Westpac Banking Corp Australia
Magellan Financial Group Limited Australia
Siemens AG Germany
HeidelbergCement AG Germany

Index Deletions
Deleted Constituent Country
Carnival Plc United Kingdom
GlaxoSmithKline United Kingdom
Shire Plc United Kingdom
Tata Motors Ltd India
Dongfeng Motor Group Co. Ltd. - H Shares China
China Mobile Ltd. China
China Construction Bank Corp H Shares China
Beijing Enterprises Holdings Ltd. China
Genting Singapore Plc Singapore
CapitaLand Commercial Trust Singapore
Capitaland Ltd Singapore
United Overseas Bank Singapore
Singapore Exchange Ltd Singapore
Rakuten Inc Japan
Nippon Tel & Tel Corp Japan
KDDI Corp Japan
Telstra Corp Ltd Australia
Ramsay Health Care Ltd Australia
Iluka Resources Ltd Australia
DuluxGroup Ltd Australia
Ioof Hldgs Ltd Australia
Novartis AG Reg Switzerland
Potash Corp of Saskatchewan Canada
Baytex Energy Corp. Canada
Ambev S.A. Brazil
Sun Hung Kai Properties Ltd. Hong Kong
Swire Properties Ltd Hong Kong
KION Group AG Germany

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



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Semiconductors: A Link to the Blockchain Economy https://www.vaneck.com/blogs/etfs/semiconductors-blockchain-economy/ Blockchain technology requires massive computer processing power which relies on semiconductors.  An exposure to semiconductor manufacturers, therefore, offers inherent access to the investment potential of blockchain technology and across the blockchain economy.

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VanEck Blog 11/27/2017 12:00:00 AM

Contributors: Gabor Gurbacs, Director, Digital Asset Strategy, and Denis Zinoviev, ETF Product Associate

Blockchain technology involves massive computer processing power, which requires huge quantities of memory chips, graphics cards, and processors. All these devices use semiconductors. As demand for blockchain processing power grows, so does the semiconductor industry resulting in a distinct investment opportunity.

Blockchain Technology

Originally just a theoretical concept, blockchains are now the reality underpinning a wide range of commercial applications. Notably, blockchain technology is used to record and verify digital asset transactions, such as cryptocurrencies.

Blockchains – often referred to as distributed ledgers – create and enable immutable records that can be cheaply and securely verified by anyone, not just a central authority. As the technology sees increasing acceptance, its potential is being explored across government entities and numerous industries, including in financial services, healthcare, legal and consumer – anywhere secure recordkeeping is a requirement.

Miners and Mining

Blockchains are created, run, and stored on computers, with record creation and verification, two of the most computationally intensive processes. The verification process is called mining which is administered by verifiers or miners. Verification and verifiers are central to blockchain technology.

The process of mining organizes transactions into a chain of individual blocks by solving computationally intensive mathematical puzzles. Participants in the verification process receive rewards (Bitcoin or other cryptocurrencies) when they solve these puzzles. While anyone with the appropriate hardware and access to the Internet can participate, successful miners have access to massive computer processing power.

The most important hardware components for mining are memory chips, graphics cards, and processors – all of which use vast quantities of semiconductors. For context, NVIDIA's GV100 graphics processing unit (GPU) includes 21.1 billion transistors1 – one of the simplest semiconductor devices.

Miners have been known to rent entire jumbo jets to ship graphics processors from semiconductor manufacturers2 to meet their mining needs. It has been reported, that demand is such that at least two semiconductor manufacturers (NVIDIA and Advanced Micro Devices) are considering producing graphics cards dedicated to cryptocurrency mining.3

Semiconductors – Backbone of Blockchain Technology

Blockchain technology and miners in particular are totally dependent on electronic components consisting of vast numbers of semiconductors. VanEck believes that exposure to semiconductor manufacturers, especially those who are suppliers to miners, offers a compelling investment opportunity. Investment exposure to semiconductors may provide access to both the growth potential of blockchain technology, as well as the entire blockchain economy.

SMH: Efficient, Liquid Access to the Blockchain Economy

VanEck Vectors® Semiconductor ETF (NYSE Arca: SMH) invests in approximately 25 of the largest and most liquid U.S.-listed semiconductor companies. As of November 13, 2017, SMH had a 28.1% exposure to blockchain miner suppliers, including Advanced Micro Devices, NVIDIA, Intel, and Taiwan Semiconductor Manufacturing Company.

SMH Exposure
As of November 13, 2017

Pie chart of SMH exposure as of November 13, 2017, showing a 28.1% exposure to blockchain miner suppliers

Source: VanEck and FactSet; November 13, 2017. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.  

Miner Suppliers
As of November 13, 2017

Pie chart of SMH exposure to blockchain miner suppliers as of November 13, 2017, showing a 10.4% exposure to Taiwan Semiconductor Manufacturing Company, 10% exposure to Intel and 5.7% exposure to NVIDIA

Source: VanEck and FactSet; November 13, 2017. Miner suppliers are companies that have been identified as generating revenues from the sale of graphics cards, memory chips, and other computational instruments tailored to the mining of digital assets. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.  

Investing in nascent and innovative technologies and markets can often be costly and inefficient. SMH, with a 30-day average trading volume of 3.46 million shares per day as of November 20, 2017, is currently one of the most established and liquid semiconductor ETFs in the market. SMH provides a cost-effective and liquid option to investors seeking exposure to the cornerstone of blockchain technology and the blockchain economy as a whole.

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Guided by Signals: A Strategy for Managing Risk https://www.vaneck.com/blogs/etfs/guided-by-signals-managing-risk/ Recent negative market breadth, as measured by the Ned Davis Research CMG US Large Cap Long/Flat Index model, has triggered a reduction in equity allocation from 100% to 80%. 

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VanEck Blog 11/22/2017 12:00:00 AM

Responding to Deteriorating Market Health

Recent negative market breadth, as measured by the Ned Davis Research CMG US Large Cap Long/Flat Index (NDRCMGLF Index) model, has triggered a trade signal, and has caused its equity allocation to be reduced from 100% to 80%. The telecom, transportation, and pharmaceutical industries were among the largest decliners since last quarter end, with technology, energy, and industrials declining the most with the sell-off in November. While the S&P 500® Index was still up 2.05% quarter to date, it had declined by -1.05% with the sell-off, as credit spreads have widened and the yield curve has flattened in recent weeks.1

NDR CMG Long/Flat Equity Index Quarter-to-Date Cumulative Return (%)
10/1/2011 – 11/15/2017

NDR CMG Long/Flat Equity Index Quarter-to-Date Cumulative Return Chart

Source: FactSet. Data as of November 15, 2017. 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 disclosures below.  

The Index's model measures the overall health of the market through an evaluation of market breadth. In this case, market breadth refers to advancing and declining price trends and countertrends at the GICS2 industry level. The model computes a robust moving average score daily,3 capturing multi-industry, multi-term trend and counter trend measures to gauge overall market health. It then calculates the score's directional trend to see if it is improving or declining. Collectively, the score and its directional trend determine the equity allocation to either 100%, 80%, 40%, or 0% − in which case it would be allocated to cash.4 The NDRCMGLF Index rebalanced from 100% to 80% equity on November 22nd.

Why Responsiveness Matters

Many investors may attempt to ride out this recent kind of volatility, relying solely on asset diversification to minimize portfolio loss. However, should such spurts of volatility cascade into correction5 territory, or worse, investors can miss out on new opportunities to gain wealth by not taking steps to limit these types of losses. With a guided equity allocation strategy, investors can step out of the market automatically, in an attempt to help limit drawdowns and preserve capital, should markets continue to trend meaningfully negative.

Why Market Breadth is Ideal for Guided Equity Allocation

There are a few key reasons why measuring market breadth provides sound trend analysis for guiding equity allocations. The Index's co-developer, Steve Blumenthal of CMG Capital Management Group, Inc., recently wrote a whitepaper Risk Management for all Markets detailing this tactical approach. Mainly, market breadth has nearly always weakened before top-line prices have at major market peaks and breadth thrusts6 often occur just before major bull market recoveries. Furthermore, the S&P 500 is considered a very efficient market, meaning the underlying securities' fundamentals and macro environmental factors tend to be priced in almost immediately.

Investors can access this equity risk-managed approach through VanEck Vectors® NDR CMG Long/Flat Allocation ETF (LFEQ), which was developed to offer guided equity allocation by trading into and out of the market automatically for its investors. This strategy seeks to avoid losses from potential market drawdowns typical of traditional buy-and-hold or static strategies.

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ETFs Taking Share in Emerging Markets Debt https://www.vaneck.com/blogs/emerging-markets-bonds/etfs-taking-share-in-em-debt/ VanEck Blog 11/20/2017 12:00:00 AM

October marked the ten year anniversary of the first emerging markets bond ETF. The first ETF providing access to emerging markets local currency sovereign bonds, the VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (NYSE Arca: EMLC), launched three years later. Since the launch of that first fund, ETFs have proven themselves to be a reliable and valuable way to access this market.

Despite the relatively recent explosive growth of ETFs in general, these vehicles still make up only a small part of the overall emerging markets debt market. According to Morningstar, there is approximately $500 billion in emerging markets debt managed assets globally.1 ETFs comprise less than 10% of this total and a similar proportion of such assets managed in the U.S. However, investor flows tell a different story. Year-to-date through October, ETFs garnered 23% of net inflows into the asset class globally and 49% in the U.S. Additionally, over the past four years, while other vehicles have experienced outflows, flows into ETFs have been positive.

Steady Flows into Emerging Markets Debt ETFs1
As of 9/30/2017

Steady Flows into Emerging Markets Debt ETFs Chart

Source: Morningstar. Past performance is not indicative of future results. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

What is behind this increasing interest? It certainly helps that emerging markets bond ETFs have withstood several periods of high volatility since coming onto the scene a decade ago. These have included the financial crisis, taper tantrum, Brexit, and, more recently, the 2016 U.S. election. During this time, emerging markets bond ETFs have handled large inflows as well as outflows. For example, in 2013 nearly $3 billion exited U.S. emerging markets bonds ETFs. This accounted for approximately 30% of average assets under management (AUM) that year. In the first half of this year, $6.5 billion flowed into the space in the U.S., representing 34% of average AUM.1

Despite the questions that have been raised about the liquidity of these products (and bond ETFs in general), secondary market liquidity has held up through these various events. Ultimately, the underlying bonds drive liquidity and ETFs are no different from either mutual funds or separate accounts in this respect. However, ETFs provide an additional layer of secondary market liquidity, particularly for larger and heavily traded funds, potentially resulting in lower trading costs for investors.

EMLC: Secondary Market Liquidity Has Increased
As of 10/31/2017

EMLC: Secondary Market Liquidity Has Increased Chart

Source: NYSE Arca. Past performance is not indicative of future results. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

There are other reasons why we believe that ETFs are particularly well suited for emerging markets debt investors. Emerging markets debt has gained greater acceptance over the past decade as a standalone asset class, separate from a global bond allocation, among asset allocators. For this group of investors, ETFs provide low cost, transparent, and liquid beta exposure. Although ETFs are increasingly being used as part of a strategic asset allocation, perhaps as a complement to actively managed strategies, they are also used tactically by investors. The ability to efficiently add or reduce exposure is especially valuable given the inherent volatility in emerging markets.

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The Sentimental Bull https://www.vaneck.com/blogs/allocation/the-sentiment-bull/ The Fund’s allocations continue to strongly favor equities and have increased the overweight positioning relative to the benchmark.

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VanEck Blog 11/16/2017 12:00:00 AM

VanEck NDR Managed Allocation Fund (NDRMX) tactically adjusts its asset class exposures each month across global stocks, U.S. fixed income, and cash. It utilizes an objective, data-driven process driven by macroeconomic, fundamental, and technical indicators developed by Ned Davis Research ("NDR"). The Fund invests based on the weight-of-the-evidence of its objective indicators, removing human emotion and decision making from the investment process. The expanded PDF version of this commentary can be downloaded here.

October Performance

VanEck NDR Managed Allocation Fund (NDRMX) returned 1.91% versus 1.28% for its benchmark of 60% global stocks (MSCI All Country World Index) and 40% bonds (Bloomberg Barclays US Aggregate Bond Index), and 1.56% for the Morningstar Tactical Allocation Peer Group average.

With its 81% allocation to stocks, our bullish positioning was the primary driver of the Fund’s outperformance. Global stocks returned 2.08% and bonds returned 0.06%. Regionally, the Fund’s stock positioning performed in line with the benchmark. The Fund benefited the most from its overweight exposure to the U.S. and Japan. The Fund’s underweight to the Emerging Markets and overweight exposure to Europe ex U.K. detracted from performance. The U.S. equity positioning was a big contributor to performance. The Fund was invested in large-cap over small-cap and growth over value, both of which outperformed.

Fund Positioning November 2017: Even More Bullish

The Fund’s positioning shifted from bullish to very bullish in November. Our stock allocation changed from 80.6% to 85.4%, our bond allocation changed from 19% to 15%, and our cash allocation remained minimal. The largest regional equity shifts were reduced allocations to the U.S. (50.5% to 41.7%) and Europe ex U.K. (18.4% to 25.8%). Within the U.S., the Fund now has slightly less exposure to value (18.2% to 17.7%) and added exposure to small-cap (0% to 9.9%).

Fund Allocations
As of November 2, 2017

Fund Allocations Chart

The neutral position, which is provided by Ned Davis Research, Inc., represents the starting point of the VE NDR Model absent an alternative recommendation once the model takes into considerations the indicators that yield the global tactical allocation model. These are not recommendations to buy or sell any security.

October Performance Review

October was another great month for stocks. Earnings season has been strong and the results continue to push the market higher. Large-cap technology companies have performed spectacularly. Last month, Amazon was up 14.97%, Microsoft was up 11.67%, and Apple was up 9.68%! These types of companies helped the Fund in October as it had a 19.8% overweight position in U.S. large-cap growth stocks.

Global Balanced Positioning Relative to Neutral*

Global stocks returned 2.08% and U.S. bonds returned 0.06%. Our stock overweight position was the largest contributor to the Fund’s performance (80.6% stock position, a 20% overweight relative to its 60% stock/40% bond blended benchmark).

Global Regional Equity Positioning Relative to Neutral*

The performance of the regional equity allocations was in line with the MSCI All Country World Index. The largest regional equity contributors to performance were the overweight exposures to the U.S. and Japan. The U.S. (Russell 3000 Index) returned 2.18% and Japan (MSCI Japan Index) returned 4.61%. The largest regional equity detractors from performance were the underweight exposure to the Emerging Markets and overweight exposure to Europe ex U.K. The Emerging Markets (MSCI Emerging Markets Index) returned 3.51% and the Europe ex U.K. Index returned 0.43%.

U.S. Cap and Style Positioning Relative to Neutral*

The U.S. market cap and style positioning performed very well. The Fund was overweight large-cap over small-cap and growth over value. Large-cap (Russell 1000 Index) returned 2.29% and small-cap (Russell 2000 Index) returned 0.85%. Growth (Russell 3000 Growth Index) returned 3.69% and value (Russell 3000 Value Index) returned 0.68%.

Total Returns (%) as of October 31, 2017
  1 Mo Since Inception
Class A: NAV
(Inception 5/11/16)
1.91 12.38
Class A: Maximum 5.75% load -3.93 7.96
60% MSCI ACWI/
40% BbgBarc US Agg.
1.28 11.53
Morningstar Tactical Allocation
Category (average)1
1.56 10.19
Total Returns (%) as of September 30, 2017
  1 Mo Since Inception
Class A: NAV
(Inception 5/11/16)
0.95 11.65
Class A: Maximum 5.75% load -4.86 7.00
60% MSCI ACWI/
40% BbgBarc US Agg.
0.99 11.25
Morningstar Tactical Allocation
Category (average)1
0.94 9.67

The tables present past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect applicable fee waivers and/or expense reimbursements. Had the Fund incurred all expenses and fees, investment returns would have been reduced. Investment returns and Fund share values will fluctuate so that investor's shares, when redeemed, may be worth more or less than their original cost. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at net asset value (NAV). Index returns assume that dividends of the Index constituents in the Index have been reinvested.

Returns less than a year are not annualized.

Expenses: Class A: Gross 3.60%; Net 1.38%.
Expenses are capped contractually until 05/01/18 at 1.15% for Class A. Caps exclude certain expenses, such as interest.

Weight-of-the-Evidence

The weight-of-the-evidence strongly favors stocks. A total of eleven indicators are used to determine the stock/bond allocation. Of these, seven are bullish, two are neutral, and two are bearish.

So, what changed this month that caused our bullish shift? A Ned Davis Research global sentiment indicator changed from bearish to neutral. Behavioral finance plays a big part in what we do. Sentiment is a contrarian behavioral finance indicator. Sentiment indicators measure periods of both extreme optimism and pessimism. It is closely related to stock price returns. People typically feel better when prices rise. Right now, investors are very bullish. This indicator will get defensive when there is confirmation that investor’s extreme optimism is reversing.

The chart below shows that global sentiment reached extreme optimism in late October. This caused the Fund’s equity allocation to increase from 80.6% to 85.4%.

DSI Global Sentiment Composite

DSI Global Sentiment Composite Chart

Source: Ned Davis Research. Data as of October 31, 2017. Past performance is no guarantee of future results.
Copyright 2017 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

The chart below shows that U.S. sentiment has been in extreme optimism since late September.

NDR U.S. Daily Sentiment Index

NDR U.S. Daily Sentiment Index Chart

Source: Ned Davis Research. Data as of October 31, 2017. Past performance is no guarantee of future results.
Copyright 2017 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

Additional Resources

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Despite Headwinds, Gold's Base Remains Solid https://www.vaneck.com/blogs/gold-and-precious-metals/despite-headwind-gold-base-remain-solid/ The gold price held its ground during October and ended the month with a small lost.

 

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VanEck Blog 11/13/2017 12:00:00 AM

Gold Price Held Firm in October As U.S. Dollar Gained Strength

The gold price held its ground during October with a small loss of $9.08 (-0.7%), ending the month at $1,271.07 per ounce. Most of the macroeconomic news was gold negative. U.S. economic releases in the month were favorable and third quarter GDP growth beat expectations. The market gained conviction for a December Federal Reserve (Fed) rate increase and there was activity in the Senate that might enable tax reform later this year. Also, the European Central Bank (ECB) announced much anticipated plans to taper its bond purchases that was not as aggressive as expected. All of this caused both the U.S. dollar and interest rates to trend higher, keeping a lid on the gold price.

Gold stocks traded a bit lower with the gold price. The NYSE Arca Gold Miners Index (GDMNTR)1 fell 2.1% while the MVIS Global Junior Gold Miners Index (MVGDXJTR)2 declined 4.8%. Many of the large companies reported third quarter results that matched expectations.

Looming Headwinds to Gold May Also Add Global Economic Risks

Gold may face several headwinds in the remainder of the fourth quarter that could lend strength to the U.S. dollar:

  • The economic strength reported in October (for September), along with two consecutive quarters of 3% GDP growth, may indicate the economy is gaining momentum. If this continues, gold will likely remain under pressure. However since the financial crisis, economic growth has been inconsistent and below historic norms. This, along with our belief that this is a late-cycle economy, suggests we are due for some disappointments in the economy.

  • Gold may be negatively impacted if expected tax reforms accomplish their stated goals, namely lower taxes for the general public, elimination of provisions for special interests, and overall simplification of the tax system. Given past performance from Washington, infighting among Republicans could result in limited reforms. Also, tax reform is likely to substantially increase fiscal deficits that harm the economy in the longer term and some provisions could hamper the housing market.

  • The Fed is widely expected to raise rates at the December Federal Open Market Committee (FOMC) meeting. This is the third year in which the markets are anticipating a December increase. We have noticed a pattern where gold becomes oversold leading into the rate increase and rallies in the following months. During the last two months of 2015 and 2016, gold declined 7.1% and 9.8%, respectively. This was followed by gains of 16.7% and 8.3% in the first two months of 2016 and 2017, respectively.

 

While these headwinds may weigh on gold specifically in the near term, they also carry broader economic and financial risks. We expect the base that has formed over the last couple of years to hold firm in the $1,200 to $1,350 per ounce range.

Lack of Production Growth Should Support Gold Prices

In a July issue of The Northern Miner, David Garofalo, President and CEO of senior gold producer Goldcorp (2.7% of net assets*), said “If you look at the production perspective, by our own admission, the industry will shrink production by 15% to 20% in the ensuing five years”. According to Metals Focus, gold production from China, the world’s largest gold producer, is “plateauing” as production has fallen 8% in the first half of 2017. Most industry analysts have gold production peaking in the 2017–2020 period with no increase likely in the foreseeable future. This spells an end to the roughly 2.5% average annual production growth that has gone on for decades. The reason for the lack of growth is that most of the relatively easy to locate, near-surface gold deposits have been found and the industry has been unable to find any new prolific districts, akin to those of South Africa, Nevada, or Western Australia. The lack of discoveries has not been due to a lack of trying. The chart below shows the dramatic rise in exploration spending in the last decade, while discoveries trended lower.

Gold Discoveries Declined as Exploration Spending Grew  

Gold Discoveries and Exploration Budget Chart

Source: BofA Merrill Lynch Global Research; SNL Financial. Data as of December 31, 2015. Historical performance is not indicative of future results.

Lack of Production Growth Should Support Gold Prices

This lack of production growth should be supportive of gold prices. It also makes stock selection important in a sector where some companies will manage to grow and create value, while others will stagnate and decline. Our goal is to find companies with the ability to create value and in an effort to bring more such companies into the portfolio, we have visited Canada four times this year. We make multiple visits to the actual sites in order to meet the people who are doing the work, see the operations, study the maps and plans, and examine the core. The Canadian gold sector is currently booming. The source of the boom is the strong Canadian dollar gold price. The all-time highs for gold in both Canadian and U.S. dollar terms occurred in September 2011. However, the bear market that followed was much milder and shorter in Canadian dollar terms. The Canadian gold price bottomed in January 2014 and has since risen 31%, peaking last year just C$100 shy of its all-time highs. As a result, we have invested in a number of exciting discoveries, start-ups, and expansions.

Discoveries  

Historic gold production has come from greenstone belts in the Abitibi region of northern Ontario and Quebec. The Urban Barry belt, located further north in Quebec, has been host to several small-scale operations. Recent exploration is showing Urban Barry might be as prolific as the Timmins and Val d’Or camps have been historically. Osisko Mining (0.9% of net assets*) has found multi-million ounce vein deposits at its Windfall project, highlighted by the discovery of the high-grade Lynx zone. Osisko is beginning to make plans for a centralized milling facility to serve the region. BonTerra Resources (0.9% of net assets*) is another company with promising properties on the Urban Barry belt. The company’s Gladiator property hosts a small high-grade resource that we expect to grow to over a million ounces with continued drilling.

Start-ups  

TMAC Resources (1.2% of net assets*) and Pretium Resources (1.4% of net assets*) have properties that have transformed them from junior developers to producers. Pretium’s start-up of the Brucejack mine in British Colombia has gone smoothly. This is a large underground mine expected to produce around 500,000 ounces per year, which launches Pretium to mid-tier status. TMAC controls the Hope Bay greenstone belt in Nunavut. The company is expected to produce around 180,000 ounces per year, however the startup has not gone as planned. Some of the plant components were found to be defective or improperly designed, resulting in gold recoveries that are below expectations. The company is working to resolve the problems and is expected to reach nameplate production in 2018. Once the mill is properly commissioned, the company can focus on expanding to other deposits along the belt.

Expansions  

Kirkland Lake (3.4% of net assets*) operates the historic Macassa Mine in Ontario, one of the deepest underground mines in Canada. A number of years ago the company discovered the South Mine Complex (SMC), a deposit of extremely high-grade veins located a mile below the surface. Development and mining of the SMC has been slow due to the limitations of access and ventilation in an old mine infrastructure. Since Kirkland’s 2016 merger with Newmarket Gold, the company has enjoyed a rerating by beating expectations on costs, production, and resource additions. It now generates enough cash to fund a new shaft that will efficiently access the SMC and enable the mine to double production. Once construction begins, it will take approximately two years to complete the shaft. An added bonus is the new areas of exploration that the shaft will make possible to drill.

These are examples of companies in our portfolio with properties in Canada that are likely able to grow and create value. We are watching others with discoveries and developments that may require more trips to the great white north in the coming year.

Download Commentary PDF with Fund specific information and performance  

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2018 Investment Themes: Emerging Markets – The Biggest Opportunity https://www.vaneck.com/blogs/market-insights/2018-investment-themes-emerging-markets/ Emerging markets may have outperformed so far in 2017, but we still believe it is very early innings for these equities.

 

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VanEck Blog 11/9/2017 12:00:00 AM

Watch Video 2018 Investment Themes  

Jan van Eck, CEO, shares his 2018 investment outlook.

Watch Now  



 

TOM BUTCHER: What do you see as some of the biggest investment opportunities in 2018?

JAN VAN ECK: There are many things we have to talk about: Where can you make money? What’s going on with China? What’s going on with Bitcoin?

Emerging Markets are Thriving in 2017 and Should Continue to do so in 2018

Let us start with the biggest opportunity for potentially making money. I think it lies in emerging markets equities. As we entered 2017, U.S. equities had done so well for five years that people were underweight international and emerging markets. They have outperformed this year pretty dramatically. However, we think it is still early innings for emerging markets equities. It is just such a different asset class today from what it was five years ago. You should not even use the same words to describe it. Now almost 70% of many emerging markets indices is targeted towards Asia. It is almost an "Asia regional fund" because of China, India, Korea, and Taiwan. All these countries have become such a big weighting. Another reason we think it is a great opportunity is that cash flow for Asian stocks in 2018 is expected to grow 50%. That’s just a tremendous cash "gusher" and we think will be reflected in stock prices. (Read October 13 blog post for more on emerging markets equities: Strong Earnings Fuel Emerging Markets Rally.)

BUTCHER: How does China fit in and what is happening there? Where do you see the opportunities there?

"New China" Passes "Old China"

VAN ECK: Coming into the year we talked about Old China. There had been a tremendous growth in capacity for steel and all other sorts of basic industries in Old China. This was causing a great deal of trade tension with the U.S. (with the Trump election) and with Europe. Xi Jinping has now been confirmed for another term in office. He has been applying the brakes to Old China and reducing capacity. Luckily there has been no sort of immediate trade war between the U.S. and China. Basically the country is aligned with our interests in reducing Old China capacity through what they call supply side reforms. We believe this is excellent. It means that China’s traditional supply chain will begin to compete on a fairer economic basis with other countries.

The upside change in China has been the emergence of New China, we all know about Alibaba’s technology for example. That has, first of all, been reflected in the Chinese economy. Growth has been higher than people thought. But more importantly, the stock market in China has turned completely upside down: technology is now the largest sector. It is over 30% of the equity markets. Energy and financials, for example, have become less important. What people have been talking about for 10 years has finally happened. The big switch happened in 2017, New China is now emergent over Old China.

BUTCHER: One area where things do not seem to have changed very much this year is interest rates. What do you see happening in 2018?

We Remain Enthusiastic about Yield Alternatives

VAN ECK: The Federal Reserve stayed on course; they said they were going to keep tightening. They have said that they are going to reverse quantitative easing to the tune of $1 trillion, a little bit this year but a bunch more next year (let us call it half a trillion in 2018), and half a trillion in 2019. I think the question for 2018 is: How will the markets take it? Obviously the news is in the market because they have announced it, but it is hard to think that it will not cause a little bit more pressure on interest rates. This year we have suggested going for yield alternatives such as emerging markets and high yield. We would definitely continue into 2018 with this year’s enthusiasm.

BUTCHER: Volatility has been at historically low levels. Interest rates go up, how do you see volatility changing in 2018?

Volatility is a Worry

VAN ECK: This is one of the worries I have about the market. I cannot say I have all the answers! But let us just talk about the dimensions of the problem. As you said, volatility is really low. The fact I like to focus on is that there is a lot of money trading volatility. People used to not trade volatility. Estimates, for example from Artemis Capital, the hedge fund, are that there is up to $2 trillion being traded – basically trading triggered by volatility.

Let me explain this a little. If you are short volatility, or you are writing put options, it is just another way of getting yield. Since interest rates are so low globally, people have been searching for yield in all these different kinds of spots. The question is if volatility suddenly spikes, what will happen to that $2 trillion? It is a great deal of money. Will it go from being a calming effect on the markets (this is the theory), to being an accelerant of more volatility as market participants start taking money out of those trades? We do not know and cannot predict it for 2018. But it is certainly money that is working in the markets that could backfire or have effects. It is worth paying attention to.

BUTCHER: You said that was just one of your worries, have you any others?

Smart Beta, or Factor Investing, is also a Concern

VAN ECK: There is a great deal of money chasing what we call "smart beta", or factor investing. (Once again, this is something that is not widely tracked, although we know it is hundreds of billions, if not, trillions of dollars.) This was not commonplace perhaps five years ago. But now, there are billions of dollars in single factor ETFs. One worries when one sees people doing something they used to not do. The concern is that it either backfires or disappoints them.

BUTCHER: Digital assets have been in the news pretty much the whole of this year. Do you see them being in the news in 2018? And do you see any particular trends that interest you?

Digital Assets Cannot be Ignored

VAN ECK: I think this goes to the heart of who VanEck is. VanEck tends to look at what is going on in the world, historical trends, technology, what have you. We then ask ourselves: "What are the opportunities in the financial markets, or the risks?" It is how we got into gold back in the 1970s: we saw the inflationary trend that was not really visible. With digital assets, you have to look at it because it’s such a potentially revolutionary technology. As "peer-to-peer databases", distributed ledgers could really revolutionize how many things are currently being done. Are there many investment implications or opportunities? I would say that only in higher risk portfolios should you take a small position in digital assets. Digital assets are not a mainstream asset class at this time by any means. But I do not think it should be dismissed, because if the technology works, then there is upside. The biggest issue that we focus on, or I focus on, is governance. That is, can a crowd-governed database work, as opposed to one run by a private company like Microsoft, or Salesforce, or someone like that? Linux is an example of a crowd-sourced software solution that has worked. (Read August 14 blog post for more on digital assets: 3Q’17 Investment Outlook: Emerging Markets and Digital Asset Opportunities.)

BUTCHER: If there was one last thought you would leave with investors for 2018, what would that be?

The Emerging Markets "Party" has Years to Run

VAN ECK: Coming into 2017, too many portfolios were underweight international and emerging markets. They have not yet caught up, but are too worried about being late to the party. We think there are years to go. With what is happening in the world, this view is easily justified looking at long-term trends. So many people live in the emerging markets and so much of the growth in the economic activity is going to be there.

Last, the disconnect between commodity prices and corresponding equities of commodity producers has been historic this year, particularly in the energy space. In the U.S. upstream arena we are expecting many years of double digit growth while returns and cash flow begin a dramatic inflection after a decade of significant research and development spending. (Read October 19 blog post for more on commodities: Tighter Fundamentals, Global Growth Lend Support.)

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Introducing the VanEck Morningstar Wide Moat Fund https://www.vaneck.com/blogs/moat-investing/vaneck-morningstar-wide-moat-fund/ The VanEck Morningstar Wide Moat Fund, an open-end mutual fund version of Morningstar’s “wide moat”-focused strategy, is now available for institutional and retirement plans.

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VanEck Blog 11/7/2017 12:00:00 AM

The VanEck Morningstar Wide Moat Fund (Class I shares: MWMIX; Class Z shares: MWMZX), an open-end mutual fund version of Morningstar's "wide moat"-focused strategy that VanEck originally launched in 2012 is now open for investment. The popularity and success of the "wide moat" strategy prompted VanEck to expand the strategy's application, particularly to key institutional clients.

Investors can now leverage Morningstar's equity research through this newly launched mutual fund tailored for institutions and retirement plans, in addition to two previously available VanEck Vectors ETFs which serve a broader client base. The VanEck Vectors Morningstar Wide Moat ETF (NYSE Arca: MOAT®) provides exposure to U.S. companies and the VanEck Vectors Morningstar International Moat ETF (MOTI) offers access to international equities.

Like MOAT, which has total net assets of approximately $1.3 billion as of October 31, 2017, the VanEck Morningstar Wide Moat Fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Morningstar® Wide Moat Focus IndexSM (MWMFTR). The Index targets U.S. companies with sustainable competitive advantages, i.e. "moats," and attractive valuations in the view of Morningstar's team of more than 100 equity analysts1.

According to Morningstar's Equity Research group, companies with moats have the potential to create value and generate returns for longer periods of time. The index's approach to investing in U.S. companies with wide economic moats when they are attractively priced has resulted in long-term outperformance versus the broad U.S. equity market.

From the time MOAT was introduced to the market, there has been a great deal of acceptance across different investor types. By launching this mutual fund with both I and Z shares, the aim is to make the 'wide moat' strategy available more broadly, specifically to institutional categories that have indicated interest in traditional mutual fund exposure.

The launch of the Morningstar Wide Moat Fund is the first time VanEck has offered a Class Z share specifically tailored for the retirement channel. Expenses for the Fund are in line with MOAT and a management fee of 0.45% is offered across both types of investments. Total expenses for the Fund will be capped at 0.59% for Class I shares and 0.49% for Class Z shares2.

Post Disclosure  

1Equity analysts referred to are part of Morningstar's Equity Research group which consists of various wholly-owned subsidiaries of Morningstar, Inc., including but not limited to, Morningstar Research Services LLC.

2Expenses are capped contractually until May 1, 2019. Cap excludes acquired fund fees and expenses, interest expense, trading expenses, dividends and interest payments on securities sold short, taxes and extraordinary expenses.

Index performance is not representative of fund performance and does not reflect any management fees or brokerage expenses. Past performance is no guarantee of future results.

The Morningstar® Wide Moat Focus IndexSM consists of U.S. companies identified as having sustainable, competitive advantages and whose stocks are attractively priced, according to Morningstar.

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.

The Morningstar® Wide Moat Focus IndexSM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar Wide Moat Fund or VanEck Vectors Morningstar Wide Moat ETF and bears no liability with respect to that mutual fund, ETF, or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® Wide Moat Focus IndexSM is a service mark of Morningstar, Inc.

You can lose money by investing in the VanEck Morningstar Wide Moat Fund (the "Fund"). Any investment in the Fund should be part of an overall investment program rather than a complete program. All mutual funds are subject to market risk, including possible loss of principal. An investment in the Fund may be subject to risks which include, among others, investing in the health care, consumer discretionary, industrials, information technology and financial services sectors, medium-capitalization companies, equity securities, market, operational, high portfolio turnover, index tracking, replication management, non-diversified, and concentration risks, which may make these investments volatile in price or difficult to trade. Medium-capitalization companies may be subject to elevated risks. The Fund's assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors. For a description of these and other risk considerations, please refer to the Fund's prospectus, which should be read carefully before you invest.

An investment in VanEck Vectors® Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, investing in the health care, consumer discretionary, industrials, information technology and financial services sectors, medium-capitalization companies, equity securities, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, replication management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and concentration risks, which may make these investments volatile in price or difficult to trade. Medium-capitalization companies may be subject to elevated risks. The Fund's assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.

An investment in VanEck Vectors Morningstar International Moat ETF (MOTI) may be subject to risks which include, among others, equity securities, investing in the financial services and consumer discretionary sectors, medium-capitalization companies, foreign securities, foreign currency, emerging market issuers, special risk considerations of investing in European, Asian and Australian issuers, depositary receipts, cash transactions, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, replication management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and concentration risks, which may make these investments volatile in price or difficult to trade. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's returns. Medium-capitalization companies may be subject to elevated risks. The Fund's assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.

Fund shares are not individually redeemable and will be issued and redeemed at their Net Asset Value (NAV) only through certain authorized broker-dealers in large, specified blocks of shares called "creation units" and otherwise can be bought and sold only through exchange trading. Shares may trade at a premium or discount to their NAV in the secondary market. You will incur brokerage expenses when trading fund shares in the secondary market. Past performance is no guarantee of future results. 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. An investor should consider a Fund's investment objective, risks, charges and expenses carefully before investing. To obtain a prospectus and summary prospectus for VanEck Funds and VanEck Vectors ETFs, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus for VanEck Funds and VanEck Vectors ETFs carefully before investing.

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Revisiting the Rationale for Natural Resources and Commodities https://www.vaneck.com/blogs/natural-resources/revisiting-the-rationale/ VanEck Blog 11/1/2017 12:00:00 AM

While markets continue to overreact to just about every news headline related to natural resources, creating a heightened level of short-term uncertainty, the long-term rationale for investing in natural resource equities and commodities remains as solid as ever. Notably, an allocation to natural resources and commodities can provide unique benefits to investors not only as a tool to enhance portfolio diversification, but also as a means to gain direct access to global growth and as a hedge to offset the impact of inflation.

Leverage to Global Growth

The link between global growth and natural resources and commodities is quite logical: economic expansion increases the demand and need for raw materials. Steady, consistent global growth tends to be reflected in increased asset prices across all major asset classes. The impact that even slightly positive changes in global growth can have on natural resource equity and commodity returns is significant. In years when global growth has risen from the previous year, or experienced a "positive inflection", natural resource equities and commodities have dramatically outperformed both U.S. equities and bonds.

Average Annual Return in Years With Positive GDP Inflection
(1970 - 2016)

Average Annual Return in Years With Positive GDP Inflection Chart

Source: Bloomberg; FactSet; CRSP; FRED; VanEck. Data as of December 31, 2016. Past performance is not indicative of future results. Years of positive GDP inflection determined by calendar year periods when GDP growth increased from the previous year. The performance of certain return streams is hypothetical with the benefit of hindsight and knowledge of factors that may have positively affected its performance, and cannot account for all financial risk that may affect the actual performance of any VanEck product. The returns of actual accounts investing in natural resource equities, commodities, energy equities, diversified mining equities, gold equities, U.S. equities and U.S. bonds strategies are likely to differ from the performance of each corresponding index or return stream. In addition, the returns of accounts will vary from the performance of the indices for a variety of reasons, including timing and individual account objectives and restrictions. Accordingly, there can be no assurance that the benefits and risk/return profile of the indices shown would be similar to those of actual accounts managed.

Inflation Hedging

Natural resource equities and commodities have historically exhibited a strong link to inflation: they perform well in both rising interest rate environments and during periods of higher-than-average growth in general consumer price levels. As seen in the chart below, in moderate inflationary regimes – with 2%-6% year-over-year inflation – the performance of natural resource equities and commodities has been slightly higher than, or in-line with, U.S. equities. In periods of higher inflation (greater than 6% year-over-year) they have significantly outperformed both domestic U.S. equities and bonds.

Average 12-Month Return Under Varying Inflation Rates
(1970 - 2016)

Average 12-Month Return Under Varying Inflation Rates Chart

Source: Bloomberg; FactSet; CRSP; FRED; VanEck. Data as of December 31, 2016. Past performance is not indicative of future results. The performance of certain return streams is hypothetical with the benefit of hindsight and knowledge of factors that may have positively affected its performance, and cannot account for all financial risk that may affect the actual performance of any VanEck product. The returns of actual accounts investing in natural resource equities, commodities, energy equities, diversified mining equities, gold equities, U.S. equities and U.S. bonds strategies are likely to differ from the performance of each corresponding index or return stream. In addition, the returns of accounts will vary from the performance of the indices for a variety of reasons, including timing and individual account objectives and restrictions. Accordingly, there can be no assurance that the benefits and risk/return profile of the indices shown would be similar to those of actual accounts managed.

When inflation has outpaced expectations or "surprised" to the upside (see chart below), natural resource equities and commodities have outperformed other inflation-hedging asset classes including infrastructure, Real Estate Investment Trusts (REITs), and U.S. Treasury Inflation Protected Securities (TIPS).

Average 12-Month Return in Periods of Positive Inflation Surprise
(2003 - 2016)

Average 12-Month Return in Periods of Positive Inflation Surprise Chart

Source: Bloomberg; FactSet; CRSP; FRED; VanEck. Data as of December 31, 2016. Past performance is not indicative of future results. Analysis conducted for time periods between December 2002 to December 2016 based upon availability of data. “Positive Inflation Surprise” determined by months where a year-over-year percent change in inflation (as measured by CPI-U) was higher than 1-year-ahead forecasts from University of Michigan’s inflation survey. The performance of certain return streams is hypothetical with the benefit of hindsight and knowledge of factors that may have positively affected its performance, and cannot account for all financial risk that may affect the actual performance of any VanEck product. The returns of actual accounts investing in natural resource equities, commodities, infrastructure, REITs, international equities, TIPS, U.S. equities and U.S. bonds strategies are likely to differ from the performance of each corresponding index or return stream. In addition, the returns of accounts will vary from the performance of the indices for a variety of reasons, including timing and individual account objectives and restrictions. Accordingly, there can be no assurance that the benefits and risk/return profile of the indices shown would be similar to those of actual accounts managed.

Accessing Natural Resources and Commodities

While broad exposure to natural resource equities and commodities – for example, via passively managed indexed products – offers specific benefits as discussed previously, we believe investors should consider the additional role that an active approach can play. The price movement of individual natural resource equities and commodities can differ dramatically under varying global growth and inflation regimes. Needless to say, this disparity can, at times, also be magnified by the impact that solid company fundamentals (such as superior management, capital allocation, and cost restraint) can have on company returns, independent of commodity price movement.

Active vs. Passive Natural Resource Equity Fund Returns
(1999 - 2016)

Active vs. Passive Natural Resource Equity Fund Returns Chart

Source: Morningstar; FRED; VanEck. Data as of December 31, 2016. Past performance is not indicative of future results. Analysis conducted for time periods between January 1999 to December 2016 based upon availability of data. Years of positive GDP inflection determined by calendar year periods when GDP growth increased from the previous year. "Positive Inflation Surprise" determined by months where a year-over-year percent change in inflation (as measured by CPI-U) was higher than 1-year-ahead forecasts from University of Michigan's inflation survey.

As indications of synchronized global growth became more evident in the third quarter of 2017, the investment rationale for natural resources and commodities has become increasingly relevant. VanEck's natural resources investment strategies span the breadth of commodities sectors, across mutual funds and ETFs, including the Global Hard Assets Fund, International Investors Gold Fund, CM Commodity Index Fund as well as a full suite of passively managed hard assets and commodities VanEck Vectors ETFs.

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Recover and Rebuild, from Chicago to Puerto Rico https://www.vaneck.com/blogs/muni-nation/recover-rebuild-chicago-puerto-rico/ Some news in context: 1) Does Chicago’s fiscal health mirror Illinois’? and, 2) How Elon Musk may provide Puerto Rico with electricity.

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VanEck Blog 10/31/2017 12:00:00 AM

In this blog we step back to look at the broader context around two separate news stories that have been in the muni bonds spotlight in one form or another this year: Illinois and Puerto Rico.

Does it Matter? Of Illinois, Chicago, Pensions, and Other Fiscal Woes across the Prairie State

Much has been made about the relatively poor fiscal health of Illinois, but what of Chicago, America's third largest city, and economic engine of the state? To recap, back in March1 the Land of Lincoln's credit rating—already the lowest of any state in the country—appeared in serious danger of another downgrade, with the government in Springfield having failed to pass a budget for two years, or seriously address its chronically underfunded pension system, the liabilities of which ran to an eye-popping 450% of annual revenue.2 Even after the state legislature finally passed a "balanced" budget on July 6th—Republicans joined with Democrats to override Governor Rauner's veto by hiking income taxes by approximately 32%, many agree Illinois's budgetary woes are far from over.3 But does Chicago's fiscal health mirror Illinois'?

On the surface, the answer is "Yes"; if anything, Chicago's in even worse financial shape. In July Moody's confirmed4 Illinois' general obligation (GO) bonds rating of Baa3, the lowest "investment grade" rating, but Chicago's GO bonds are rated a notch below5 even that: Ba1, in speculative territory. Similar to its home state, Chicago recently raised taxes with the goal of balancing its budget and accelerating pension funding, but the city's pension liabilities are so out of control that Moody's deemed even this step "insufficient to arrest growth" in the city's liabilities.

All of this may be true, and yet any casual visitor to Chicago these days could hardly avoid noticing the dozens of construction cranes6 towering all over the city, which would appear to belie the gloomy economic picture the preceding paragraphs may have painted. In fact, as of September 29th, there were 33 active tower cranes throughout the city, and 54 tower cranes have been used in high-rise projects throughout 2017, surpassing the city's post-recession record (set in 2016) for active cranes in a year. In the hopes of wooing Amazon to choose Chicago for its HQ2, the city also recently took the wraps off what could become a 100 acre lakefront redevelopment megaproject,7 built-to-suit for the tech giant.

All of this visible construction points to something all-but-invisible to the naked eye: a robust economy and strong economic growth, in spite of the difficulties city and state government may have in balancing their budgets.

Chicago skeptics may point to the area's population loss as an indicator of a mixed economic bag, but as with the city's credit rating, numbers can be deceptive. Although it's undeniable that Cook County—the second-largest county in the United States and home to Chicago and many of its suburbs—has been making headlines for historic population declines,8 the story on the ground is a bit more nuanced:9 many residents are moving out of high poverty neighborhoods, while affluent neighborhoods have seen rising populations.

Puerto Rico and Elon Musk

Puerto Rico was already in deep financial trouble this year after it defaulted,10 in the summer of 2016, on its constitutionally guaranteed general obligation bonds. And that was before Hurricane Maria, a Category 5 storm, ripped through the island, destroying infrastructure, flooding streets, and leaving many of the three million American citizens in dire straits without electricity or access to clean water.

Puerto Rico's electrical grid is in particularly bad shape after the hurricane, and was already in a downward spiral11 of high electricity costs and poor service before the storm hit. Part of this is attributable to the difficulties of maintaining an electrical grid on a tropical island, where salt in the air corrodes equipment, forests grow quickly and must be constantly cut away from power lines, and forbidding geography makes road access to electrical infrastructure problematic. The hurricane pretty much destroyed this already vulnerable system, and the consequences are clear: as of October 17, four out of five Puerto Ricans are still without power.12

Enter billionaire entrepreneur Elon Musk. The founder of PayPal, SpaceX, and Tesla announced that he would be willing to help Puerto Rico rebuild its energy infrastructure with the help of Tesla Powerwall battery packs. He appears already to be making good on his pledge, as the packs were spotted a few days ago13 at San Juan Airport.

Can Tesla really make good on Musk's ambitious goal of rebuilding the island's power infrastructure? It's still early days, but the company has some experience in this matter already. In Kauai, the westernmost Hawaiian island, Tesla installed a 55,000 panel solar farm mated to 272 Powerpacks,14 capable of storing a total of 52 megawatt-hours of power. The new installation now allows the island to utilize stored solar power at night, and boosts its renewable power generation to 44% of the total. Tesla also recently won a bid—beating out 91 competitors—to create a 100 megawatt lithium-ion wind power storage facility15 in South Australia, the highest capacity battery of its kind ever produced.

Impressive though these achievements are, they pale in comparison to the challenge Tesla faces if the company is serious about rebuilding Puerto Rico's electrical grid. While Kauai is an island of 70,000 inhabitants, Puerto Rico's population stood at 3.4 million16 as of 2016. That's a lot of batteries, to say the least.

How Musk's ambitious gambit might affect bondholders remains to be seen, depending on how or if he works with the Puerto Rico Electric Power Authority ("Prepa"). Prepa's bonds tumbled after Maria made landfall17 with creditors worried they may recover even less through the bankruptcy process than was first thought. If Musk works with the beleaguered utility, which has already been offered a $1 billion lifeline by a group of private investors, bondholders may be more likely to recover some of their initial investments. If Musk and Tesla go it alone and succeed at effectively setting up a parallel, privatized electrical supply system for the island, the bonds may very well remain severely distressed as bankruptcy proceedings continue, but the outcome appears murky at best even at this very early stage.

Facts and fantasy aside, the "possible" silver lining, which was not thinkable or possible prior to the hurricanes, suggests that Puerto Rico might be viewed as a fertile ground for technological innovation and demonstration – à la Musk. I see this as achievable through a Congressional initiative to create a long-term plan for the Commonwealth, to meet need with opportunity, and take Puerto Rico and its citizens into the 21st century.

Post Disclosure  

1Muni Nation: Something is Rotten in the State of Illinois, March 30, 2017

2Municipals Weekly - Bank of America Merrill Lynch: A watershed week for munis, 29 September, 2017

3Politifact: Rauner's right: Illinois budget balancing act an ongoing production, September 20, 2017

4Moody's: Rating Action: Moody's confirms Illinois' Baa3 GO and related ratings, affecting $32 billion of debt; outlook negative, July 20, 2017

5Moody's: Rating Action: Moody's Confirms Chicago, IL's GO at Ba1; Outlook Negative, September 5, 2017

6Curbed: The Chicago skyline is littered with dozens of tower cranes, September 29, 2017

7Curbed: Chicago's plan to attract Amazon to the old Michael Reese Hospital site breaks cover, October 16, 2017

8dna info: Cook County Lost More People Last Year Than Any Other County In The U.S., March 23, 2017

9dna info: As High-Poverty Neighborhoods Shrink, Downtown Construction Booms, March 27, 2017

10Muni Nation: Municipal Defaults, While Rare, Do Occur, April 25, 2017

11FiveThirtyEight: Why Puerto Rico's Electric Grid Stood No Chance Against Maria, October 16, 2017

12BusinessInsider: 4 out of 5 Puerto Ricans are still without power — but darkness is far from the island's biggest problem, October 17, 2017

13Newsweek: In Puerto Rico, Tesla is doing what Donald Trump isn't – fixing it, October 16, 2017

14Curbed: Tesla solar panels and storage will help Hawaiian island go fossil-free, March 10, 2017

15The Verge: Tesla wins bid to build world's largest lithium-ion battery for South Australia, July 7, 2017

16U.S. Census Bureau

17Financial Times: Puerto Rico creditors jockey for position in Hurricane Maria aftermath, September 27, 2017

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Fallen Angels on the Rise https://www.vaneck.com/blogs/etfs/fallen-angels-on-the-rise/ The credit-positive environment so far this year has resulted in a higher than average number of rising star ascensions, as fallen angels responded favorably to recent oil price stabilization and optimism about potential tax reform.

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VanEck Blog 10/31/2017 12:00:00 AM

Fallen angel high yield bonds outperformed the broad high yield bond market over the third quarter and year to date. Fallen angel returns were +3.7% for the quarter, bringing year-to-date performance to +9.4% through September 30, outperforming the broad high yield bond market by +1.7% and +2.4%, respectively.1 Continued optimism over potential tax reform and oil price stabilization over the third quarter helped the high yield market in general. Fallen angel positions in, and higher allocations to, the energy, basic industry, and telecom sectors were some of the main drivers of outperformance versus the broad high yield bond market. However, fallen angels' 9% average healthcare sector underweight and retail sector issuer overweights, versus the broad market, weighed slightly on relative year-to-date performance.

Two Years, Two Themes

The theme for 2016 was the significant volume of new "fallen angel" entrants (over 30% of the Fallen Angel Index's1 market value), most of which entered at a meaningful discount. In contrast, by the end of the third quarter only 4.6% of the Index's market value comprised 2017 fallen angel entrants. In fact, 2017's mostly positive credit environment has, year to date, resulted in a higher than average volume of "rising stars". (Rising stars are formerly high yield bonds that have been upgraded to investment grade status.) So far this year, 10.1% of fallen angel market value returned to investment grade status, exceeding the historical annual rising star average of 5.2%. Historically, fallen angel bonds have had higher rising star volume than original-issue high yield bonds (2.4% averaged annually) and year to date (0.7%).2

Year to Date 2017 vs. 2016 Rising Stars and Fallen Angels
As of September 30, 2017

Year to Date 2017 vs. 2016 Rising Stars and Fallen Angels Chart

Source: FactSet, Bank of America Merrill Lynch.

In addition to higher rising star averages, historically fallen angel bonds have also experienced lower average default rates than have original-issue high yield bonds (3.5% versus 4.5%).3

While rising stars may not be a significant driver of returns, fallen angels' higher average ascension rate, along with their lower average default rate, do reflect fallen angels' higher average quality versus the broad high yield bond market. Fallen angels, which were originally issued by investment grade bond issuers, tend to concentrate in the BB-rated category – the highest level in the below investment grade credit spectrum. At the end of the third quarter, approximately 77% of the universe was concentrated in BB-rated bonds.4 This compares to the broader high yield bond universe's approximately 48% concentration in BB-rated bonds.

What to Consider When Investing in Fallen Angels

Investors should consider fallen angels' overweight to both the energy and basic industry sectors, factoring in any views they may have on commodities' prices, as these have meaningfully influenced returns in the two sectors. Historically, such differences in sector allocations versus the broad high yield bond market have, on average, helped offset some of the negative impact from rising interest rates, as rate increases often coincide with market recoveries. Investors should also consider the present size of the fallen angel universe, which is approximately $138 billion in market value. Any further credit market improvement could further reduce its size, with, for example, more rising star and/or tender offer activity. However, as seen in 2016, the possibility of future credit events could increase the size of the universe with new fallen angels.

While year to date, high yield bonds have, in general, navigated the markets well, any unforeseen geopolitical events or potential uncertainty around the Trump administration's ability to pass new tax reform could stir up broad market volatility and negatively affect high yielding assets. That being the case, bond investors may want to increase their credit quality to help absorb such potential volatility, and fallen angels can be a source of higher quality high yield.

VanEck Vectors® Fallen Angel High Yield Bond ETF (ANGL®) Consistently Outperformed Peers5
As of September 30, 2017

VanEck Vectors® Fallen Angel High Yield Bond ETF (ANGL®) Consistently Outperformed Peers

Source: Morningstar. Data as of September 30, 2017.
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. The high yield bond peers 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 (ANGL) received a three-year and overall five-star rating from Morningstar, as of September 30, 2017.6 ANGL was rated against 601 funds in Morningstar's high yield bond category based on total returns. Past performance is no guarantee of future results.

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Green Bonds Surge Past 2016 Levels https://www.vaneck.com/blogs/etfs/green-bonds-surge-past-2016-levels/ Green bond issuance this year has surpassed 2016 issuance totals and seems to show no signs of slowing. We examine issuance trends this year and why we expect the green bond market to continue to grow.

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VanEck Blog 10/26/2017 12:00:00 AM

Green bond issuance this year has surpassed 2016 totals and appears to show no signs of slowing. Year-to-date issuance in 2017 totaled $90.1 billion, as of October 18, versus $81.6 billion in 2016, according to the Climate Bonds Initiative ("CBI"). In fact, September was the busiest month this year with nearly $15 billion issued.

Investors demand assurance

Notable also is the $12.5 billion of green bonds that were certified under the Climate Bond Standard.1 This means that a third party was engaged to verify the green credentials of the projects financed, and that post-issuance reporting standards are adhered. In 2016, $7.3 billion of green bonds were certified under this standard, demonstrating growing investor demand for this level of assurance. In addition, 87% of the bonds issued this year received a second-party opinion, meaning that the issuer engaged an independent organization to review the bond and the issuer's green bond framework against the Green Bond Principles,2 and in many cases assess the "green-ness" of the projects financed.

These figures cover "labeled" green bonds that are in line with the CBI's green bond definitions, meaning that the projects financed are consistent with achieving a dramatic and rapid reduction in greenhouse gas emissions. Other bonds labeled as green but which are not in line with the CBI definitions, such as those that finance projects such as "clean coal", are not included. A green label provides additional transparency to investors by disclosing the types of projects a bond will finance. A much broader universe of "unlabeled" green bonds exists, but investors are increasingly seeking the transparency that labeled green bonds provide so that they can better assess the impact their investment is making. The CBI flag provides assurance that the projects are truly green.

YTD Issuance by Region
(USD equivalent, millions)

YTD Issuance by Region Chart

Source: Climate Bonds Initiative, as of 10/18/2017. Not intended to be a forecast of future events, a guarantee of future results, or investment advice. Current market conditions may not continue.  

YTD Issuance by Issuer Type
(USD equivalent, millions)

YTD Issuance by Issuer Type  Chart

Source: Climate Bonds Initiative, as of 10/18/2017. Not intended to be a forecast of future events, a guarantee of future results, or investment advice. Current market conditions may not continue.  

Europe dominates

European issuers have dominated global issuance this year with nearly $38 billion of green bonds issued versus $22 billion in 2016. France accounts for 40% of this, and January's landmark €7 billion French sovereign green bond deal has been complemented by a variety of offerings from blue-chip French corporates such as EDF, Engie, and SNCF.3 Reflective of the heavy European issuance and demand, euro-denominated bonds have been most common this year compared to last year which saw more U.S. dollar-denominated issuance.

U.S. issuers have brought approximately $11 billion green bonds to market this year, with about half from municipal issuers. Approximately $3.5 billion of securitized green bonds have come to market from issuers such as MidAmerican Energy, Fannie Mae, and others.4 U.S. corporate issuance, however, continues to lag. Apple issued its second green bond earlier this year, while companies like Kaiser Permanente and Brookfield Renewable Partners also brought green bonds to market.

Overall, corporate issuance has comprised about 34% of global new issues this year, followed by development banks (17%) and commercial banks (17%).

Notable developments

Emerging markets issuers have been notably active this year. Mexico City Airport issued the largest corporate green bond this year. Industrial and Commercial Bank of China (ICBC), the largest commercial bank in the world, issued its first green bond this month. Latin American issuance in 2017 has more than doubled compared to 2016 to $7.6 billion,5 and there has also been a notable uptick in issuance by Indian entities. We believe emerging markets, in general, will play a key role in addressing climate change. There is a significant need to finance the infrastructure required to fuel their growth, but in more sustainable ways than what has been pursued in the past.

New formats of green bonds have also emerged which will help to expand both their issuer and investor bases. For example, the first green sukuk6 was issued in July through a partnership between the central bank of Malaysia and the World Bank. Innovative asset-backed green bonds continue to come to market, including the first 100% green residential mortgage backed security from a Dutch issuer. Sovereign issuance continues to gain attention, with additional countries expected to come to market by the end of the year.

More growth expected

As encouraging as the continued growth of the market is, green bond market must continue to scale up significantly to meet the climate objectives under the Paris Agreement and to fund more sustainable development. The challenge is substantial: it is estimated that $93 trillion of infrastructure investment is needed in the next 15 years to transition to a low-carbon economy.7 Green bonds are well suited to play a role given the long-dated nature and fixed cash flows of most projects, and because of the liquidity and size of the global bond market. Green bonds have been recognized as an important piece in the transition to a low carbon economy with global climate leaders calling for $1 trillion of annual issuance by 2020.8 We expect issuance to continue to grow, and as a result, for green bonds to have a larger role within investor portfolios.

VanEck Vectors® Green Bond ETF (GRNB®) is the first U.S.-listed fixed income ETF to provide targeted exposure to the fast-growing green bonds market. GRNB seeks to track the performance and yield characteristics of the S&P Green Bond Select Index (SPGRNSLT), part of a suite of green indices introduced by S&P.

For a complete listing of the holdings and performance, please visit VanEck Vectors Green Bond ETF (GRNB).

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Spin-Off in the Spotlight: Conduent (CNDT) https://www.vaneck.com/blogs/etfs/spin-off-conduent-cndt/ Conduent was spun off from parent company Xerox in early 2017 and is an industry leader in business process services.

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VanEck Blog 10/26/2017 12:00:00 AM

Written by Horizon Kinetics' Research Analyst and CFA Charterholder Ryan Casey who authors regular research reports covering domestic and international spin-offs.

Spin-Off Company: Conduent Inc. (NYSE: CNDT)

Parent Company: Xerox Corp. (NYSE: XRX)

Spin-Off Date: January 3, 2017

Horizon Kinetics Global Spin-Off Index (GSPIN) Inclusion Date: April 1, 2017

In January 2017, Xerox spun off its business process services segment, which provides a variety of services including the administration of employee benefit programs and insurance claims, processing of government payments, and management of transit systems via highway tolling, parking solutions, and mass transit fare collection systems. This division, which became Conduent Inc. (Conduent) upon the spin-off, is a leader in its industry, serving as a business partner to 76 companies in the Fortune 100 and over 500 government entities.

Cutting Costs a Goal

Many of the traditional reasons were given in separating the two companies, including enhanced strategic and operational focus, the ability to align the capital structures of both businesses to their growth profiles, and the enabling of Conduent to incentivize management based on the performance of its own shares. Practically speaking, however, the company has been given the freedom to pursue a program that will reduce costs by $700 million, which it plans to achieve by the end of 2018.

Conduent has already made significant progress towards its goal, reducing its number of call centers and other real estate locations by nearly 20%, cutting headcount by more than 7%, and making its operations more efficient. Its Student Loan servicing business has been placed in run-off in an effort to eliminate the $100 million in annual losses from the company’s “Other” segment (which also includes its Government Health Enterprise Medicaid Platform), and the company has been renegotiating unprofitable contracts in its Customer Care business with some early success. These measures should not only improve the company’s margins and profitability, but position Conduent to competitively pursue new business opportunities in a $260 billion market that is expected to grow 6% annually.

Potential to Generate Cash Flow and Pay Down Debt

The company stands to generate approximately $800-$900 million per year in adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) should it achieve its cost-cutting goals. This is attractive relative to its current market capitalization of roughly $3.4 billion and enterprise value of roughly $5.2 billion. Free cash flow is expected to be 20%-30% of adjusted EBITDA, giving Conduent ample cash to pay down its $1.8 billion of net debt, which we believe, alone, could increase the company’s share price by more than 50% over time.

Conduent has operated at close to break-even through the first six months of 2017, but is expected to be profitable for the year due to the normal seasonality of its business and the realization of additional cost savings going forward. Considering that the company has yet to report a profitable quarter as an independent entity, it is reasonable to believe that the market has not yet given Conduent any credit for its long-term earnings potential.

View Current SPUN Fund Holdings

View Current GSPIN Index Holdings

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What Factors are Driving Emerging Markets Returns? https://www.vaneck.com/blogs/emerging-markets-bonds/what-factors-are-driving-returns/ Returns on emerging markets local currency bonds have been strong this year thus far, and a close look at fundamentals indicates room for more.

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VanEck Blog 10/19/2017 12:00:00 AM

With strong emerging markets local currency bond returns this year thus far and institutional emerging markets FX exposure at a post-crisis high, according to J.P. Morgan, investors may be asking whether there is still room for additional returns in the asset class. We believe there is, and a closer look at the drivers of returns explains why.

The J.P. Morgan GBI-EM Global Core Index (the "Index") has returned 13.9% year to date through September. Local interest rates (which include both carry and price movements from changes in local interest rates) contributed 8.1% to total return, while currency appreciation contributed 5.4%. However there were notable differences from a regional perspective.1 Asian, Latin American, and Middle East/African countries experienced strong rate performance, but only modest currency returns. European currencies, on the other hand, have returned nearly 12%, contributing over 50% to overall currency return on the Index despite only comprising 25% by weight.

J.P Morgan GBI-EM Core Index YTD Return
As of 9/30/2017

J.P Morgan GBI-EM Core Index YTD Return Chart

Source: VanEck and J.P. Morgan. Index returns are not illustrative of Fund returns. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

European emerging markets currencies such as the Polish zloty, Hungarian forint, and Czech koruna are more closely tied to the Euro and have benefitted this year from signs of growth in the Eurozone. The recent U.S. dollar rally, however, may pose a risk to these gains if it continues.

With improving economic growth and controlled inflation, fundamentals appear to remain supportive for emerging markets currencies. Given that there has not been a broad-based rally this year, we believe that the asset class is not overbought and there may be room for additional appreciation. Further, emerging markets local currency bond yields remain attractive.

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Tighter Fundamentals, Global Growth Lend Support https://www.vaneck.com/blogs/natural-resources/tighter-fundamentals-global-growth/ In the third quarter, the most significant impact on the natural resources market and the Fund came from the continued resilience of metals prices, in particular copper which hit two-year highs during the quarter.

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VanEck Blog 10/19/2017 12:00:00 AM

3Q'17 Hard Assets Strategy Review

During the quarter, VanEck's hard assets strategy returned 8.37% (measured by VanEck Global Hard Assets Fund, Class A (GHAAX), excluding sales charge). On a relative basis, the strategy outperformed its commodity equities-based benchmark index, the Standard & Poor's® (S&P) North American Natural Resources Sector Index (SPGINRTR),1 which returned 7.41% over the same period.

Market Review

The most significant impact on the natural resources market and the Fund came from the continued resilience of metals prices, in particular copper which hit two-year highs during the quarter. Geopolitical risk, such as the tension between the U.S. and North Korea, resulted in a degree of hesitancy and sensitivity in the market to any type of perceived "risk on" environment although it was supportive of gold prices.

Fundamental: During the quarter, demand turned from resilient to strong on the back of synchronized global growth in both emerging and developed markets. At the same time, we saw a moderation in the growth rate of U.S. shale oil supply, reflecting the pause in the growth of the rig count that we saw earlier this year on the back of softer oil prices.

Technical: Energy as a whole performed moderately well during the quarter after what turned out to be one of the worst first halves ever for the sector. However this performance was still not fully reflective of the longer-term stability in the market.

Macroeconomic: While supportive data indicate synchronization in global growth, concerns about geopolitical risk continue to overhang the market. As well, global inflation has remained surprisingly soft.

Natural Resources Sub-Sector Review

Energy: The combination of better than expected demand, moderating growth in U.S. shale supply, and the continuation of remarkable compliance within OPEC (Organization of Petroleum Exporting Countries) of its self-imposed production quotas have helped oil, perhaps, find an equilibrium price. Distillate inventories on a global basis – particularly in Europe, U.S., and Asia – have come down implying, most likely, fairly strong industrial demand with better economic growth around the globe providing confirmation. We see this as helping to rebalance the market.

Metals and Mining: Now armed with strong balance sheets and healthy margins, the global mining sector has been returning cash to shareholders. A case in point is Rio Tinto which, during the quarter, announced not only a generous interim dividend, but also that it would add $1B to the share buyback program it announced in February.

Gold producers continued to reiterate their commitment to capital discipline and maintaining low costs. Gold stocks generally carry yields well under 1%. It looks now as if the industry may be gaining the financial strength to offer yields that outperform gold's 0% yield which may attract more investors.

Agriculture: Despite mixed underlying commodity performance, agricultural equities saw strong performance in the third quarter. Protein markets have been strong all year and this quarter chicken pricing, particularly wings, was counter-seasonally strong while supply remained subdued. In addition, beef packing margins have been exceptionally strong. Fertilizer prices, which were weak in the second quarter, appear finally to have found a bottom.

Top Quarterly Contributors/Detractors

Top Quarterly Contributors/Detractors Chart 2Q 2017

Source: FactSet; VanEck. Data as of September 30, 2017. Contribution figures are gross of fees, non-transaction based and therefore estimates only. Figures may not correspond with published performance information based on net asset value (NAV) per share. Past performance is not indicative of future results. Portfolio holdings may changes over time. These are not recommendations to buy or sell any security.

Outlook: Solid Growth in the Consumption of Commodities in General

The synchronized global economic growth that we are currently experiencing is manifesting itself in solid growth in the consumption of commodities in general.

In the energy sector, in particular, International Energy Agency (IEA) projections for growth in crude oil demand this year have steadily increased from 1.2 million barrels per day to 1.6 million barrels per day. Looking further ahead, its forecast for global crude oil consumption has demand exiting 2018 at 100 million barrels per day! In 2008, it was around 85 million barrels per day. So, demand has grown on average by 1.5 million barrels per day over 10 years in a period of relatively slow economic growth.

The energy industry is currently faced by two big themes right now: 1) A focus on efficient capital allocation and the return of capital to shareholders; and 2) The use of "big data" in advanced technologies that can introduce the next "step change" in drilling efficiency and profitability.

I recently took a trip down to Houston, Texas to visit a number of early-stage venture capital innovation incubators who, amongst other things, are focusing on data harnessing, advanced energy technologies, artificial intelligence, and predictive analytics. When I was there, I saw several companies that have the potential to dramatically advance well results by, for example, decreasing drill times. They want to prove not only that innovation is still possible, but also that exciting developments in cost-saving and efficiency continue.

One of the main pillars of our investment philosophy continues to be to look for long-term growth. Since we remain convinced that positioning our portfolio for the future and not just reacting to current circumstances is of paramount importance, our focus 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.

For a complete listing of the holdings and performance, please visit VanEck Global Hard Assets Fund (GHAAX).

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The Bulls Run Again https://www.vaneck.com/blogs/allocation/bulls-run-again/ The Fund’s allocations have shifted significantly and returned to a strong overweight positioning relative to the benchmark.

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VanEck Blog 10/17/2017 12:00:00 AM

VanEck NDR Managed Allocation Fund (NDRMX) tactically adjusts its asset class exposures each month across global stocks, U.S. fixed income, and cash. It utilizes an objective, data-driven process driven by macroeconomic, fundamental, and technical indicators developed by Ned Davis Research ("NDR"). The Fund invests based on the weight-of-the-evidence of its objective indicators, removing human emotion and decision making from the investment process. The expanded PDF version of this commentary can be downloaded here.

September Performance

VanEck NDR Managed Allocation Fund (NDRMX) returned 0.95% versus 0.99% for its benchmark of 60% global stocks (MSCI All Country World Index) and 40% bonds (Bloomberg Barclays US Aggregate Bond Index), and 0.94% for the Morningstar Tactical Allocation Peer Group average.

The Fund slightly lagged the benchmark in September. The Fund started the month with a 5.2% overweight to stocks relative to bonds. This helped performance as global stocks (MSCI All Country World Index) returned 1.93% and bonds (Bloomberg Barclays US Aggregate Bond Index) returned -0.48%. The Fund’s regional equity positioning was also a small contributor to performance. The top performing regional allocations were overweight U.S. exposure and underweight positioning to the Emerging Markets. Unfortunately, within the U.S., the market cap positioning detracted from performance and offset the gains from the asset class and regional equity positions. The Fund was overweight large-cap over small-cap. Large-cap lagged small-cap in September.

Fund Positioning October 2017: Back to Bullish

In October, the Fund shifted from slightly bullish to bullish. The global equity allocation increased from 65.2% to 80.6%, the bond allocation was reduced from 34.9% to 18.8%, and the cash allocation remained minimal. Changes to the regional equity allocations include larger allocations to the U.S., Europe ex. U.K., and the Emerging Markets, and a smaller allocation to Pacific ex. Japan. Within the U.S., the Fund now has more exposure to large-cap growth and less exposure to large-cap value.

Fund Positioning Pie Charts

Source: VanEck. Data as of October 3, 2017.

September Positioning Review

September was a great month for stocks, specifically small-cap stocks. Small-cap stocks (Russell 2000 Index) were up 6.24%. Small-cap stocks are now up 10.94% this year. Most of that performance came last month. From a style perspective, while both growth and value stocks generated handsome returns last month, growth stocks lagged value stocks in September. While value was the winner last month, growth is the undisputed winner so far this year. Growth stocks (Russell 3000 Growth Index) are up 20.43% and value stocks (Russell 3000 Value Index) are up 7.72%.

Global Balanced Positioning Relative to Neutral*

Global stocks returned 1.93% and U.S. bonds returned -0.48%. This contributed to performance because we maintained a small overweight to stocks during the month with a 65.2% exposure to stocks relative to its 60% stock/40% bond blended benchmark.

Global Regional Equity Positioning Relative to Neutral*

The regional equity decisions, in aggregate, contributed positively to performance. The top contributing regional equity allocations were overweight exposure to the U.S. and underweight exposure to the Emerging Markets. U.S. stocks (Russell 3000 Index) returned 2.44% and Emerging Markets stocks (MSCI Emerging Markets Index) returned -0.40%. In the Fund, the worst performing regional exposures were overweight postioning to Pacific ex. Japan and underweight to the U.K. The Pacific ex. Japan region (MSCI Pacific ex. Japan Index) returned -1.43% and the U.K. (MSCI UK Index) returned 2.52%.

U.S. Cap and Style Positioning Relative to Neutral*

The U.S. market cap positioning detracted from performance. The Fund was overweight large-cap over small-cap. This detracted from performance as large-caps (Russell 1000 Index) underperformed small-caps (Russell 2000 Index) by 4.11%. The Fund was neutral growth and value. During the month, growth (Russell 3000 Growth Index) underperformed value (Russell 3000 Value Index) by 1.64%.

Total Returns (%) as of September 30, 2017
  1 Mo Since Inception
Class A: NAV
(Inception 5/11/16)
0.95 11.65
Class A: Maximum 5.75% load -4.86 7.00
60% MSCI ACWI/
40% BbgBarc US Agg.1
0.99 11.25
Morningstar Tactical Allocation
Category (average)2
0.94 9.67
Total Returns (%) as of June 30, 2017
  1 Mo Since Inception
Class A: NAV
(Inception 5/11/16)
0.18 11.68
Class A: Maximum 5.75% load -5.57 6.02
60% MSCI ACWI/
40% BbgBarc US Agg.1
0.26 10.49
Morningstar Tactical Allocation
Category (average)2
0.11 8.12

The tables present past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect applicable fee waivers and/or expense reimbursements. Had the Fund incurred all expenses and fees, investment returns would have been reduced. Investment returns and Fund share values will fluctuate so that investor's shares, when redeemed, may be worth more or less than their original cost. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at net asset value (NAV). Index returns assume that dividends of the Index constituents in the Index have been reinvested.

Returns less than a year are not annualized.

Expenses: Class A: Gross 3.60%; Net 1.38%.
Expenses are capped contractually until 05/01/18 at 1.15% for Class A. Caps exclude certain expenses, such as interest.

Weight-of-the-Evidence

We are eight years plus into the bull market. Stock prices continue to rise. Volatility remains at all-time lows. And we think there is more room for stocks to run. We are buying more stocks. Why? Because most of our indicators are bullish.

The technical indicator composite, or aggregation of technical (price-based) indicators, favors stocks. We use five technical indicators to help determine the allocations to stocks and bonds. Of the five, three are bullish, one is bearish, and one is neutral. The technical indicator that changed this month from bearish to neutral was seasonality. It measures the historical price patterns that result from the market’s recurring tendencies. This change to neutral removed a hurdle in our path to owning more stocks.

As you can see from the diagram below, this indicator will be neutral for both October and November, and turn bullish in December.

NDR Seasonality Indicator

NDR Seasonality Indicator Chart

Source: Ned Davis Research. Data as of September 30, 2017. Past performance is no guarantee of future results.
Copyright 2017 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

The composite of macroeconomic and fundamental indicators is also bullish. We use six macroeconomic and fundamental indicators to help determine the allocations to stocks and bonds. Currently, four of those indicators are bullish and two are bearish. The fundamental indicator that changed this month is the NDR Global SHUT indicator. SHUT is an acronym for the defensive sectors, which includes Staples, Healthcare, Utilities, and Telecommunications. Defensive sector leadership is typically synonymous with weak market conditions and vice versa.

The chart below shows a ratio of global stocks to global bonds. The down arrows indicate a bearish SHUT reading (defensive sectors are leading) and the up arrows indicate a bullish SHUT reading (defensive sectors lagging). You can see that this indicator has historically done a good job of distinguishing between bullish and bearish market environments.

Global Stock/Global Bond Total Return Ratio and NDR Global SHUT Index

Global Stock/Global Bond Total Return Ratio and NDR Global SHUT Index Chart

Source: Ned Davis Research. Data as of September 30, 2017. Past performance is no guarantee of future results.
Copyright 2017 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

Together, the aggregation of price-based and non-price-based (macroeconomic/fundamental) indicators favor owning stocks over bonds. The magnitude of our overweight stock position, which is significant at 80.6% versus the Fund’s 60/40 benchmark, is based on the weight-of-the-evidence.

Additional Resources

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Global Moats Make Comeback in September https://www.vaneck.com/blogs/moat-investing/global-moats-make-comeback/ U.S. and International moats trailed broad markets, but not by much, as global markets recovered from a relatively weak August. September marked only the second month in 2017 in which International moats trailed.

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VanEck Blog 10/16/2017 12:00:00 AM

For the Month Ending September 30, 2017

Performance Overview

Global moat stocks underperformed their respective broad markets in September. International moats, as represented by the Morningstar® Global ex-US Moat Focus IndexSM ( MGEUMFUN, or "International Moat Index"), posted a 1.46% return compared to 1.86% for the MSCI All Country World Index ex-USA (MSCI ACWI ex-USA). September joined April as the only months the International Moat Index underperformed the broad market in 2017. Together, these two occurences accounted for a total lag of 0.57%. The International Moat Index's year-to-date outperformance remains well ahead for 2017 (27.36% versus 21.13% for the MSCI ACWI ex-USA). The U.S.-oriented Morningstar® Wide Moat Focus IndexSM ( MWMFTR, or "U.S. Moat Index") trailed the S&P 500® Index slightly in September (1.94% vs. 2.06%).

International Moats: Macau gaming bounces back

MGM China Holdings Ltd. (2282 HK, +19.63%) was the standout performer in the International Moat Index for the month, while SINA Corp. (SINA US, +12.59%) was the top contributor, due to its larger weighting in the Index. Both companies operate in Asia. MGM China Holdings derives the majority of its revenue from Macau and SINA Corp from China. SINA's Weibo platform, a twitter-like social media network, has been its key growth driver. The International Moat Index also saw strong contributions from industrials and health care companies, as well as German, Canadian, and Dutch companies. The real estate sector detracted the most, and exposures to Singapore, Canada, Japan, and Mexico all detracted from the Index in September.

U.S. Domestic Moats: L Brands, a tale of two months

Financials and consumer discretionary stocks were the top contributors to U.S. Moat Index performance in September. Victoria's Secret and Bath and Body Works operator L Brands, Inc. (L US, +14.88%) was the top performer in the Index, following two consecutive negative performing months. Financials firms T. Rowe Price Group, Inc. (TROW, +8.18%) and Wells Fargo & Co. (WFC US, +7.99%) were also strong performers for the month. The bottom performing U.S. Moat Index constituent was Allergan PLC (AGN US, -10.69%). The drug manufacturer faced two setbacks in its development pipeline in September causing a selloff. Despite pipeline setbacks, Morningstar analysts believed Allergan represents an attractive value in a September 25 research note.

 

(%) Month Ending 9/30/17

Domestic Equity Markets

International Equity Markets

(%) As of 9/30/17

Domestic Equity Markets

International Equity Markets

(%) Month Ending 9/30/17

Morningstar
Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers
Constituent Total Return
L Brands Inc 14.88
Polaris Industries Inc 12.23
Lowe's Companies Inc 8.19
T. Rowe Price Group Inc 8.18
Wells Fargo & Co 7.99

Bottom 5 Index Performers
Constituent Total Return
Allergan PLC -10.69
Varian Medical Systems Inc -5.83
Yum Brands Inc -4.18
Twenty-First Century Fox Inc Class A -3.72
United Technologies Corp -3.04

View MOAT's current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Top 5 Index Performers
Constituent Total Return
MGM China Holdings Ltd 19.63
Baytex Energy Corp 19.28
ENN Energy Holdings Ltd 12.64
SINA Corp 12.59
Potash Corp of Saskatchewan Inc 10.81

Bottom 5 Index Performers
Constituent Total Return
Wipro Ltd -8.30
Ramsay Health Care Ltd -8.23
Carnival PLC -8.12
Rakuten Inc -8.10
CapitaLand Mall Trust -7.83

View MOTI's current constituents

As of 9/15/17

Morningstar
Wide Moat Focus Index (MWMFTR)

Index Additions
Added Constituent Ticker
Patterson Cos Inc PDCO US
General Electric Co GE US
Cardinal Health Inc CAH US
Mondelez International Inc MDLZ US
Medtronic plc MDT US
Schwab Charles Corp SCHW US
Western Union Co WU US
Veeva Systems Inc A VEEV US
Pfizer Inc PFE US
Merck & Co Inc MRK US

Index Deletions
Deleted Constituent Ticker
Cerner Corp CERN US
Guidewire Software GWRE US
Gilead Sciences Inc GILD US
Varian Medical Systems Inc VAR US
Quintiles IMS Holdings, Inc. Q US
Yum! Brands Inc YUM US
Jones Lang Lasalle Inc JLL US
State Street Corp STT US
Mastercard Inc A MA 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
Cameco Corp Canada
SoftBank Group Corp Japan
Lloyds Banking Group Plc United Kingdom
Roche Hldgs AG Ptg Genus Switzerland
Millicom Intl Cellular S.A. - SDR Sweden
Enbridge Inc Canada
Embraer S.A. Brazil
QBE Insurance Group Ltd Australia
Telecom Italia SpA Italy
Orange France
Samsonite International SA Hong Kong
East Japan Railway Co Japan
Hoshizaki Electric Co Ltd Japan
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. Mexico
Canadian Pacific Railway Ltd Canada
China Resources Gas Group Ltd. China
America Movil SAB de CV L Mexico
Fanuc Co Japan
Nordea AB Sweden
Commonwealth Bank Australia Australia
Airbus SE France
Gas Natural SDG SA Spain
Inditex SA Spain
Luxottica Group SpA Italy
Westpac Banking Corp Australia
Magellan Financial Group Limited Australia
Siemens AG Germany
HeidelbergCement AG Germany

Index Deletions
Deleted Constituent Country
Carnival Plc United Kingdom
GlaxoSmithKline United Kingdom
Shire Plc United Kingdom
Tata Motors Ltd India
Dongfeng Motor Group Co. Ltd. - H Shares China
China Mobile Ltd. China
China Construction Bank Corp H Shares China
Beijing Enterprises Holdings Ltd. China
Genting Singapore Plc Singapore
CapitaLand Commercial Trust Singapore
Capitaland Ltd Singapore
United Overseas Bank Singapore
Singapore Exchange Ltd Singapore
Rakuten Inc Japan
Nippon Tel & Tel Corp Japan
KDDI Corp Japan
Telstra Corp Ltd Australia
Ramsay Health Care Ltd Australia
Iluka Resources Ltd Australia
DuluxGroup Ltd Australia
Ioof Hldgs Ltd Australia
Novartis AG Reg Switzerland
Potash Corp of Saskatchewan Canada
Baytex Energy Corp. Canada
Ambev S.A. Brazil
Sun Hung Kai Properties Ltd. Hong Kong
Swire Properties Ltd Hong Kong
KION Group AG Germany

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



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Strong Earnings Fuel Emerging Markets Rally https://www.vaneck.com/blogs/emerging-markets-equity/strong-earnings-fuel-rally/ Emerging markets equities continued to perform strongly; MSCI EM IMI benchmark returned 7.74% in the third quarter of 2017.

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VanEck Blog 10/13/2017 12:00:00 AM

Strong Performance Continues in 3Q'17

The third quarter of 2017 was another strong quarter for emerging markets. Emerging markets equities ― as represented by the benchmark MSCI Emerging Markets Investable Markets Index (MSCI EM IMI)1 ― gained 7.74% in the third quarter of 2017. Most of the gains took place in the first two months in anticipation and appreciation of strong corporate earnings.

In September, emerging markets, as an asset class, actually underperformed developed markets, driven by a stronger U.S. dollar and higher U.S. bond yields with consequent weaker emerging markets currencies. In addition, with strong gains year-to-date for the asset class, there may have been an element of consolidation or digestion of gains. Capital market activity has picked up, particularly in Latin America, and especially Brazil, with a long parade of deals that were waiting for a better stock market environment. However, flows into the asset class remained positive.

By country, the top performing markets included Brazil, Argentina, and Russia. China also outperformed in the third quarter, while India lagged. On a sector level, energy and materials staged a comeback and technology companies also did well, driven by Internet companies. The worst performers were consumer staples and industrials. Healthcare, also, continued to struggle.

Emerging Markets Equity Strategy Review and Positioning

Growth stocks continued to outperform value stocks and large caps continued to outperform small caps, helping in the process the emerging markets equity strategy's relative performance versus the benchmark. China, South Korea, and Taiwan added value in third quarter due to favorable allocation and stock selection. In the cases of South Korea and Taiwan, being underweight helped, whereas an overweight position in China worked well for the emerging markets equity strategy. On a sector level, consumer discretionary and technology stocks continued to lead the way. The strategy's underweight position in energy hurt modestly.

Top Strategy Performers/Detractors

Aside from the usual suspects such as Alibaba Group Holding Limited and Tencent Holdings Limited, the list of top performing stocks for the quarter included another Chinese duo of TAL Education Group and China Lodging Group Limited. These are stocks that fit squarely into structural growth for us, leveraging on increased consumption expenditure in China in areas such as private education and travel. In both cases, better than expected revenue this year has led to much better than expected earnings driven by good operating leverage.

In the negative column for the quarter, there is no strong commonality. Rhodes Food Group Holdings Limited, a food manufacturer in South Africa, was a poor performer. Operationally, the company did not deliver as expected. As a beneficiary of a weak rand, it has suffered in times of rand strength. Luxoft Holding, Inc, an Eastern Europe-based provider of software and IT development services, appears to be in a transitional year as its core clients, principally in the financial services sector, have proven to be weaker than expected in terms of their IT spend. Both positions are, though, relatively small for the strategy.

Macro Environment and Strong Free Cash Flow Expectations Support Positive Outlook

The emerging markets macro environment is currently in good shape ― in general the traditional triggers for macro concerns in emerging markets, such as current account deficits, fiscal deficits, and elevated credit cycle indicators remain, in aggregate, remarkably benign. Inflation, in emerging markets terms, is pretty much missing in action. Real rates are still relatively high. China concerns have faded as a more realistic understanding has developed about China's capacity to control the effects of imbalances in the economy.

The most exciting story for us as unrepentant stock pickers, is that corporates continue to deliver. In particular, we expect strong free cash flow to become increasingly apparent over the next year, with enhanced agitation from shareholders for increased pay back in the form of enhanced dividends and share buy backs. Leverage is not a general issue in emerging markets, with listed non-financial balance sheets in emerging markets being significantly less levered than in the developed markets. Valuations for emerging markets are close to historical averages, but relative to developed markets, look very attractive. Notwithstanding net inflows this year, almost all the indicators that we see suggest that positioning in the asset class remains relatively light. In short, while we could never pencil in a continuation of the performance of the asset class that we have seen so far this year, we remain optimistic, albeit with gains at a more measured pace.

There was little significant change to country or sector allocation in the quarter. We have a larger allocation to Brazil. A decision to reduce our exposure to India earlier in the year, due to stretched stock valuations, has been vindicated by the significant underperformance of Indian stocks since then.

China remains a lucrative place for us to find good, structurally growing investments, and like many of our peers, we will spend significant time further exploring the A-share (or domestic) market in the coming months and quarters. In summary, we are happy to report a solid quarter with reasonably good prospects ahead.

Download Commentary PDF with Fund specific information and performance.
For a complete listing of the holdings in VanEck Emerging Markets Fund (GBFAX) as of 9/30/17, please click on this PDF. Please note that these are not recommendations to buy or sell any security.

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Gold Momentum Stalled by Fed Expectations https://www.vaneck.com/blogs/gold-and-precious-metals/gold-momentum-stalled-by-fed/ The momentum that gold had established continued into early September but failed to last as the market prepared for upcoming actions from the Federal Reserve.   

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VanEck Blog 10/11/2017 12:00:00 AM

Prospect of Additional Rate Hike and Balance Sheet Unwind Curb Gold in September

The momentum gold experienced in August carried over into early September. Geopolitical tension continued as South Korea reacted to possible preparation by North Korea for an intercontinental ballistic missile launch. The U.S. Dollar Index (DXY)1 fell to new lows (levels not seen since early 2015) when the European Central Bank (ECB) increased its growth forecast and indicated it would begin discussing a tapering strategy for its quantitative easing policies in October. This drove the gold price to its high for the year at $1,357 per ounce on September 8. However, for the remainder of the month, the Federal Reserve (Fed) once again became the primary driver of gold prices, as interest rates and the dollar began to trend higher. After its September 19 Federal Open Market Committee (FOMC) meeting, the Fed announced plans to gradually allow its $4.5 trillion bond portfolio to runoff. It also forecast one more interest rate hike for 2017. Then, following a September 26 speech, the market became further convinced of a December rate increase when Fed Chair Janet Yellen endorsed continued monetary tightening in spite of a subdued inflation outlook. As a result gold trended lower, ending the month at $1,280.15 per ounce for a $41.25 (3.1%) loss.

Gold Companies Focusing on Positive Price Trend, Capital Discipline, and Growth

Gold stock indices also traded near their highs for the year, but then followed the gold price lower. During September the NYSE Arca Gold Miners Index (GDMNTR)2 retreated 6.5%, while the MVIS Global Junior Gold Miners (MVGDXJTR)3 fell 6.2%. There was little concern over September price weakness at the annual gathering of gold companies and institutional investors at the Precious Metals Summit and Denver Gold Forum. Managements from essentially every gold producer and most gold developers attend these events, and this year the focus was on the longer-term positive price trend. At the Denver Gold Forum, the majors reiterated their commitment to capital discipline and maintaining low costs. We were especially pleased with Newmont Mining's (4.7% of net assets*) decision to consider raising its dividend yield to approximately 2% (gold stocks generally carry yields well under 1%). It looks like the industry may be gaining the financial strength to offer yields that outperform gold's 0% yield which may attract more investors.

Many mid-tier companies highlighted growth projects that make this segment of the sector particularly attractive. We expect Iamgold's (2.9% of net assets*) Saramacca discovery in Surinam to transform their Rosebel Mine from a marginal asset to a core driver of growth and performance. Also, B2Gold (6.2% of net assets*) announced it has commenced processing ore three months ahead of schedule and on budget at its new Fekola Mine in Mali, West Africa. This mine is a transformative asset for B2Gold and is expected to produce 400,000 ounces per year in the first three years at a cost of just $604 per ounce.

A record number of junior companies attended the Precious Metals Summit. We are finding companies with attractive development projects in North America and West Africa as well as some exciting discoveries that merit watching. Recently there has been an unprecedented wave of producers that have taken strategic equity stakes in junior exploration and development companies. We observed a heavy presence of corporate geologists, as they continue to look for their next strategic investment that may eventually turn into a takeover opportunity.

Deregulation Should Eventually Lead to Economic Benefits for Developers

While there is no shortage of negative headlines surrounding the Trump presidency, there is a very positive untold story of deregulation that should eventually lead to economic benefits. Developers we talked to with properties in Idaho, Utah, Nevada, and California are finding new cooperation amongst the bureaucrats they deal with. These companies have projects on federal lands administered by the Bureau of Land Management (BLM) and the U.S. Forest Service. Under the Obama administration, many companies saw their projects stalled by land use restrictions and permitting obstacles. With the new administration, environmental assessments are being processed on a timelier basis and permits for drilling and other development activities are being granted. We hope other sectors of the economy will see similar improvements that could ultimately add to economic growth.

Reaction to QT Another Example of Market Complacency

Since the financial crisis, the stock market has risen consistently as long as the Fed continued to buy treasuries and mortgage-backed securities through its quantitative easing policies (QE 1-3). However, each time the Fed stopped buying bonds (in 2010, 2011, and 2015), the stock market suffered selloffs in the 10% to 15% range. Now the Fed has reversed course with plans to unwind its massive $4.5 trillion balance sheet (dubbed quantitative tightening or "QT"), yet there are no signs of a market selloff. In fact, the S&P 5004 has trended to new all-time highs, NYSE margin debt is at all-time highs, and the CBOE Volatility Index (VIX)5 hovers around lows last seen in 2007. Perhaps markets don't care about QT because of the small initial runoff of $10 billion per month and the fact that it has been well telegraphed. However to us, it looks more like this market has a level of complacency rarely seen in history. A recent New York Times article by Yale Professor of Economics Robert Shiller shows current stock market valuations in a range experienced only in 1929 and between 1997 and 2002. To look for a reason as to why the current high valuations have so far failed to "precipitate those ugly declines in the past", he searches newspaper archives and finds mass psychology to be in a "different, calmer place" today. Widespread fear of a speculative bubble is not evident in the current market. Dr. Shiller is at a loss as to why people are so calm about the markets and suggests maybe investors are distracted by the endless news flow around geopolitics, natural disasters, and violence.

Investor complacency doesn't hide the fact that there are financial risks to QT. Forty percent of the Fed's balance sheet unwind is in mortgage-backed securities at the same time that the housing market is showing signs of slowing. The Fed plans to ramp its bond runoff to $50 billion per month or $600 billion per year. In her latest comments, Chair Yellen sounds set on raising rates four times through 2018. As the Fed chokes off the juice that fed the feeble post-crisis expansion, it is not hard to imagine complacency turning to fear.

Gold Technical Pattern Supports Positive Long-Term Outlook

We found this DXY/Gold chart compelling in our December 2016 report. Here we have an updated chart that we find even more compelling.

Fall of U.S. Dollar in 2017 Signals the Start of Next Gold Bull Market?

Fall of U.S. Dollar in 2017 Chart

Source: Bloomberg. Data as of September 30, 2017. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

Notice the double bottoms gold experienced in 1985 and 2001 that coincided with major tops in the DXY and the beginning of a cyclical gold bull market in 1985 and a secular gold bull market in 2001. The most important new development is the fall in the U.S. dollar this year, shown on the far right hand of the DXY chart. This looks like the end of a U.S. dollar bull market that ran from 2011 to 2017. It also looks like gold has established a double bottom in December 2015 and December 2016. While the gold price consolidates its August gains and faces the headwinds of the next Fed rate increase, the long-term technical chart suggests stronger prices for longer are possible. We believe the fundamentals support this technical outlook as the economic expansion ages and significant shifts in central bank policies and geopolitics create risks that drive investors to gold and gold stocks.

Download Commentary PDF with Fund specific information and performance

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Moats with Efficient Scale Boast Few Competitors https://www.vaneck.com/blogs/moat-investing/efficient-scale-boast-few-competitors/ “Efficient scale” is a moat source that often applies when demand from a market of limited size is effectively satisfied by one or a small group of companies.

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VanEck Blog 10/9/2017 12:00:00 AM

"How Moats Translate into Sustainable Competitive Advantages" is a five-part moat investing education series that explores the primary sources of economic moats. The idea of an economic moat refers to how likely a company is to keep competitors at bay for an extended period. According to Morningstar Equity Research, there are five key attributes that can give companies economic moats, and which are viewed as sources of sustainable competitive advantages: 1) Network Effect; 2) Intangible Assets; 3) Cost Advantage; 4) Switching Costs; and 5) Efficient Scale. Here we explore the concept of "Efficient Scale."

Efficient Scale: Think Natural Monopoly

Virtually every company dreams of a market with few competitors. An environment with only a handful of business rivals can become one where efficient scale is possible. What is efficient scale? Think of airports. While the United States does not have airports that are publicly traded, they are common in other areas of the world. Few cities can support more than one major airport. The financial incentive may not exist to compete with an existing airport because, due to limited demand, reduced market returns may not justify the initial capital necessary to build another airport.

Efficient scale commonly applies to companies involved in telecommunications, utilities, railroads, pipelines, and airports. Here is how Morningstar defines it:

Efficient Scale
Efficient scale is a dynamic whereby a market of limited size is effectively served by one or a small handful of companies. In many of these situations, the existing players earn economic profits, and a potential competitor is discouraged from entering because market entry would cause returns in the market to fall below the cost of capital. Companies that benefit from this dynamic are efficiently scaled to supply a market that is only "juicy" enough to support one or a few competitors, which limits competitive pressures. Additionally, for efficient scale markets, market entry often requires very high capital costs, which are not justified by the limited profit potential a new competitor might achieve.

Efficient Scale Often Means a "Narrow" Moat

Across the five moat sources (network effect, intangible assets, cost advantage, switching costs, and efficient scale), efficient scale is the most likely to drive a "narrow moat" rating from Morningstar. This rating is driven primarily by utilities companies, many of which warrant a moat rating due to efficient scale but may be limited by heavy government regulation. Returns on invested capital for efficient scale companies tend to be only modestly above capital costs, which makes it difficult to have a high degree of conviction that a company will continually generate minimal economic profit 20 years from now. Efficient scale is, therefore, the least common moat source among "wide moat" rated companies and only slightly more common among all wide and narrow moat-rated companies ahead of only network effect. But, efficient scale can be powerful.

Economic Moat
Five Sources of Sustainable Competitive Advantage

Five Sources of Sustainable Competitive Advantage

Source: The Morningstar® Economic Moat Rating System.

Efficient Scale in Action: Four Case Studies of Moat Companies

To demonstrate the power of efficient scale in creating economic moats, we highlight four companies: U.S.-based wide moats CSX Corporation and UPS, and international narrow moats Telefonica SA (Spain) and CapitaLand Commercial (Singapore).

CSX Corporation (CSX US) has a "wide economic moat" rating from Morningstar based on cost advantages and efficient scale. CSX is based in Jacksonville, Florida, and is a premier rail transportation company with a market cap of nearly $50 billion. CSX operates in the Eastern United States and controls 20,800 miles of track, hauling coal products, chemicals, intermodal/shipping containers, and other merchandise (such as forest products). Writes Morningstar, "The network of track and assets Class I rails have in place is impossible to replicate. CSX spans the densely populated Eastern U.S., capturing about half of the rail volume in the region. Its rights of way and installed track form a nearly impenetrable barrier to entry."

United Parcel Services (UPS US) earns a "wide economic moat" rating from Morningstar from efficient scale, cost advantage, and the network effect. Morningstar writes, "The company crafted its moat by assembling an integrated international shipping network unlikely to be matched by any but a few global players. Extensive express, ground, and freight networks demand a huge quantity of trucks, trailers, terminals, sorting equipment, drop boxes, IT systems, and skilled labor. Replicating these assets in the absence of ample package flow would be costly, and few entities would endure the financial losses during the necessary density-building phase." UPS is the world's largest parcel delivery company and delivers on average 19 million packages per day around the world.

Telefonica SA (TEF SM) is headquartered in Spain and is one of the world's largest telephone operators reaching more than 350 million customers. It offers fixed and wireless telephony, Internet, and pay-television, predominately in Europe and Latin America. Morningstar gives Telefonica a "narrow economic moat" rating and writes: "In many Latin American wireless markets, it is in a duopoly with America Movil and it has 186.6 million wireless customers in this region alone. The large market shares that the two operators control makes it difficult for a new entrant to enter the market with the hope of gaining enough scale to compete profitably." Telefonica dominates its home market in Spain for fixed line telephony with a market share close to 60%, and its operating margins in Spain at around 41%, are among the highest in Europe.

CapitaLand Commercial Trust (CCT SP) is a Singapore based real estate investment trust (REIT) that owns 10 office properties in the city's central business district (CBD). Morningstar rates CapitaLand as a "narrow economic moat" based on efficient scale. The CBD is tightly controlled, and many financial and regulatory hurdles prevent competitors from building within the space. Morningstar elaborates, "On the supply side, construction of new supply is difficult, given the high existing building density and town planning restrictions. Construction risk and large capital expenditure requirements will discourage rational competitors from building new offices on an uncommitted or speculative basis." Demand for office space in Singapore's CBD remains high and is supported by the close proximity of multiple businesses and a top-notch mass transit infrastructure. Both domestic and international businesses continue to favor Singapore as a prime global business location.

VanEck Vectors® Morningstar Wide Moat ETF (MOAT®) and VanEck Vectors® Morningstar International Moat ETF (MOTI®) provide access to global moat-rated companies, by seeking to replicate the Morningstar® Wide Moat Focus IndexSM and Morningstar® Global ex-US Moat Focus IndexSM , respectively. Each Index tracks the overall performance of attractively priced companies with sustainable competitive advantages in their respective markets according to Morningstar's equity research team.

MOAT holdings and learn more about moat investing

MOTI holdings and learn more about moat investing

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Devastation in Puerto Rico Complicates Muni Market https://www.vaneck.com/blogs/muni-nation/devastation-in-puerto-rico/ Hurricane damage further complicates municipal bond situation in Puerto Rico.

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VanEck Blog 10/3/2017 12:00:00 AM

Beyond the feeling of acute sadness for the Commonwealth and its populace, the devastation will only serve both to prolong and complicate the negotiations and underlying issues surrounding the default of Puerto Rico's outstanding obligations.

Pretty much every aspect of everyday life on the island has been affected. It is very clear that a near-complete rebuild of the power supply system, under the aegis of the Puerto Rico Electric Power Authority ("PREPA"), will be required. The highway system, under the Puerto Rico Highways and Transportation Authority ("PRHTA") is barely holding itself together. The Puerto Rico Aqueducts and Sewers Authority ("PRASA") may need to rebuild totally the water and sewer system. And schools have suffered such damage that it is as yet unclear just how many can be salvaged. This is on top of the fact that many schools had already been closed due to the budget constraints across the island.

The Federal Emergency Management Agency ("FEMA"), already stretched across the states of Texas, Florida, and the Florida Keys, is being forced to allocate, rather than dedicate, all its resources to Puerto Rico and the U.S. Virgin Islands. This only complicates further the prospects of near-term recovery.

The one possible silver lining, which has not yet been publically discussed (as far as I know), is a recovery bill in Congress to hasten the rebuild and recovery of the islands' economy. Given the extent of the human suffering of these U.S. citizens, the possibility of swiftly privatizing essential services with U.S. government support is more possible now than it was prior to the hurricane.

In the meantime, however, there appears little hope, near term, for any holders of Puerto Rico bonds who may choose to rely upon the contractually stated obligations under which the bonds were originally issued, to anticipate that repayment can or will proceed in the near future.

For muni investors who have chosen to utilize the ETF structure as their way to obtain tax-free income, it should be clear that their choice of a highly diversified vehicle, built both to represent the broad landscape of the muni high-yield marketplace and with the intent of limiting risk associated with singular events such as this destructive hurricane, has been effective.

In addition, since Puerto Rico has been a significant and large issuer in the high-yield universe, index rules that employ a "capping" mechanism have offered further investor protection by reducing overall exposure. Such a mechanism has helped mitigate the impact of a valuation reduction.

As horrible as the outcome of the hurricane and subsequent recovery may be, the lesson for investors around their choice of deploying their assets through the auspices of the ETF structure has been a starkly real one.

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Muni Bond Upgrades Prevail https://www.vaneck.com/blogs/muni-nation/muni-bond-upgrades-prevail/ Three takeaways from the report “US Municipal Bond Defaults and Recoveries, 1970-2016” recently published by Moody’s Investors Service. 

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VanEck Blog 9/26/2017 12:00:00 AM

Updated statistics from Moody's Investors Service1 confirm two benefits muni bonds continue to provide. First, municipal credits remain highly rated with, in 2016, upgrades narrowly outpacing downgrades.2 Second, municipal bankruptcies and defaults remain rare.

On June 27, 2017, Moody's released its updated annual default research report using 2016 figures. The study encompasses data on all Moody's rated U.S. municipal bonds for the 46 year period from 1970 through the end of 2016.

The latest report features two changes from prior years. Most notably Moody's framework shifted from being security-based to being sector-focused, to better capture "inherent credit distinctions and ratings volatility in the municipal sector." The upshot of this is that the Moody's universe is now split into three broad sectors: 1) General Governments, 2) Municipal Utilities, and 3) Competitive Enterprises.

To save you the trouble of diving into the 101-page document, we have identified three key takeaways.

Muni Bond Ratings Drifted More Positively in 2016

Overall, Moody's bond ratings for the municipal sector skewed slightly more towards notch-weighted3 "upgrades" than "downgrades" in 2016, in an environment that continued to see elevated downgrade levels. Although the change is slight, this marks a turning point for muni bond rating drift, as "notch-weighted downgrades have outpaced upgrades for every monthly cohort since mid-2008," with the trend only reversing quite recently. For Moody's, this trend lends credence to the idea that "most credits are recovering or are stable in the aftermath of the recession." However, there are still some that "face steep credit challenges."

Muni Defaults and Bankruptcies Remain Quite Rare

Defaults in the muni space are still rarities when viewed in the context of the larger bond market, and global corporates in particular.

Municipal Default Rates Lower Than Global Corporates for All Broad Categories
Average Cumulative Default Rates, 1970-2016, Municipals vs. Global Corporates

Municipal Default Rates Lower Than Global Corporates for All Broad Categorie Chart

*Average cumulative rates from 1970-2016 (annualized). Most recent annual study published July 2016, based on data from 1970-2016.
Source: Moody's Investors Service: "U.S. Municipal Bond Defaults and Recoveries, 1970-2016"

Historical information is not indicative of future results; current data may differ from data quoted.
The Moody's rating scale is as follows, from excellent (high grade) to poor (including default): Aaa to C, with intermediate ratings offered at each level between Aa and Caa. Anything lower than a Baa rating is considered a non-investment-grade or high-yield bond.

Out of the many thousands of rated muni bonds issued since 1970, there have been just 103 defaults. Of these, 72.8% were accounted for by competitive enterprises (revenue-supported healthcare, housing, and higher education), 20.4% by general governments, and just 6.8% by municipal utilities. Perhaps not surprisingly, most of the competitive enterprise defaults occurred during the period 2004-2008 as the housing sector became stressed.

Although the report observes that "the U.S. public finance sector is notable for infrequent defaults and extraordinary stability," it does see changes on the horizon for the sector. The report goes on to state that "rating volatility, rating transition rates, cumulative default rates have all increased since 2007." Because their revenues and expenditures are "delinked," municipal governments have some flexibility when budgets become stressed. However, when push comes to shove, their first priority may not be re-paying bondholders. "A municipal government," Moody's observes, "will very likely choose to maintain basic services, pay teachers and policemen before bondholders."

Puerto Rico Responsible for the Four Muni Defaults in 2016

Debt troubles continued to plague the island commonwealth of Puerto Rico in 2016. The report notes that while these defaults were very small in number, when compared to the overall municipal bond universe, the sums involved were "extremely large in terms of debt affected."

Taken together, the defaults by the four Puerto Rican entities — the Puerto Rico Infrastructure Finance Authority (PRIFA), the Government Development Bank (GDB), the Highways and Transportation Authority, and Puerto Rico's General Obligation debt — affected $22.6 billion in rated debt through the end of 2016. The report noted that this made it "the largest annual default by a single U.S. municipal credit family in Moody's history." Moody's sees Puerto Rico's number of individual defaults rising in 2017, and that these could total as high as $64.3 billion by the end of the year.

Conclusion: Muni Bond Investments are Attractive

We believe that the findings in the Moody's report underline the attractiveness of the muni bond asset class for investors. Just the two benefits we have noted, that muni credits remain highly rated and that muni bankruptcies and defaults remain rare overall, should lead investors seriously to consider munis as a portfolio investment. And these benefits are in addition to the tax advantages an investment in muni bonds also offers.

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New Countries Added to Emerging Markets Local Debt Index https://www.vaneck.com/blogs/emerging-markets-bonds/new-countries-added-local-debt-index/ As the emerging markets local debt universe continues to grow, investors today benefit from a more diverse opportunity set.

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VanEck Blog 9/22/2017 12:00:00 AM

The emerging markets local debt universe has grown tremendously over the past several years. Within the last five years, the investable universe has grown 37% to $1.2 trillion versus approximately $900 billion of U.S. dollar-denominated sovereign debt.1 Investors today benefit from a more diverse opportunity set with greater market depth, in addition to the attractive yields offered by the asset class.

This year alone, three new countries, Argentina, Czech Republic, and Uruguay, have been added to the J.P. Morgan GBI-EM Global Core Index (the "Index"). Romania was added in 2013. The chart below shows the change in country weights over the past five years, with new countries shaded in light green. (Not shown is Nigeria, which entered the Index late in 2012 but was removed in 2015 after currency controls were imposed – a good example of the emphasis the Index places on liquidity.)

Overall the Index has shifted exposure towards Latin America and European emerging markets and away from Asia and Middle East/Africa. Compared with five years ago, credit quality is unchanged to one notch lower, depending on the rating agency scale used.

Change in Index Country Weights
(8/31/2012 to 8/31/2017)

Change in Index Country Weights Chart

Source: J.P. Morgan

The changes in the Index over the past five years reflect the broader evolution in the emerging markets local debt market. Over the past several decades, many emerging markets countries have increasingly sought to develop their local currency bond markets. This helps reduce their vulnerability to external shocks which could impact their ability to repay U.S. dollar-denominated debt. Uruguay is the latest example of this long-term trend away from a reliance on external debt. More countries are expected to be added to the Index over the coming years, most notably China. As the market continues to grow, we expect emerging markets local debt to play an increasingly large role within global bond portfolios.

Download EM Bond Monthly Metrics

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Asset TV Masterclass: Responsible Investing https://www.vaneck.com/blogs/muni-nation/asset-tv-responsible-investing/ William Sokol, VanEck Vectors Product Manager, shares his views on green bonds in Asset TV's recent video, Responsible Investing Masterclass. 

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VanEck Blog 9/21/2017 12:00:00 AM

William Sokol, VanEck Vectors Product Manager, participated in Asset TV's recent (September 11) Responsible Investing Masterclass video panel, hosted by Asset TV's Gillian Kemmerer. Sokol joined industry experts Amanda Cimaglia of Hannon Armstrong and Mary Jane McQuillen of ClearBridge Investments. Sokol's comments are excerpted below.

VanEck's Approach to Responsible Investing with GRNB

GILLIAN KEMMERER: Responsible investing has become the subject of headlines around the world as investors increasingly vote with their wallets.  From fixed income to public equities, the opportunity set for doing well by doing good is vast. What does VanEck do in the impact space?

WILLIAM SOKOL: VanEck focuses on providing access to a broad range of investment opportunities that we believe help to strengthen an investor's long-term portfolio. This includes developing forward-looking, intelligently designed responsible investing strategies like VanEck Vectors® Green Bond ETF (GRNB) which we launched earlier this year.

Gillian:  Let's dive into the terminology of this space.  I feel like every time I talk about impact investing there is new terminology or a new set of acronyms.  How are you seeing the terminology in this space evolve? Is there one particular definition that you subscribe to at VanEck?

What VanEck Means by "Responsible Investing"

SOKOL: There can be confusion, especially as terminologies evolve. The fact that there are multiple ways to invest responsibly can add to the confusion. For us, "responsible investing" is based on a thesis that sustainable, efficient, and responsible business practices can help both to reduce risk and create value. There are many approaches. With our green bond strategy, the focus is clearly on the "E" in E(nvironmental) S(ocial) G(overnance).  It looks only at the green bond itself: the issue rather than the issuer. This is a style of responsible investing that follows an inclusive approach. We don't exclude entire sectors from the strategy. We believe any company can and should issue a green bond.

KEMMERER: When you talk about your responsible investment strategy, do you find a bias towards screening out as opposed to "screening in"?

SOKOL: The idea of screening out is likely a common perception among investors who are new to this space or less familiar with it. There is a perception that ESG investing means the wholesale exclusion of entire parts of the market. There is probably a need for additional education on the ways that you can invest responsibly. You don't necessarily have to stray significantly from your benchmark. Green bond investing is certainly one way you can do this. But you can invest similarly across investment strategies and asset classes.

Is There a Performance Trade-Off with Responsible Investing?

KEMMERER: There is a general misconception, and perhaps it's starting to abate, that if you want to make an impact you have to trade-off some performance.  Do you find this perception persists, and how do you tend to combat it?

SOKOL: I do think that perception is starting to abate, and it introduces another aspect of responsible investing and why you may want to consider it for your portfolio. And that is as a risk reducer.  One type of risk that you can address through responsible investing is climate risk.  Climate risk can mean the physical risk of rising temperatures. For example, think about a municipality that might have infrastructure that is prone to rising sea levels or storms, for example. Climate risk can also come from changes in government policy introduced to change behaviors to address climate change.  An example is an energy company that has significant reserves in the ground, and a scenario where the government introduces taxes or regulations that make it more costly for the company to extract those resources. This might impact the performance of an investment in that company.  Climate risk is complex.  But what we are finding is that the market doesn't currently price in that risk.  You can see this with green bonds, because green bonds get issued at yields that are in line with non-green bonds from the same issuer.  That makes sense because two bonds from the same issuer are going to have the same risk and return drivers.

But at the issuer level, with green bonds, you are getting exposure to a group of issuers that are taking a long-term approach to addressing climate risk.  This means that when the day arrives that climate risks begin to get priced into the market, you might expect that issuers exposed to higher levels of climate risk are likely to perform worse than those issuers that are addressing and managing those risks today. I think responsible investing doesn't need to mean you have to sacrifice returns. In fact, it can mean reducing risk in your portfolio and perhaps adding to long-term performance.

Measuring the Impact of Green Bond Investing

KEMMERER: What metric is used to measure impact in your green bond strategy?

SOKOL: A variety of metrics are looked at, and it depends on the individual bond. Green bonds can be issued to finance a variety of different types of projects, so you need to look at what the green bond is financing. Is it a renewable energy project?  Is it a mass transit project? Is it an energy efficient building? I think green bonds are interesting from an impact standpoint because you can get direct visibility into the projects that are being financed. Issuers typically provide ongoing reporting that usually include impact estimates. Issuers will provide metrics such as C02 emissions reduction, energy generated, water saved, etc.

There is a challenge, however, as these estimates come from different sources and different issuers. In addition, because there is no standardized way to measure and report impact, the different parties who produce these estimates may use different assumptions and different baselines. There is also no centralized location investors can go to for this information, and for some bonds, the information may not be publically available. I think the good news is that there is significant work being done around impact measurement, and investors are increasingly demanding it. I would expect to see significant progress in the space over the next few years.

ESG Investing is No Passing Fad, But a Long-Term Investment Approach

KEMMERER: Is impact investing a fad or is it something that you find clients saying: "This is here to stay and it's not just a niche in my portfolio, but part of the core?"

SOKOL: I don't think impact investing is a fad, it is here to stay. I believe the numbers speak for themselves, such as AUM [assets under management] growth in U.S. ESG mutual funds and ETFs.  I believe there is still more room for that area to grow. The bigger picture shows that, in the U.S., approximately $9 trillion is now managed in some way that incorporates ESG factors. This is up 33% over the last three year, and I believe this now accounts for around one out of every four dollars.1 From that perspective, the space is already quite large. I think this is because of the growing recognition that responsible investing makes a lot of sense as an additional evaluation in the investment process. It is a framework to assess investments, to identify potential risks, i.e., whether the business practices are sustainable or unsustainable.

There is also a growing recognition that you don't need to sacrifice performance. But there is the non-financial motivation as well  – whether it's impact or, more generally, a growing desire to direct capital towards investments that help to address some of the challenges we currently face, for example, global warming.  It has been well documented that millennials show a strong interest in responsible investing. This is going to be something that continues to drive assets into the space for years to come. However, to date, much of the growth has come from some of the world's largest, most sophisticated, institutional investors. We are seeing broad interest in responsible investing and broad adoption.

What is a Green Bond?

KEMMERER: Bill, let's give a definition for those not familiar.  What is a green bond?

SOKOL: A green bond is in many ways like any other bond: the issuer will pay a periodic coupon and pay back par at maturity, and in the vast majority of cases, the bond is backed by the full balance sheet of the issuer. What differentiates a green bond from a conventional bond is that the issuer uses the proceeds only to finance environmentally friendly projects. That could mean renewable energy projects (for example, solar and wind projects), energy efficient buildings, and many other types of projects.  The green bond market is only about 10 years old, but has grown significantly in recent years.  There is now $200 billion of outstanding issuance.  This year there are expectations for $120 to $150 billion of total issuance, so the market is growing rapidly.2 With this growth, we have also seen the emergence of new types of issuers coming into the market.

A Closer Look at Green Bond Issuers

KEMMERER: Who is issuing these green bonds?

SOKOL: If you look at the S&P Green Bond Select Index, currently approximately one third of total outstanding issuance is from corporate issuers.  Another third comes from government and government related issuers, and the remaining third is financial issuers, such as commercial banks.  The universe has become pretty diverse, and it has evolved over the years to resemble a global aggregate type bond benchmark in terms of yield, duration, and credit quality.  And in terms of who's issuing these bonds, there have been some interesting stories in the last year or two.

Apple Issues the Largest Corporate Green Bond in the U.S.

SOKOL: Apple is probably one of the more notable issuers in the U.S., and in 2016 it issued the largest corporate green bond in the U.S. to date.  It was a $1.5 billion issue.  The company used proceeds from that bond to fund green buildings, renewable energy projects, and new technologies that will help eliminate the need to mine certain materials from the ground, and to achieve what they call a "closed-loop" manufacturing process.  Apple issued their first bond in 2016 in support of the Paris Agreement, to show that businesses can take a leadership role in addressing climate change.  The company issued a second green bond recently earlier this year, right after the U.S. announcement to withdraw from the Paris Agreement.  Apple was a vocal supporter of remaining in the Paris Agreement.  I think that second green bond issuance was a sign that the green bond market and green finance, in general, won't be thrown off by the new administration's recent decision.

Apple is not the only company we are seeing. Companies like Southern Power, Georgia Power, and Mid American Energy have also issued green bonds in the past few years.  These bonds went to fund renewable energy projects across the country. These are a great illustration that any company can issue a green bond, even energy companies. In fact, we welcome issuance from energy companies, because these companies will likely play an important role in the transition to a low carbon economy.

Incorporating ESG into an Investment Portfolio

KEMMERER: Let's bring it back to the end client, and advisors asking, "Where does this fit into a larger portfolio?" Is it a core or niche portfolio strategy?  And if it is core, how do you encourage investors to think about incorporating ESG?

SOKOL: I think the integration of ESG factors, in itself, is not an investment strategy.  It is a framework that can be applied to many different types of investment strategies within a portfolio.  Within a portfolio, you can certainly have core sustainable investment strategies.  Perhaps those are part of your strategic asset allocation.  You can have satellite positions as well.  If you look at the universe of product offerings right now, there is a wide range of sustainable investment strategies, particularly on the equity side.  On the fixed income side, your choices now are a little more limited.  However, green bonds can certainly play a key role within a core global bond portfolio because what you have is an opportunity set that is multi-sector, primarily investment grade, diversified, and with yield and duration characteristics which are very similar to a global aggregate bond benchmark. Green bonds can fit seamlessly into a core bond portfolio.

KEMMERER: I feel like this has been a great discussion, we've had such a variety of perspectives.  We have talked about the definitions.  We've dispelled some of the misconceptions.  We have had an opportunity to dive into your area of focus and how it fits into a larger portfolio. 

Watch Video Asset TV Masterclass: Responsible Investing - September 2017

William Sokol, VanEck Vectors Product Manager, participated in Asset TV's recent (September 11) Responsible Investing Masterclass video panel, hosted by Asset TV's Gillian Kemmerer. Sokol joined industry experts Amanda Cimaglia of Hannon Armstrong and Mary Jane McQuillen of ClearBridge Investments.

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Crucial Metals for a Lower Carbon World: Part 1 https://www.vaneck.com/blogs/natural-resources/crucial-metals-lower-carbon-world-part-1/ Economies are adopting clean energy technologies, and industrial metals are playing a critical role. Copper, nickel, graphite, and cobalt are especially crucial for renewable energy and electric vehicle technologies.

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VanEck Blog 9/19/2017 12:00:00 AM

Overview: VanEck's natural resources investment strategies span the breadth of commodities sectors, and base/industrial metals play an important role.

This is Part 1 in our series by Senior Analyst Charl Malan that looks at the importance of industrial metals as the world adopts new clean energy technologies that reduce carbon emissions.

Clean Energy Technologies Require Metals: Copper, Nickel, Graphite, Cobalt

We are in the early stages of transitioning to a lower carbon world. Economies are adopting clean energy technologies, and industrial metals are playing a crucial role. Of these, we see copper, nickel, graphite, and cobalt as critically important, especially when focusing on new renewable energy and electric vehicle technologies. As demand for each grows, current supply issues will be further exacerbated. (See Deleveraging Tightens Metals Supply and Supports Prices: Part 1 and Part 2.) Mining companies that are well positioned to meet the demand for these important metals look set to thrive. In Part 1 of our series, we focus on copper.

Copper is Key

Copper, given its impact and market size, will be one of the most important metals in the world's decarbonization process. The size of the world's copper market, at $91B, ranks it second among industrial metals, behind iron ($115B), and just ahead of aluminum ($90B). By comparison, nickel represents a $21B market, graphite $15B, and cobalt $6B.

New low carbon technologies will use resources that are economically scarce, and among these copper stands out. We believe that copper demand will continue to grow and that supply will remain constrained, creating a dynamic that is likely to support prices. Since early 2016, copper prices have been on an upswing, after enduring a major bear market from 2011 to 2015.

How Big is the World's Copper Market?

World's Copper Market Chart

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

How Copper Can Help Tame Carbon Emissions

Energy production accounts for 71% of the world's total greenhouse gases, of which the vast majority are carbon dioxide emissions.1 These emissions result from electricity generation, transportation, and other forms of energy production and use. It is no surprise that many of the new lower carbon technologies now being developed are focused on developing renewable energy sources (solar and wind) and electric vehicle transport. Copper will be key.

Copper is the world's oldest mined ore and has two unique physical properties that make it highly suitable for low carbon technologies, specifically electric vehicle transportation and new renewable energy power generation technologies: very high thermal and electrical conductivity (second only to silver in this regard).

Energy Production Accounts for Most Global Greenhouse Gases
1990-2010

Energy Production Accounts for Most Global Greenhouse Gases Chart

Source: United States Environmental Protection Agency.2 Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

Copper: A Prime Beneficiary of New Low Carbon Technologies

Renewable Energy

Copper is essential for efficient power generation using both wind and solar energy, which use the highest amount of copper among renewable energy systems. Renewable energy power generation, conservatively, uses approximately five times as much copper as conventional generation. But some in the industry believe it may be even more. In October 2016, Jean-Sebastien Jacques, CEO of Rio Tinto, was quoted as saying, "Renewable energy resources require four to 12-times as much copper as traditional fossil fuel-based power generation."3

Electric Vehicles

When considering the potential growth in electric vehicles, copper stands to be a prime beneficiary of any surge in production. Each of the various types of electric vehicles (EV) uses considerably more copper than is already to be found in vehicles using internal combustion engines (ICEs), as shown in the table below. Copper is to be found not only in EV rechargeable batteries, but also in the rotors and windings in the electric motors, bus bars, wiring and, of course, the charging infrastructure, not to mention the inevitable and massive electrical grid expansion, that will be required to support EVs. (See The Evolution of Electric Vehicle Batteries, Part 1 and Part 2.)

Copper Use by Vehicle Type

Vehicle Type Copper (Kgs)
Internal Combustion Engine (ICE) ≈17
Hybrid Electric Vehicle (HEV) ≈40
Plug-In Electric Vehicle (PHEV) ≈50
Battery Electric Vehicle (BEV) ≈145

Source: CDA, Bernstein Analysis, VanEck.

Copper is a highly efficient generator and transmitter of energy, and can achieve these qualities in ways that help to minimize environmental impacts. Whether for use in electric vehicles or sustainable power generation the demand for copper in a lower carbon world is set to increase significantly. Increased demand, constrained supplies, along with a significant decline in growth capital among metals miners (investment in new mines), is likely to help support future copper prices in the months ahead.

In Part 2, we address:

  • Potential growth of the copper market, given increased demand.
  • Specific uses for copper that support renewable power generation and electric vehicles.

In Part 3, we discuss:

  • The role of other crucial metals: nickel, graphite, and cobalt.
  • The potential opportunities for metals mining companies and investors.

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Movement Below the Surface https://www.vaneck.com/blogs/allocation/movement-below-the-surface/ The Fund’s allocations have shifted slightly and remain at near neutral weightings to stocks and bonds.

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VanEck Blog 9/15/2017 12:00:00 AM

VanEck NDR Managed Allocation Fund (NDRMX) tactically adjusts its asset class exposures each month across global stocks, U.S. fixed income, and cash. It utilizes an objective, data-driven process driven by macroeconomic, fundamental, and technical indicators developed by Ned Davis Research ("NDR"). The Fund invests based on the weight-of-the-evidence of its objective indicators, removing human emotion and decision making from the investment process. The expanded PDF version of this commentary can be downloaded here.

August Performance

VanEck NDR Managed Allocation Fund (NDRMX) returned 0.42% versus 0.62% for its benchmark of 60% global stocks (MSCI All Country World Index) and 40% bonds (Bloomberg Barclays US Aggregate Bond Index), and 0.47% for the Morningstar Tactical Allocation Peer Group average.

The Fund slightly lagged the benchmark in August. Its 5.6% overweight exposure to stocks (relative to bonds) detracted from performance as U.S. bonds outperformed global stocks. The regional equity positioning, in aggregate, was a detractor from performance. The top performing regional equity position was the Fund's underweight exposure to the U.K. and the bottom performing position was the underweight exposure to the Emerging Markets. The Fund's U.S. market capitalization and style positioning was a positive contributor to performance due to its overweight exposure to large-cap over small-cap and growth over value.

Fund Positioning September 2017: Moderately Bullish Positioning Remains

VanEck NDR Managed Allocation Fund's (NDRMX) asset class positioning remained largely unchanged in September. The equity allocation is now 65%, the bond allocation is 35%, and the cash allocation is nearly 0%. There were, however, notable shifts in the regional equity exposures for September. The largest shifts were decreased exposure to Japan (10.4% to 3.8%) and the Emerging Markets (3.4% to 0.9%), and increased exposure to Pacific ex Japan (0% to 5.6%) and the U.S. (40.1% to 42.6%). Within the U.S., the Fund now has more exposure to large-cap value (18.2% to 21.2%).

Fund Positioning Pie Charts

Source: VanEck. Data as of September 5, 2017.

August Performance Review

The month of August brought volatility to the markets. It started off with the Dow Jones Industrial Average breaking through the barrier of 22,000. Unfortunately, the gains were short lived. North Korea's advancements in its nuclear weapons program were met with strong words from President Trump. The tension between the U.S. and North Korea peaked in August when North Korea fired a test missile over Japan. Additional events that impacted the market included the protests in Charlottesville, VA and the consequences of Hurricane Harvey.

Global Balanced Positioning Relative to Neutral*

Global stocks returned 0.38% and U.S. bonds returned 0.90%. This slightly detracted from performance as the Fund started the month with a 65.6% exposure to stocks relative to its 60% stock/40% bond blended benchmark.

Global Regional Equity Positioning Relative to Neutral*

In aggregate, the regional equity positioning detracted from performance. While the Fund benefited from its underweight exposure to the U.K., its overweight exposure to the U.S. and underweight exposure to the Emerging Markets detracted from performance. During the period, the U.K. returned -0.76%, the U.S. returned +0.19%, and the Emerging Markets returned 2.27%.

U.S. Cap and Style Positioning Relative to Neutral*

The U.S. market cap and style positioning was a significant contributor to performance. The Fund was significantly overweight large-cap growth and, to a lesser extent, overweight large-cap value. It had no exposure to small-cap stocks. This worked very well as large-cap growth returned 1.83%, large-cap value returned -1.16%, small-cap growth returned -0.12%, and small-cap value returned -2.46%.

Total Returns (%) as of August 31, 2017
  1 Mo Since Inception
Class A: NAV
(Inception 5/11/16)
0.42 11.61
Class A: Maximum 5.75% load -5.35 6.68
60% MSCI ACWI/
40% BbgBarc US Agg.1
0.62 11.14
Morningstar Tactical Allocation
Category (average)2
0.47 9.02
Total Returns (%) as of June 30, 2017
  1 Mo Since Inception
Class A: NAV
(Inception 5/11/16)
0.18 11.68
Class A: Maximum 5.75% load -5.57 6.02
60% MSCI ACWI/
40% BbgBarc US Agg.1
0.26 10.49
Morningstar Tactical Allocation
Category (average)2
0.11 8.12

The tables present past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect applicable fee waivers and/or expense reimbursements. Had the Fund incurred all expenses and fees, investment returns would have been reduced. Investment returns and Fund share values will fluctuate so that investor's shares, when redeemed, may be worth more or less than their original cost. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at net asset value (NAV). Index returns assume that dividends of the Index constituents in the Index have been reinvested.

Returns less than a year are not annualized.

Expenses: Class A: Gross 3.60%; Net 1.38%.
Expenses are capped contractually until 05/01/18 at 1.15% for Class A. Caps exclude certain expenses, such as interest.

Weight-of-the-Evidence: A Look at this Month's Regional Equity Shifts

While the Fund has maintained its near-neutral asset class positioning since June, there has been significant movement within the regional equity allocations. This month we will focus on the indicators that drove the regional equity shifts at the start of September. The largest regional shifts this month compared to last were greater exposure to Pacific ex Japan (+5.6%) and less exposure to Japan (-6.6%).

The allocation to Pacific ex Japan increased because of the attractive valuations of Pacific ex Japan relative to the other equity regions and a strengthening technical indicator composite reading. Relative valuations for Pacific ex Japan are measured using relative earnings yields. This chart shows the spread of the earnings yield of Pacific ex Japan to the other equity regions of the MSCI ACWI. The indicator turned bullish in August when the spread increased significantly above its mean (valuations became very cheap) and then reversed (signaling a buying opportunity).

Earnings Yield of Pacific ex Japan vs. ACWI

Earnings Yield of Pacific ex Japan vs. ACWI Chart

Source: Ned Davis Research. Data as of August 31, 2017. Past performance is no guarantee of future results.
Copyright 2017 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

The technical indicator composite reading had been bearish on Pacific ex. Japan since June, but recently started to strengthen and is now in the neutral range. There are six technical indicators in the composite, of which three are bearish, one is neutral, and two recently turned bullish.

Pacific ex Japan Technical Indicator Composite

Pacific ex Japan Technical Indicator Composite Chart

Source: Ned Davis Research. Data as of August 31, 2017. Past performance is no guarantee of future results.
Copyright 2017 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

Conversely, we reduced the allocation to Japan based on declining technical readings. The Japan technical composite reading changed from very bullish to neutral. The indicators within the composite that turned bearish were breadth, momentum, and mean reversion.

Japan Technical Indicator Composite

Japan Technical Indicator Composite Chart

Source: Ned Davis Research. Data as of August 31, 2017. Past performance is no guarantee of future results.
Copyright 2017 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

Additional Resources

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Switching Costs Build Moats and Retain Customers https://www.vaneck.com/blogs/moat-investing/switching-costs-build-moats/ “Switching costs” can build powerful moats that make it difficult and expensive for loyal customers to change brands.

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VanEck Blog 9/13/2017 12:00:00 AM

"How Moats Translate into Sustainable Competitive Advantages" is a five-part moat investing education series that explores the primary sources of economic moats. The idea of an economic moat refers to how likely a company is to keep competitors at bay for an extended period. According to Morningstar Equity Research, there are five key attributes that can give companies economic moats, and which are viewed as sources of sustainable competitive advantages: 1) Network Effect; 2) Intangible Assets; 3) Cost Advantage; 4) Switching Costs; and 5) Efficient Scale. Here we explore the concept of the "Switching Costs."  

Customers Get Locked-In by Switching Costs

Many successful companies build customer loyalty by offering high quality products and/or services. Some also have the unique advantage of integrating their products or services into a customer's daily activities and operations, therefore making it tough and costly to switch providers. Powerful moats can be built on "switching costs" which are often embedded in strong business models. Switching costs lock customers into a company's unique ecosystem, and make it expensive to move. Not just monetary in nature, switching costs can also be measured by the effort, time, and psychological toll it takes to switch to a competitor.

Switching costs have the potential to put a company in a position to increase prices and deliver hefty profits over time. They are a key competitive advantage and are evident in a range of industries, from camera equipment to computer software/hardware to telecoms, interalia: Nikon or Canon? Apple or PC? AT&T or Verizon? Morningstar Research explains them as:

Switching Costs. When it would be too expensive or troublesome to stop using a company's products, the company often has pricing power. Architects, engineers, and designers spend entire careers mastering Autodesk's ADSK software packages, creating very high switching costs.  

An Early Example: Gillette Razor Blades – Designed to Create Brand Attachment

King Camp Gillette, the inventor of the first mass produced safety razor, was one of the first entrepreneurs to optimize the switching cost approach to lock in customers. In 1902, Gillette developed and began selling inexpensive razors with disposable blades that he had patented. This ensured Gillette a constant high demand for blades, as customers who considered other blades quickly realized that they would incur the cost of a new razor as well.

Economic Moat
Five Sources of Sustainable Competitive Advantage

Five Sources of Sustainable Competitive Advantage

Source: The Morningstar® Economic Moat Rating System.  

Switching Costs in Action: Four Case Studies of Moat Companies

To demonstrate the power of switching costs in creating economic moats, we highlight four moat companies: U.S.-based Microsoft and TransDigm Group, and international moats Canadian Imperial Bank of Commerce (Canada) and KION Group (Germany).

Microsoft Corp.'s (MSFT US) Office software is used by more than one billion people around the world. Morningstar has assigned Microsoft a "wide economic moat" rating given its strong network effect and switching costs: "Microsoft's office tools are robust, as the suite is widely used and easily understood by enterprise employees around the world, leading to increased compatibility and efficiency when collaborating". The Windows Operating System has created a virtual monopoly for Microsoft, while the Microsoft Office suite offers one of the most complete feature sets on the market. Microsoft has also become one of the world's leading cloud computing firms.

TransDigm Group Inc. (TDG US) is a leading designer and manufacturer of engineered aircraft components for commercial and military aircraft. TransDigm's "wide economic moat" rating is based on both switching costs and intangible assets. The company's intangible assets are derived from the intellectual property underlying its products, and switching costs are associated with TransDigm parts, their inclusion in plane design, and the need for FAA certification of these parts. Morningstar writes, "…the low overall dollar value of the company's parts, versus the high cost of failure for aircraft, reinforces these switching costs".

Canadian Imperial Bank of Commerce (CM CN) is the fifth largest bank in Canada and boasts 11 million clients. CIBC's business spans retail and business banking, wealth management, and capital markets, and is more domestically Canada-focused than some of its global peers. Morningstar gives CIBC a "narrow economic moat" rating because the bank is not the leader for Canadian banking operations, which limits some of its cost advantages. Morningstar believes that bank moats are typically derived from cash advantages and switching costs: "We think switching costs in the Canadian system are driven by a tightly regulated oligopolistic market structure that limits excess competition, stabilizing product pricing, and giving customers less incentive to switch banks."

KION Group AG (KGX GR) is a German multinational manufacturer of materials handling equipment, specializing in forklift trucks, warehouse equipment, and industrial trucks. KION has a "narrow economic moat" rating from Morningstar: "We believe that switching costs underpin KION Group's narrow economic moat, as a high level of reliance on customization, financing, and service agreements supports customer stickiness." KION is Europe's leading manufacturer of forklifts (and number two globally), which are critical in supporting the growing global e-commerce supply chain. KION's recent acquisition of Dematic, a leader in warehouse automation, increases its moaty profile, given that Dematic is ranked first in market share in the U.S. and number three in Europe and globally.

VanEck Vectors® Morningstar Wide Moat ETF (MOAT®) and VanEck Vectors® Morningstar International Moat ETF (MOTI®) provide access to global moat-rated companies, by seeking to replicate the Morningstar® Wide Moat Focus IndexSM and Morningstar® Global ex-US Moat Focus IndexSM, respectively. Each Index tracks the overall performance of attractively priced companies with sustainable competitive advantages in their respective markets according to Morningstar's equity research team.

MOAT holdings and learn more about moat investing  

MOTI holdings and learn more about moat investing  

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Cybersecurity and Municipal Bonds: Part 3 https://www.vaneck.com/blogs/muni-nation/cybersecurity-municipal-bonds-part-3/ Part 3 in our series looks at possible drivers to action and incentives to ensure that municipalities address cybersecurity issues.

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VanEck Blog 9/12/2017 12:00:00 AM

Possible Drivers to Action

This is part three of a three part series by Jim Colby, Municipal Bond ETF Portfolio Manager at VanEck, that explores the intersection between cybersecurity and the municipal bond market. Part 1 looks at what is at stake; Part 2 describes ways in which these issues can be addressed; and Part 3 discusses possible drivers to action.

The Risk of Cyberattack

We are all potentially at risk of cyberattack – directly or indirectly. When it comes to municipalities, this may not always be obvious to the average state or city taxpayer. However, it does not even seem to be that obvious to, or maybe even much appreciated by, many municipalities and/or states.

Even with resources like the NIST Framework and US-CERT (see Part 1 and Part 2) available to them, governments and administrations appear to be moving slowly to protect themselves from cyberattacks – whether targeted at the sensitive information they hold or the services for which they are responsible. If they are actually doing anything, it is not readily evident. You would have thought that, at the very least, they would be telling taxpayers that they are "on it".

Some investors may gain a modicum of comfort from the news that, despite the manifest dysfunctionality of its government in Springfield, the state of Illinois is now adopting mandatory cybersecurity awareness training for all state employees.1 It appears that Illinois is only the 15th state to require such training: What about the other 35?

What Is There To Be Done About It?

Addressing cybersecurity successfully will be predicated on a significant psychological shift in thinking. A shift to thinking first and foremost about prevention, not cure. As cybersecurity expert Hans Holmer2 described it to me the other day "…by externalizing the responsibility associated with cybersecurity, those who are vulnerable willfully ignore the fact that their security essentially boils down to just what they are happy to let the intruders/thieves/hackers… do".

There are many different ways nefarious intruders can be slowed down, the impact minimized, and the cost reduced. But it all has to be done with front-end protection. Think of it as akin to donning a crash helmet before riding a motorcycle.

All a Matter of Incentive

In my view, the real key to success is incentivizing people to establish cybersecurity and to maintain it effectively. The difficulty lies in determining just what that incentive should be. Protection of property and essential services is a universal need, but urgency is still lacking.

Possible Drivers to Action

One possible driver to action could simply be alerting the public through their local media outlets just what havoc can be, and has been, wrought by cyberattacks. For example, at the National Health Service in the U.K. and the power company Prykarpattyaoblenergo in Ukraine. While the latter appears to have been a targeted attack, the former was simply about money. While both were malicious and extremely damaging, they could also be viewed simply as warning shots and indicative of what further might happen.

Another driver could lie with municipalities' furthering their own commitments to high-quality and reliable public services. Terry Smith, CEO and founder of Smith's Cyber Security Gradings, believes that with the tradition of first-class service to uphold, public sector (both state and local) cybersecurity professionals are willing to meet the challenge, but the critical physical infrastructure is weak.

I believe two other potentially effective approaches (if they were adopted) lie with the muni bond market itself. First, lenders should insist that bond issuers meet certain minimum standards of cybersecurity. These could be based on guidelines and standards set out by NIST and/or US-CERT. And their adherence to these standards will be monitored on a continuing basis.

A commitment to and the subsequent maintenance of, these standards would be incorporated in municipal bond offering documents; that is, a clause covering cybersecurity would become standard. Its absence would likely result in a yield penalty to the issuer similar to what occurs with bond insurance.

In the second instance, a commitment to and the recognition of standards by, credit rating agencies would have a direct bearing on an issuer's ability to obtain a stronger rating for the bond: the tradability of the bond would likely improve as a result. Cybersecurity gradings do already exist in the private sector, but not yet in the muni space.

Conclusion

The services provided by municipal borrowers have always been, and remain, vital to our everyday life. The need to protect these services from possible disruption has become ever more important. Cybersecurity can help provide this protection. Cure, as opposed to prevention, is less and less an acceptable option. Luckily, initiatives such as those from NIST and US-CERT already exist. These have been designed to help all levels of government address the challenges of cybersecurity. Incentive remains the key issue.

In sum, initiatives from analysts, bankers, and legal teams, in concert with issuers, to establish a standard clause in bond offering documents committing the borrower to establish and maintain certain cybersecurity standards are of paramount importance. Further, tying an issuer's credit rating to a commitment to, and subsequent maintenance of, certain cybersecurity standards needs the attention of credit rating agencies to provide the market incentive (lower cost) the issuers seek.

NEWS FLASH

Last week, security firm Symantec reported3 that dozens of energy companies, including some in the U.S., had been subject to hacker attacks in spring and summer this year. The firm's analysis found that "hackers obtained what they [power firms] call operational access … giving them the ability to stop the flow of electricity into U.S. homes and businesses." According to an article on the attacks in WIRED,4 Symantec noted that hackers had never before "been shown to have that level of control of American power company systems."

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Gold Hits Stride and Tops $1,300 Hurdle https://www.vaneck.com/blogs/gold-and-precious-metals/hits-stride-tops-1300-hurdle/ Gold made its third attempt of the year to break through the $1,300 per ounce resistance level, and success came late in the month. 

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VanEck Blog 9/11/2017 12:00:00 AM

Third Time's the Charm for Gold in 2017

During August, the gold price made its third attempt of the year to break through the $1,300 per ounce price level. Success came late in the month when the convergence of several catalysts moved gold to its 2017 high of $1,326 per ounce on August 29. The stage was set as gold rose earlier in August when comments from Federal Reserve officials and minutes from the July Federal Open Market Committee (FOMC) meeting indicated a reluctance to raise rates later this year. Then, in a speech on August 26 at the annual Kansas City Fed event in Jackson Hole, Wyoming, Fed Chair Yellen unexpectedly made no mention of rates or guidance. This led the market to believe the Fed would not meet earlier guidance of three rate increases in 2017 (the Fed has raised rates twice this far this year, 25 basis points on March 16 and again on June 15). On August 28, North Korea launched a missile over Japanese airspace in its most provocative move to date. Also late in the month, it became apparent that Hurricane Harvey will likely be one of the most costly natural disasters ever and create a drag on GDP growth over the coming quarters. All of this caused bond rates to drop to their yearly lows and threw the U.S. dollar into a sharp decline. The U.S. Dollar Index (DXY)1 fell to its two and a half year low at the same time gold vaulted to new highs. Gold ended the month with a $51.96 gain (4.1%) at $1,321.40 per ounce.

Best Quarterly Reporting For Producers Since End of Bear Market

Gold producers concluded their second quarter reporting in August. It was possibly the best reporting season of the upcycle that began in 2016. Disappointments were isolated to a few companies with geopolitical issues in Greece, Guatemala, and Tanzania. The vast majority of companies met or beat expectations for production, costs, and earnings. Standouts included companies Agnico Eagle and Newmont which both upped their guidance for 2017 production while lowering cost guidance. The positive results, however, have not been reflected in the companies' share prices. For August, the NYSE Arca Gold Miners Index (GDMNTR)2 gained 7.9%, while the MVIS® Global Junior Gold Miners Index (MVGDXJTR)3 advanced 7.1%. This year the GDMNTR is up 17.7% and the MVGDXJTR has gained 11.1%, while gold bullion has risen 14.7%. Normally gold stocks substantially outperform gold in a positive market. We believe that heavy gold equity ETF redemptions and a lack of broader investor interest in the gold sector have weighed on stocks so far this year. Perhaps this is about to change, as during August the gold equity ETFs have seen their first significant net inflows since February. Valuations remain below long-term averages, which makes gold stocks fundamentally attractive.

Fundamental Factors Strengthen Gold's Base

Since the gold bear market ended in December 2015, the gold price has been forming a base. Gold's recent advance through $1,300 per ounce helps solidify this, which we believe is a prelude to a new bull market that may take shape in the coming months or years. There are several fundamental factors enabling gold to establish a strong base: 1) a historic bear market has already mitigated much of the selling pressure; 2) the Fed's chronic inability to achieve guidance on economic growth or policy plans; 3) global geopolitical unrest; and 4) U.S. dollar weakness.

Testing Long-Term Resistance Levels Next Step for Gold

With this fundamental backdrop in mind, we look to technical chart patterns to discern significant turning points in the gold price. The following chart shows the base forming in a relatively narrow trading range since 2013. An upward trending support line has formed, currently at the $1,230 per ounce level. We expect the fundamentals to hold gold above the support line. Developments that would probably cause gold to fall through support might be: 1) global peace; 2) robust economic growth without inflation; 3) U.S. dollar bull market; or 4) rising real interest rates. We believe all of these are low probability outcomes in the foreseeable future.

Gold Crossed $1,300, Is Long-Term Resistance Level Next?

NYSE Margin Debt Chart

Source: Bloomberg. Data as of August 30, 2017. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

It appears that $1,300 was an intermediate hurdle on the way to testing long-term resistance in the $1,375 to $1,400 range. A move through $1,400 would create new longer-term highs and likely transform this base-forming market into a bull market. The gold price rarely makes yearly highs in the summer, and this makes August's performance impressive. Historically, fall has been the strongest season for gold prices. However, the seasonal pattern has been lost for several years due mainly to a chaotic Indian market where tax changes, trade restrictions, and currency policies have hampered demand. Normality has returned to the Indian market this year and with a good monsoon, the fall festival and wedding seasons should be supportive of gold prices. As such, we expect gold to test the $1,375 to $1,400 resistance level later this year. Getting through resistance would likely allow a new level of fundamental risk to come into view. Geopolitical risk tends to cause price spikes that dissipate on signs of de-escalation. There might be further tensions around North Korea. Armed conflict would move gold substantially, but we would be surprised if all sides would allow such an apocalyptic outcome to occur.

It is more likely that the next gold driver emerges from macroeconomic changes. One possible reason Fed Chair Yellen gave no rate guidance in her Jackson Hole address is that she might like to see the market's response to the Fed's plan to unwind its $4.5 trillion balance sheet first, which it is expected to unveil in September. This might create unwanted shifts in the bond markets that the Fed has been supporting. If the president's tax plans meet the same fate as his health care initiative, confidence in Washington will erode further. Gold might also receive a boost if the New Year arrives without a third Fed rate increase.

Escalating Risks, Especially in U.S., Fueling Gold Drive Ahead

Regardless of whether gold makes new multi-year highs this year, we believe financial and economic risks will escalate in the foreseeable future that are likely to drive gold to $1,400 and beyond. This is certainly a counterintuitive outlook when the economy is at full employment, major stock indices recently hit all-time highs, and consumer confidence as measured by both the Conference Board Consumer Confidence Index4 and University of Michigan Consumer Sentiment Index5 are at long-term highs. However, this is an environment in which complacency sets in and risks are ignored. The economic cycle appears to be nearing its end, especially in the U.S.

The Fed has once again waited too long to normalize monetary policy. Now it is in the process of cutting off the fuel that has been feeding asset price inflation and bubbles, such as the mania in FAANG stocks (Facebook, Amazon, Apple, Netflix, Google), Tesla, and Bitcoin. Automotive sales have peaked as car loan delinquencies escalate. The housing market appears to have topped out. The number of distressed and delinquent commercial real estate properties have increased lately. The Federal Deposit Insurance Corporation (FDIC) reports that total loans and leases by banks and other institutions has decelerated while credit card charge offs are on the rise. Leading economic indicators have stagnated. We should know in the coming year whether this is a pause or a peak.

Debt Level Danger Continues to Loom Over Economy

Overwhelming debt levels in many areas of the economy probably represent the biggest threat in a downturn. The Congressional Budget Office (CBO) expects the federal deficit to rise to $693 billion, or 3.6% of GDP, in the fiscal year ending Sept 30. Why is there a deficit at all in the ninth year of the expansion and a 4.4% jobless rate? U.S. household debt reached a record $12.7 trillion in the first quarter. Over the past two years, the personal savings rate has declined from 6.3% to 3.7% as consumers tap savings to pay for their lifestyles or needs. Rising debt without a commensurate rise in GDP, wages, or productivity means that capital has been misallocated and that the economy is simply borrowing growth and output from the future.

Is Insurance Sector of 2017 the Housing Sector of 2008?

The last economic downturn impacted the housing market like few expected. Likewise, the next downturn will probably have an unpredictable impact on other unsuspecting sectors. For example, a study by BlackRock Inc., highlighted in a recent Bloomberg article, found that in a financial crisis the insurance industry would suffer worse losses than it did in the subprime crisis. The reason is that since the Fed has held rates at artificially low levels, insurers have taken on riskier and less liquid assets than their traditional holdings of vanilla bonds in order to generate acceptable returns. We suspect pension funds and other institutions might have similar positioning.

Risks Mount Outside of U.S. Too

There are also substantial risks outside of the U.S. that could have global repercussions. The Institute of International Finance Global Debt Monitor Report estimates the global debt in early 2017 set a new record of $217 trillion (327% of GDP), up 46% from $149 trillion in 2007 just before the global financial crisis. In an August 5 report, Crescat Capital compares credit bubbles historically with the current debt levels in China, Australia, and Canada – all linked through the commodity and real estate trades. Crescat believes China's banking bubble today is over three times larger than the U.S. banking bubble prior to the global financial crisis.

While we are always hopeful for a prosperous future, we live in a world with risks that might impact our investments. We find no reason to believe there won't be another economic cycle, as there has been throughout history. As the upleg of this cycle is one of the longest on record, it is probably not a bad idea to think about portfolio insurance or defensive positioning.

Download Commentary PDF with Fund specific information and performance

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No Summer Doldrums for International Moats https://www.vaneck.com/blogs/moat-investing/no-summer-doldrums-for-international-moats/ International moat companies continued their summer strength, while U.S. moats got a case of the summer doldrums.

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VanEck Blog 9/7/2017 12:00:00 AM

For the Month Ending August 31, 2017

Performance Overview

International moat stocks continued to display summer strength, gaining 0.91% in August as represented by the Morningstar® Global ex-US Moat Focus IndexSM ( MGEUMFUN, or "International Moat Index"), compared to 0.52% for the MSCI All Country World Index ex USA (MSCI ACWI ex-USA). This extended the International Moat Index's one year outperformance to more than 10% (28.93% versus 18.88% for the MSCI ACWI ex-USA), based on the twelve months ending August 31, 2017. For U.S. moats, the summer doldrums continued in August, with the U.S.-oriented Morningstar® Wide Moat Focus IndexSM ( MWMFTR, or "U.S. Moat Index") returning -0.69% versus 0.31% for the S&P 500® Index.

International Moats: Buildings and Cell Phones

Real estate and telecommunications were the top contributors to the performance of the International Moat Index in August. Mobile Telesystems PJSC (MTSS RM, +18.42%) was the leading performer for the month. MTSS is the largest wireless carrier in Russia and has held up well relative despite Russia's struggling economy. Real estate developer Cheung Kong Property Holdings (1113 HK, +8.39%) was the leader in the Index's strong real estate sector which is comprised by mostly Asian companies. By contrast, India car producer Tata Motors Ltd. (TTMT IN, -14.98%) was the International Moat Index's bottom performer, although it was able to maintain its moat rating on the back of its strong Jaguar and Land Rover brands. Ireland's bio-tech Shire (-12.07%) and Canada's Baytex Energy (BTE CN, -9.94%) also struggled in August.

U.S. Domestic Moats: L Who?

The overwhelming detractor from the U.S. Moat Index's performance in August was L Brands, Inc. (LB US, -20.68%). The company's tough performance in July was followed by an even tougher results in August. The retail conglomerate, best known for its Victoria's Secret brand, has struggled lately, and Morningstar analysts lowered its fair value price by $2 in August citing weaker-than-expected near-term earnings following the second quarter earnings report. Even so, Morningstar recently reaffirmed its moat rating in an August research note: "We continue to think that L Brands has a wide economic moat, with brand strength in a category characterized by high levels of consumer brand loyalty and prioritization of quality and fit over price." Walt Disney Co. (DIS US, -7.94%) was another top detractor from the consumer discretionary sector. Disney continues to suffer from declines in its studio and consumer products segments, even though the company has enjoyed strong growth in its parks and resorts. Notably, the information technology was the top contributing Index sector in August, while the healthcare sector was relatively flat; strong performance of biotech firms was offset by weak performance from healthcare distribution companies.

 

(%) Month Ending 8/31/17

Domestic Equity Markets

International Equity Markets

(%) As of 8/31/17

Domestic Equity Markets

International Equity Markets

(%) Month Ending 8/31/17

Morningstar
Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers
Constituent Ticker Total Return
Gilead Sciences, Inc. GILD US 10.01
Varian Medical Systems, Inc. VAR US 9.40
Biogen Inc. BIIB US 9.31
C.H. Robinson Worldwide, Inc. CHRW US 8.33
Bristol-Myers Squibb Company BMY US 6.29

Bottom 5 Index Performers
Constituent Ticker Total Return
Patterson Companies, Inc. PDCO US -7.72
Walt Disney Company DIS US -7.94
Allergan plc AGN US -8.78
AmerisourceBergen Corporation ABC US -14.07
L Brands, Inc. LB US -20.68

View MOAT's current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Top 5 Index Performers
Constituent Ticker Total Return
Mobile TeleSystems PJSC MTSS RM 18.42
IOOF Holdings Ltd IFL AU 11.91
SFR Group SA NUM FP 10.12
Cheung Kong Property Holdings Limited 1113 HK 8.39
Elekta AB Class B EKTAB SS 8.19

Bottom 5 Index Performers
Constituent Ticker Total Return
Crown Resorts Limited CWN AU -9.40
Baytex Energy Corp. BTE CN -9.94
QBE Insurance Group Limited QBE AU -10.68
Shire PLC SHP LN -12.07
Tata Motors Limited TTMT IN -14.98

View MOTI's current constituents

As of 6/16/17

Morningstar
Wide Moat Focus Index (MWMFTR)

Index Additions
Added Constituent Ticker
L Brands Inc LB US
T Rowe Price Group Inc TROW US
CH Robinson Worldwide Inc CHRW US
General Electric Co GE US
BlackRock Inc BLK US
John Wiley & Sons Inc. A JW/A US

Index Deletions
Deleted Constituent Ticker
Mead Johnson Nutrition Co MJN US
Jones Lang Lasalle Inc JLL US
CBRE Group Inc. CBG US
Mastercard Inc A MA US
Varian Medical Systems Inc VAR US
Cerner Corp CERN 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
Roche Hldgs AG Ptg Genus Switzerland
Telefonica SA Spain
Bayer Motoren Werke AG (BMW) Germany
Potash Corp of Saskatchewan Canada
China Resources Gas Group Ltd. China
Canadian Imperial Bank of Commerce Canada
Westpac Banking Corp Australia
SFR Group France
Mobile TeleSystems PJSC Russian Federation
Wipro Ltd India
Koninklijke Philips Electronics NV Netherlands
Meggitt United Kingdom
Novartis AG Reg Switzerland
America Movil SAB de CV L Mexico
Murata Manufacturing Co Ltd Japan
DBS Group Holdings Singapore
HeidelbergCement AG Germany
Commonwealth Bank Australia Australia
National Bank of Canada Canada
Ansell Ltd Australia
Julius Baer Group Switzerland

Index Deletions
Deleted Constituent Country
Kao Corp Japan
Seven & I Holdings Co Ltd Japan
William Demant Hldg Denmark
Telstra Corp Ltd Australia
Carsales.com Ltd Australia
DuluxGroup Ltd Australia
Fisher & Paykel Healthcare Corporation Limited New Zealand
Swire Properties Ltd Hong Kong
Infosys Ltd India
Tata Consultancy Services Ltd India
Ramsay Health Care Ltd Australia
Airbus SE France
Singapore Exchange Ltd Singapore
GEA Group AG Germany
London Stock Exchange Plc United Kingdom
Vicinity Centres Australia
China Mobile Ltd. China
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. Mexico
Iluka Resources Ltd Australia
KDDI Corp Japan

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



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What Drives Green Bond Returns? https://www.vaneck.com/blogs/etfs/what-drives-green-bond-returns/ While green bonds are similar to conventional bonds in terms of traditional performance drivers, investors get the added benefit of a green “bonus”.

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VanEck Blog 9/6/2017 12:00:00 AM

Green bonds finance projects with a positive environmental impact, which gives them a specific focus beyond most non-green "conventional" bonds. But in terms of their yield and performance, green bonds are generally driven by the same factors that impact most conventional bonds.

Similar Return Drivers as Other Bonds

Conventional bond returns are driven primarily by changes in interest rates, the market's perception of credit risk, and when investing globally, currency appreciation or depreciation. Supply and demand, liquidity, and other contractual terms of the obligation (e.g., callability) also have an impact. Green bonds are no different from conventional bonds in this regard. Drivers of risk and return are the same because green bonds are backed by the full balance sheet of the issuer in the vast majority of cases. Although green bond proceeds are used only to finance environmentally friendly projects, the payment of principal and interest is not contingent on the success or failure of these projects.1

As the drivers of risk and return for a green bond and a conventional bond from the same issuer are identical (all else being equal), one might expect yields to be in line. Anecdotally this is the case. Underwriters generally report that new green bonds are issued on the issuer's yield curve (or perhaps slightly above to reflect a new issue discount, which is common for any new bond issue). On the other hand, despite the rapid growth in green bond issuance over the past few years, there is significant demand for new green bonds and new issues tend to be heavily oversubscribed. This has led to a perception that a green bond premium has developed, allowing issuers to pay lower yields on bonds carrying a green label versus conventional bonds.

Does the Green "Bonus" Create a Premium?

A new study by the Climate Bonds Initiative is the first to take an analytical approach to studying whether or not a green bond "premium" exists. The conclusion? It depends. Some green bonds have priced inside the issuer's yield curve, some priced on it, and others have priced above. As the report points out, "this is broadly comparable to vanilla bonds". It is worth noting that the study is somewhat limited in scope, and given the rapid growth and evolution of the green bond market, it may not reflect future market dynamics.

As shown in the charts below, our own analysis of four notable green bond issues also finds that they were generally issued on or slightly above the curve at the time of issuance, and have generally continued to price in line with the issuers' other bonds in the secondary market.

Notable Green Bond Issues  Chart

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

Intuitively this makes sense. Most investors are not willing to accept a lower yield versus other comparable bonds in the market, despite the green aspect of the bond. While high demand may cause a particular green bond's yield to tighten in the secondary market (due to buying from those who were not able to get an allotment of the new issue, for example), it is unlikely to deviate significantly versus the issuer's overall yield curve. Expected growth in new issuance would also help to alleviate supply and demand imbalances. Further while green bonds are generally oversubscribed, this is broadly true across the bond market.

Added Stability From a Diverse Investor Base

Provided that a green bond trades in line with an issuer's other bonds, what is an investor getting? In a sense, it is a win-win. Green bond investors can potentially earn market rates of return but are also able to direct capital towards projects helping address climate change or other environmental issues. Also, the green label can reduce search costs for investors, along with other indicators such as the Climate Bonds Initiative flag which indicates that the projects financed are in line with the organization's taxonomy.2 Lastly, the green label may help to diversify the investor base for a particular bond, attracting both traditional fixed income investors as well as institutional green bond investors, which generally take a buy-and-hold approach. This diversity could conceivably help provide stability in a market selloff.

Sustainable Long-Term Returns

From a fundamental standpoint, a green bond should provide the same level of returns as a conventional bond from the same issuer. However, it is worth noting that by issuing green bonds, issuers are taking steps to address the long-term climate risks that could potentially affect their creditworthiness. By strategically addressing and potentially mitigating these risks through the issuance of green bonds or through other initiatives, these issuers may ultimately be rewarded with a lower cost of capital while investors potentially benefit from sustainable long-term returns, versus investment in issuers with higher levels of climate risk.

VanEck Vectors Green Bond ETF (GRNB) is the first U.S.-listed fixed income ETF to provide targeted exposure to the fast-growing green bonds market. GRNB seeks to track the performance and yield characteristics of the S&P Green Bond Select Index (SPGRNSLT), part of a suite of green indices introduced by S&P.

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Real Yields Rule: Emerging Markets Local Bonds Lead the Way https://www.vaneck.com/blogs/emerging-markets-bonds/real-yields-rule/ VanEck Blog 8/31/2017 12:00:00 AM

Looking for attractive yields? Look no further than emerging markets local currency bonds. These bonds provide significantly higher yields than those offered by developed markets bonds, both in nominal terms and in real terms, i.e., after adjusting for expected inflation. While higher yields often mean greater credit risk, local inflation levels can be a greater contributor to the nominal yields of emerging markets bonds.

Hawkish Steps Keep a Lid on Emerging Markets Inflation

The higher nominal yields of emerging markets local bonds compensate U.S. dollar-based investors for the risk posed by local inflation, which can be associated with negative currency returns, particularly if inflation goes unchecked. But controlled inflation and positive real interest rates can generally be supportive for a local currency. In addition, positive real rates provide more room for emerging markets central banks to ease monetary policy if economic growth slows. This conventional policy tool may not be as effective in developed markets currently, given extremely low or even negative rates.

Real yields can also provide an indication of fundamental value versus looking only at nominal yields. As shown in the chart below, real yields among emerging markets economies (blue line) appear high relative to historical levels, and the differential between emerging markets and developed markets real yields (gray line) is attractive (the latest data show a 200 basis point yield advantage for Emerging Markets).

Emerging Markets Real Yields Are Attractive

Emerging Markets Real Yields Are Attractive Chart

Source: JPMorgan. Country index yields for GBI-EM and GBI (DM) deflated by 12mo CPI and weighted by index weights, and GBI-EM deflated by 12mo CPI expectations.

Inflation has generally remained under control in recent years in the countries represented in the J.P. Morgan GBI-EM Global Core Index. Even in countries where inflation has been more of a concern (e.g., Mexico and Argentina), central banks have taken hawkish steps, including raising interest rates, and inflation is expected to slow. As of July 31, 2017, the weighted average real 10-year government yield of countries in the Index was 2.3%.1 In other words, investors were receiving 2.3% above expected inflation. To put that into context, the real yield on U.S. government bonds was only 0.15%, and negative in other developed markets.

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Cybersecurity and Municipal Bonds: Part 2 https://www.vaneck.com/blogs/muni-nation/cybersecurity-municipal-bonds-part-2/ Part 2 in our series addresses how cybersecurity issues impacting the municipal bond market are being addressed by government and private sector initiatives. 

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VanEck Blog 8/24/2017 12:00:00 AM

Addressing the Issues

This is part two of a three part series by Jim Colby, Municipal Bond ETF Portfolio Manager at VanEck, that explores the intersection between cybersecurity and the municipal bond market. Part 1 looks at what is at stake; Part 2 describes ways in which these issues can be addressed; and Part 3 discusses possible drivers to action.

We have firmly established that cybersecurity is a critical issue in the muni space – an arena that impacts the everyday lives of all Americans. Now let's look at how cybersecurity issues are already being addressed through two important initiatives that have been developed by the federal government and the private sector.

Creation of the NIST Cybersecurity Framework under Obama

Cybersecurity's importance is being recognized at the highest levels. Help from our central government in Washington DC in tackling cybersecurity issues has been available to state and local governments (and others) for some time.

On February 12, 2013, President Barack Obama issued the first executive order addressing cybersecurity: Executive Order (EO) 13636 entitled "Improving Critical Infrastructure Cybersecurity". The order directed the Executive Branch to "enhance the security and resilience of the Nation's critical infrastructure".1

One of the most important things resulting from EO 13636 has been the "Framework for Improving Critical Infrastructure Cybersecurity"2 developed by the National Institute of Standards and Technology's (NIST). The NIST Cybersecurity Framework follows a set of industry standards and best practices to help organizations manage cybersecurity risks, and was established through the collaboration of the government and the private sector.

Critical Infrastructure Sectors1

  • Chemical
  • Commercial Facilities
  • Communications
  • Critical Manufacturing
  • Dams
  • Defense Industrial Base
  • Emergency Services
  • Energy
  • Financial Services
  • Food and Agriculture
  • Government Facilities
  • Healthcare and Public Health
  • Information Technology
  • Nuclear Reactors, Materials, and Waste
  • Transportation Systems
  • Water and Wastewater Systems

NIST Cybersecurity Framework Becomes Policy under Trump

President Trump recognized the importance of standardizing cybersecurity practices by issuing EO 138003 on May 11, 2017. This EO turned the NIST framework into federal government policy that requires NIST to provide cybersecurity process frameworks for all federal agencies.4

NIST highlights the fact that cybersecurity cannot be addressed by technology alone. The NIST Cybersecurity Framework goes beyond technology and also addresses both people and processes. All are critical to solving cybersecurity issues. Just as importantly, whatever an organization's size, the degree of its exposure to cybersecurity risk, or its cybersecurity sophistication, the NIST framework can help it "to apply the principles and best practices of risk management."5

How Municipalities Benefit from NIST Framework

The NIST Cybersecurity Framework provides an important resource for municipal governments. State and local governments "face unique challenges due to limited resources, complex regulations, and an increasingly sophisticated threat environment,"6 according to global tech giant Cisco. The NIST Framework offers municipalities a proven risk-based approach to tackling cyberthreats, one that "reduces complexity and provides visibility, continuous control, and advanced threat protection across the extended network and attack continuum before, during, and after a cyberattack."7

US-CERT: A Safer, Stronger Internet for All Americans

Cybersecurity help is also available to state and local municipalities through US-CERT (the U.S. Computer Emergency Readiness Team), established in 2003. Its overall mission is to strive for "a safer, stronger Internet for all Americans by responding to major incidents, analyzing threats, and exchanging critical cybersecurity information with trusted partners around the world." One of US-CERT's critical mission activities is to provide timely and actionable cybersecurity information to state and local governments.

What Will Drive Municipalities to Take Action?

Part 3 will discuss possible drivers to action. Whether private or public, organizations need incentives to address cybersecurity. Come the day of reckoning when an organization/local or state government is held to cybersecurity ransom, any excuses will likely be recognized as hollow.

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Cybersecurity and Municipal Bonds: Part 1 https://www.vaneck.com/blogs/muni-nation/cybersecurity-municipal-bonds-part-1/ Portfolio Manager Jim Colby explores the intersection between cybersecurity and the municipal bond market. First, we look at what is at stake. 

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VanEck Blog 8/16/2017 12:00:00 AM

This is part one of a three part series by Jim Colby, Municipal Bond ETF Portfolio Manager at VanEck, that explores the intersection between cybersecurity and the municipal bond market. Part 1 looks at what is at stake; Part 2 describes ways in which these issues can be addressed; and Part 3 discusses possible drivers to action.

Cybersecurity Challenges Impact Government: At Federal, State, and Local Levels

The importance of cybersecurity has never been more apparent. Cybersecurity issues are a growing challenge that impact many aspects of our economy, including most of the services provided by municipal borrowers.

Although not readily obvious, municipal services are vital to the smooth running of daily life. These services run the gamut, including funding and managing traffic lights, supplying electric and sewer services, water supply, maintaining/building roads, building bridges, supervising elections, running hospitals, and providing mental and physical health support.

Safeguarding municipal services is vital at all levels: federal, state, and local. Both government and the private sector are spearheading important security initiatives to meet the growing cybersecurity challenges that are involved.

What is at Stake?

Municipal governments are involved in most aspects of our lives, and each service provided is subject to unique cybersecurity issues.

Here is just one example.

Municipal governments collect (and need to "safeguard") a tremendous amount of information – any or all possibly containing personally identifiable information (PII) or sensitive personal information (SPI) – including, of course, Social Security numbers. Examples of how this information is collected include house deeds, mortgage documents, records of births, marriages, deaths, medical records, driver licenses, and court documents (e.g., divorce settlements).

Both PII and SPI are subject to the impacts of cybersecurity personal identity theft, and awareness of identity and access management (IAM) is playing an evolving role in tightening cybersecurity frameworks in both the public and private sectors.

Examples: Federal Cybersecurity Incidents

Each year, in a report to Congress, the Office of Management and Budget (OMB) provides "summary information on the number of cybersecurity incidents that occurred across the government and at each Federal agency."1 These incidents are notable not only for their number, but also for their variety, as shown in the following table.

Federal Agency Reported Incidents by Attack Vector – Fiscal Year 2016

Attack Vector Description CFO* Non-CFO* Govt-wide
Attrition Employs brute force methods to compromise, degrade, or destroy systems, networks, or services. 108 1 109
E-mail/Phishing An attack executed via an email message or attachment. 3,160 132 3,292
External/Removable Media An attack executed from removable media or a peripheral device. 132 6 138
Impersonation/Spoofing An attack involving replacement of legitimate content/services with a malicious substitute. 60 4 64
Improper Usage Any incident resulting from violation of an organization’s acceptable usage policies by an authorized user, excluding the above categories. 3,920 210 4,130
Loss or Theft of Equipment The loss or theft of a computing device or media used by the organization. 5,313 377 5,690
Web An attack executed from a website or web-based application. 4,766 102 4,868
Other An attack method does not fit into any other vector or the cause of attack is unidentified. 11,365 437 11,802
Multiple Attack Vectors An attack that uses two or more of the above vectors in combination. 789 17 806
Total   29,613 1,286 30,899

Source: FISMA FY 2016 Annual Report to Congress.
* Chief Financial Officers Act agencies are those agencies designated in the CFO Act (with the addition of Department of Homeland Security and minus the Federal Emergency Management Agency). In practice, the CFO Act agencies are the 24 largest Federal agencies in terms of budget; the 23 civilian CFO Act agencies are the CFO Act agencies minus the Department of Defense.

Examples: Municipal Cybersecurity Incidents

The breadth of cybersecurity incidents that can impact municipalities is deep and wide. The following are a sample of notable cybersecurity incidents that have impacted the municipal space over the past several years.

Personal Information

October 2014 – Personal information, including Social Security numbers, of more than 850,000 people possibly compromised when hackers gain access to Oregon Employment Department database.2

February 2016 – Hollywood Presbyterian Medical Center pays 40 bitcoin (around $17,000) to hacker who "seized control of the hospital's computer systems and would give back access only when the money was paid."3

Services

August 2003 – On August 14, 2003, nearly 14 years ago, millions of people in both Canada and the U.S. were hit by the great Northeast blackout caused primarily by a software bug. There was no power to run the trains, and no power for pumping domestic fresh water, treating raw sewage, running lighting, refrigerators, and air conditioning, filling up with gasoline, accessing electronic airline tickets, running cable TV, and recharging cell phones. This situation was caused by a software accident, and not a breach cybersecurity, but its impact was enormous.

Fast forward to 2015 in Ukraine.

December 2015 – It was certainly no accident on December 23, 2015, when malicious hackers deprived some 230,000 people in the Ivano-Frankivsk region of West Ukraine of power for up to six hours. The power company Prykarpattyaoblenergo's control center had fallen victim to a sophisticated cyberattack.

Although this happened many thousands of miles away, according to one article: "the control systems in Ukraine were surprisingly more secure than some in the U.S."4 Should a future power grid cyberattack occur in the U.S., the impacts could be enormous. While the event in Ukraine may have affected only 230,000 people, the Northeast blackout of 2003 was estimated to have affected at least 55 million people in both Canada and the U.S. Eleven people died.5

March 2016 – The U.S. Justice Department indicted seven Iranians not only for cyberattacks on a number of American banks, but also for trying to take over the controls of a small suburban dam in Rye, New York.6

How Can These Cybersecurity Issues be Addressed?

The next piece in our three part series will describe some ways in which the issues can be, and already are being, addressed. For some years now, initiatives have existed both to "enhance the security and resilience of the Nation's critical infrastructure"7 and provide "timely and actionable information" to "state, local, tribal and territorial (SLTT) governments."8

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Take a Deep “Breadth” of the Bullish Air https://www.vaneck.com/blogs/allocation/breadth-of-bullish-air/ For August, the Fund’s allocation shifted slightly from neutral to slightly overweight stocks.

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VanEck Blog 8/16/2017 12:00:00 AM

VanEck NDR Managed Allocation Fund (NDRMX) tactically adjusts its asset class exposures each month across global stocks, U.S. fixed income, and cash. It utilizes an objective, data-driven process driven by macroeconomic, fundamental, and technical indicators developed by Ned Davis Research ("NDR"). The Fund invests based on the weight-of-the-evidence of its objective indicators, removing human emotion and decision making from the investment process. The expanded PDF version of this commentary can be downloaded here.

July Performance

VanEck NDR Managed Allocation Fund (NDRMX) returned 1.39% versus 1.87% for its benchmark of 60% global stocks (MSCI All Country World Index) and 40% bonds (Bloomberg Barclays US Aggregate Bond Index), and 1.58% for the Morningstar Tactical Allocation Peer Group average.

The Fund lagged its benchmark in July due to both its slight underweight exposure to global stocks and its lack of exposure to Emerging Markets equities. Global stocks (MSCI All Country World Index) returned 2.83% and emerging markets equities (MSCI Emerging Markets Index) returned 6.04%. The Fund's top performing positions were its equity holdings within the U.S., Japan, and Europe ex U.K. Within the U.S., the Fund benefited from a large overweight position in large-cap growth stocks. U.S. large-cap growth (Russell 1000 Growth Index) returned 2.66% and outperformed both value and small-cap stocks.

Fund Positioning August 2017: Shift from Neutral to Moderately Bullish

At the start of August, VanEck NDR Managed Allocation Fund's (NDRMX) position shifted from neutral to slightly overweight stocks in August. The Fund's equity allocation increased from 58.9% to 65.2%, the bond allocation decreased from 40.5% to 34.3%, and the minimal cash position remained basically unchanged at 0.5%. The largest regional equity allocation shifts were an increase in exposure to the U.S. (34.1% to 39.9%) and the Emerging Markets (0% to 3.4%), and reductions to Europe ex U.K. (12.8% to 10.7%) and Japan (12.0% to 10.4%). Within the U.S. market cap and style positioning, the overweight exposure to large-cap growth was reduced and the exposure to large-cap value was increased.

Fund Positioning July 2017 Pie Charts

Source: VanEck. Data as of August 5, 2017.

July 2017 Performance Review

July was a great month for stocks. In fact, 2017 has been a great year for stocks, thus far. U.S. stocks (S&P 500® Index) are up 11.59%, global stocks (MSCI All Country World Index) are up 14.98%, and Emerging Markets stocks (MSCI Emerging Markets Index) are up 25.74%. For the seven month period, the Fund is up 9.20%.

Global Balanced Positioning Relative to Neutral*

Global stocks returned 2.83% and U.S. bonds returned 0.43%. The Fund was slightly underweight stocks (by approximately 1%) versus bonds in July. This small underweight position detracted from performance given the significant outperformance of stocks relative to bonds.

Global Regional Equity Positioning Relative to Neutral*

The performance of the regional equity positioning was mixed. The Fund was underweight the Emerging Markets, which was the largest regional equity detractor from performance. This was offset by winning overweight positons within the U.S., Japan, and Europe ex U.K.

U.S. Cap and Style Positioning Relative to Neutral*

The positioning within the U.S. contributed to performance. The Fund was overweight growth over value and large-cap over small-cap. Large-cap growth (Russell 1000 Growth Index) outperformed large-cap value (Russell 1000 Value Index) by 1.33%, and large-cap (Russell 1000 Index) outperformed small-cap (Russell 2000 Index) by 1.24%.

Total Returns (%) as of July 31, 2017
  1 Mo Since Inception
Class A: NAV
(Inception 5/11/16)
1.39 12.08
Class A: Maximum 5.75% load -4.45 6.79
60% MSCI ACWI/
40% BbgBarc US Agg.1
1.87 11.43
Morningstar Tactical Allocation
Category (average)2
1.59 9.26
Total Returns (%) as of June 30, 2017
  1 Mo Since Inception
Class A: NAV
(Inception 5/11/16)
0.18 11.68
Class A: Maximum 5.75% load -5.57 6.02
60% MSCI ACWI/
40% BbgBarc US Agg.1
0.26 10.49
Morningstar Tactical Allocation
Category (average)2
0.11 8.12

The tables present past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect applicable fee waivers and/or expense reimbursements. Had the Fund incurred all expenses and fees, investment returns would have been reduced. Investment returns and Fund share values will fluctuate so that investor's shares, when redeemed, may be worth more or less than their original cost. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at net asset value (NAV). Index returns assume that dividends of the index constituents in the index have been reinvested.

Returns less than a year are not annualized.

Expenses: Class A: Gross 3.60%; Net 1.38%.
Expenses are capped contractually until 05/01/18 at 1.15% for Class A. Caps exclude certain expenses, such as interest.

Weight-of-the-Evidence: NDR Global Breadth Indicator Turns Bullish

The Fund's stock allocation increased from 59% to 65% based on increased technical strength. The specific indicator that became bullish is the NDR Global Breadth Indicator. "Breadth" is a measure of participation and this specific breadth indicator measures the percentage of countries in the MSCI All Country World Index that are trading above their 50-day moving average.

This measurement is important because it provides insight into the health of a market rally. On the one hand, investors should be cautious if the global stock market is rising because only one or just a few countries are performing well and pulling the Index forward. A rally without broad participation is usually a rally that should be viewed with extreme skepticism. On the other hand, if the majority of the countries in the Index are participating in the rally, then there is perhaps more comfort given the potentially higher likelihood that the rally will last.

NDR Global Breadth Indicator

NDR Global Breadth Indicator Chart

Source: Ned Davis Research. Data as of July 31, 2017.
Copyright 2017 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/. Past performance is no guarantee of future results.

Seasonality is another indicator that recently changed. It is a simple yet potent indicator that measures the historical price patterns that result from the market's recurring tendencies. This indicator is important now because it changed from neutral to bearish.

As you can see from the following chart, March and April have been strong performance months for stocks, while the spring and summer months, starting in May and ending in October, have historically lagged. Hence the old adage: sell in May and go away.

NDR Seasonality Indicator

NDR Seasonality Indicator Chart

Source: Ned Davis Research. Data as of July 31, 2017.
Copyright 2017 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/. Past performance is no guarantee of future results.

The bullish global breadth reading and the bearish seasonality reading are at odds. There are five technical indicators and six non-price-based indicators (i.e., macroeconomic and fundamental) that determine the stock relative to bond allocation. Three of five technical indicators and three out of the six non-price-based indicators are bullish. Therefore, the overall composition of indicators, or what NDR refers to as the weight-of-the-evidence, has caused the equity allocation to become slightly overweight, increasing from 59% in July to 65% at the beginning of August.

Additional Resources

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3Q’17 Investment Outlook: Emerging Markets and Digital Asset Opportunities https://www.vaneck.com/blogs/market-insights/3q-17-investment-outlook-eme-digital-assets/ At the beginning of 2017, we felt that we were in a long, slow, rising interest rate environment. We still feel that this is the case now.

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VanEck Blog 8/14/2017 12:00:00 AM

Watch Video 3Q'17 Investment Outlook  

Jan van Eck, CEO, shares his investment outlook.

Watch Now  



Investors Should Remain Mindful of Slow and Sustained Rising Interest Rates

TOM BUTCHER: Jan, last time we spoke you cautioned investors about being prepared for rising interest rates, would you still do so?

JAN VAN ECK: Yes. At the beginning of 2017, we felt that we were in a long, slow, rising interest rate environment. We still feel that this is the case now in the summer of 2017. I think that investors can adjust by looking at fixed income solutions that are not negatively impacted by this gradual increase in duration risk. Thus far, we had thought that both high yield and emerging markets (EM) debt were attractive places for investors to look, and indeed, both asset classes have done well YTD in 2017. I think that what we saw in the first half, and what is worth noting, is that Europe has gotten "onboard the train." Let us call them two years behind the United States in terms of a gradual move away from very stimulative central bank policies, because, among other things, the European economy is relatively strong. They are trailing us in terms of rate policies, so that will be an interesting development to watch.

BUTCHER: Would you suggest that investors make any further preparations given the current environment?

Fixed Income is an Attractive Alternative: High Yield and Local Currency Emerging Markets Debt

VAN ECK: No. I think we have seen that, despite a slight increase in interest rates, fixed income can offer diversification and can still provide positive overall positive returns, as well as coupons, in this kind of environment. Just diversify: That was – and continues to be -- our message, and we view high yield and local currency emerging markets debt as good asset classes to consider.

These are the Early Innings for Emerging Markets Equities

BUTCHER: Emerging markets equities have had a pretty good first half. Where do you see this asset class going in the second half of 2017?

VAN ECK: I think we are in the early innings for emerging markets equities. Emerging markets have underperformed the U.S. for five years. To date in 2017, emerging markets company profits have grown at their highest rates since 2011, and the asset class is very attractive. This strength has driven the near 20% returns in emerging markets thus far this year.1 But we believe that we are just at the beginning of this positive cycle. Commodities hurt Latin American earnings over the last several years, and we think that this is behind us, and that we have a very nice base going forward. The possible mistake for investors would be to miss the early innings of what we see as a positive cycle. (Read July 17 blog post for more on emerging markets equities: Growth Expectations Driving Emerging Markets.)

Slow, Grinding Commodities Rally Provides Investment Opportunity

BUTCHER: Let’s turn to commodities. Both oil and energy stocks have had a pretty difficult first half. Do you view the current levels as a buying opportunity?

VAN ECK: Commodities had an 80 month bull market in the last decade, and then a very difficult bear market which we believe bottomed in the first quarter of 2016. We did say, however, that there was going to be significant adjustment needed as prices continue to rise, which would require different corporate behavior and better use of capital. Frankly, investors just voted "no" in the second quarter to energy stocks. Oil prices fell a little bit, but it was due to concerns about inefficient use of capital. By contrast, mining companies performed reasonably well. We felt that this was going to be a slow "grind" of commodity cycle. If we continue to be correct in that view, then this might be a good buying opportunity. That is the view we having been sticking with throughout 2017. (Read July 20 blog post for more on commodities: Early Cycle Pause Motivated by Skepticism, Not Data.)

VanEck Natural Resources Conference 2017: Reshaped Companies,
Revitalized Sectors

BUTCHER: VanEck had a very successful natural resources conference in Denver in June: VanEck Natural Resources Conference 2017. What were your key takeaways and what do you think made it so special?

VAN ECK: We had a full day of meetings with company managements from energy and mining companies. This was a follow up to the first conference we held in 2016. The big reminder I get from our conferences is how difficult it is to manage in this variable macro environment. I am also impressed with the strong management teams of the companies that we own in our portfolios. We always track the macro environment, but we like to pick what I call the FANG1 stocks in the resources world. That means what has worked in the technology world (for the Facebooks, Amazons, Netflixes, and Googles, i.e., incredible profitably and high growth rates. That is what we are looking for. We want the low cost winners in the energy world, and it was great to spend quality time with those management teams.

The Advent of Digital Assets: What is their Long Term Potential?

BUTCHER: Digital assets seem to be in the press more. What do you think about cryptocurrencies and distributed ledgers?

VAN ECK: This is a new and dynamic arena that merits attention. One of my colleagues called bitcoin "gold for 23 year olds." Which I think is a nice summary, because the investment appeal of a digital asset is that it is not linked to government policy. It is completely off on its own. The question is: Is there any long term intrinsic value to these digital assets? I think that the technology of a distributed ledger is very powerful because you can have an instantaneous version of the truth that is shared. The crowd, as you know, can adopt technologies at exponential rates. Those are the positives. The negatives are that most of the database designs or distributed ledgers are not run by a particular person, as generally companies are run (like corporate software, for example, Microsoft), but are run more by a crowd. Whether the crowd can actually govern these distributed ledgers or not is a fundamental existential question. In the meantime, digital assets are certainly a promising technology and we are eager to see if they will find real life applications and provide investment opportunity. (Read August 10 blog post for more on digital assets: Gold Sets a High Bar for Bitcoin.)

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Gold Sets a High Bar for Bitcoin https://www.vaneck.com/blogs/gold-and-precious-metals/gold-sets-high-bar-for-bitcoin/ Gold rallied 2.25% in July despite heavy gold bullion ETP redemptions. We compare bitcoin and gold and explore the growth of digital currencies.

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VanEck Blog 8/10/2017 12:00:00 AM

Gold Bullion Rallies in July

The monthly low for gold came on July 10 at $1,204 per ounce. Gold then rallied to finish July at $1,269.44 per ounce, a gain of $27.89 (2.25%; YTD gold bullion has gained 10.17%). This was the third time this year that gold has successfully tested the $1,200 level. Although the U.S. dollar had a precipitous fall in July, it was not the primary driver for gold. Thus far in 2017 gold has been responding more to changes in real interest rates. Gold has an inverse correlation to real interest rates, which moved higher early in the month (coinciding with gold lows) before trending lower. The change in direction for gold and interest rates was driven by somewhat dovish Congressional testimony by Federal Reserve Chair Janet Yellen, which the market interpreted as an indication that another Fed rate increase this year is less likely.

July Gains Impressive Given ETP Redemptions

July saw heavy redemptions in the gold bullion exchange traded products. Physical demand from Asia is typically low during the summer and there were not any significant moves in futures positioning. Normally this would contribute to price weakness, so July's modest gains for gold are somewhat impressive. It is possible that July's gains were driven by buying in the over-the-counter market (OTC), however there is no published data for OTC transactions. We do expect that more transparency for the OTC market will be available soon. The London Bullion Market Association (LBMA) and the London Precious Metals Clearing Limited (LPMCL) recently began releasing aggregate data on gold inventories in London vaults with a three month lag. Vaulting statistics are a first step and are likely to be followed by trade reporting at a later date.

Gold stocks moved slightly higher with the gold price. For July, the NYSE Arca Gold Miners Index (GDMNTR)1 gained 3.6% while the MVIS Global Junior Gold Miners Index (MVGDXJTR)2 advanced 0.20%. Gold stocks advanced despite heavy redemptions in gold stock ETFs, a situation that parallels the curious July relationship between the rising gold price and the gold bullion ETP redemptions. Markets don't always do what is expected of them.

Recent Momentum Suggests that $1,300 is Likely to be Tested

While $1,200 has proven to be a resilient floor for gold, the price has yet to trend through the $1,300 per ounce level. Twice this year gold turned down as it approached $1,300. The recent upward price trend suggests $1,300 may soon be tested for a third time. Gold prices typically trend higher in the fall as seasonal physical demand improves. In terms of identifying catalysts that might enable gold to break through $1,300, the most obvious candidate is economic weakness that might persuade the Fed to take a more cautious stance. The Fed is expected to announce plans in September to reduce its massive crisis-era balance sheet and there could also be significant risks surrounding these plans.

Gold is Physical, Bitcoin is Digital

Recently, we have received many questions about digital currencies and in particular, bitcoin (defined as the world's first decentralized digital currency). The queries range from our general opinion to concerns that bitcoin might displace gold demand. While we have no digital currency experts on our gold team, we follow the development of these new currencies with interest. It is clear that those who promote bitcoin are using gold's image to help validate their product. Press articles are often accompanied by a picture of stacks of shiny gold colored bitcoins. Bitcoins are created by “miners”. This is aimed at creating the illusion of a solid currency. In reality, digital currencies are strings of 0s and 1s stored in a computer in some unknown location and cannot be touched or seen.

There are, however, several important similarities between gold and bitcoin. Both are outside of the mainstream financial establishment. Both are not issued or controlled by governments, and both are traded around the globe across borders. Supply of both gold and bitcoin is limited, so they are sound forms of currency. For most transactions to be used in an economy, they must be converted into paper currency.

Gold versus Bitcoin

However, there are a range of significant differences:

  • Gold has been established as a store of wealth throughout human history. Gold's market capitalization is roughly $8 trillion, of which $3 trillion is in coin and bar form. Approximately $50 billion worth of gold trades each day. Bitcoin is microscopic in comparison with a market capitalization of approximately $45 billion and $1.5 billion in daily trading volume.
  • Gold can be stored anywhere. If stored at home, it can be used for barter the next time a hacker or solar flare takes down the grid. Digital currencies are worthless without electricity. Taking delivery will always be impossible with digital currency.
  • Bitcoin mining is a difficult concept to fathom. Bitcoin miners use computer programs to solve complex math problems and receive in exchange new bitcoins. What does this activity have to do with creating a store of wealth?
  • Most bitcoin markets are lightly regulated and are located outside of the U.S. A major potential drawback to digital currency is their use for money laundering, illegal trading, computer ransom attacks, tax avoidance, and to subvert exchange controls. Expect governments to intervene heavily if any of these activities become significant. Over the past year the People's Bank of China (PBOC) forced the three biggest bitcoin exchanges to adhere to anti-money laundering rules, implement trading fees, and then forced them to halt bitcoin withdrawals.
  • Distributed ledgers are promoted as unhackable. However, police were recently able to find the digital keys to an online criminal's accounts and seize approximately $8 million in digital currencies.
  • Digital currency has yet to stand the test of time. We do not know if a digital currency that is secure today will be secure under new technology. Distributed ledger passwords could be relatively easily broken if quantum computing becomes a reality.

Distributed Ledger Technology is Game Changing

The most significant development that has come out of the digital currency craze is validation of distributed ledger technology. This technology has the potential to revolutionize many aspects of the financial system, trade, and essentially anything where records are maintained. A secure system that eliminates middle men has obvious advantages. Imagine trading stocks without brokers, transfer agents, and custodians ― a scenario where fees are likely to disappear.

Distributed Ledger Technology Chart

Source: Capco.com.

Equally as significant, digital currencies have caused many to question what exactly a currency should be and whether there is a better alternative to fiat currency. The monetary system is broken. Central banks seem powerless to prevent the economy from going through busts that destroy wealth and create hardship. Currency volatility under the fiat system has been extreme. Politics, corruption, and mismanagement are a constant concern.

Technology Likely to Improve Gold Ownership Efficiency

Combining distributed ledger technology with an established sound and solid currency may provide the best alternative. To this end, later in 2017 the Royal Mint in the U.K. is set to launch Royal Mint Gold (RMG). RMG will be a digital record of ownership for gold stored at its vault, while CME Group will operate the product's distributed ledger platform. It will carry the option to convert to physical gold. It is not clear whether this product will enable consumer purchases with some type of RMG credit card. Regardless, technology is accelerating towards the day when gold can be used both as a store of wealth and an efficient medium of exchange.

Digital Currencies Are Not Likely to Replicate Gold's Unique Role

Bitcoin and other digital currencies are a fad that has attracted the attention of programmers, speculators, and early adaptors. Given the fundamental characteristics of gold and digital currencies, we do not believe digital currencies will ever replicate or replace gold's unique role as a form of portfolio insurance and as a hedge against tail risk. It is my opinion that governments will not allow digital currencies to reach the critical mass needed to challenge the utility of fiat currencies. At best, digital currencies may eventually occupy some middle ground as a niche product. At worst, they become a failed experiment that ends in tears. For now, the only thing we can forecast with confidence in the digital currency space is more volatility.

Download Commentary PDF with Fund specific information and performance

 

VanEck is considering distributing more research on digital assets. If you would like such information, please email us at digitalassets@vaneck.com.

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Keep an Eye on International Moats https://www.vaneck.com/blogs/moat-investing/eye-on-international-moats/ International moat stocks continued to rise in July with most sectors and countries contributing positively to performance. For U.S. moats, the mixed results of healthcare companies proved to be a hurdle. 

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VanEck Blog 8/9/2017 12:00:00 AM

For the Month Ending July 31, 2017

Performance Overview

International moat stocks posted strong results in July gaining 4.99% as represented by the Morningstar® Global ex-US Moat Focus IndexSM ( MGEUMFUN, or "International Moat Index") compared to a 3.69% rise for the MSCI All Country World Index ex USA. July's results extended the International Moat Index's YTD outperformance to 24.39% versus 18.30% for its counterpart. U.S. moats also maintained their YTD outperformance (14.91% versus 11.59%), despite retreating slightly in July. For the month, the U.S.-oriented Morningstar® Wide Moat Focus IndexSM ( MWMFTR, or "U.S. Moat Index") trailed the S&P 500® Index returning 0.92% versus 2.06%.

U.S. Domestic Moats: Healthcare Fatigue

The U.S. Moat Index's healthcare allocation delivered mixed performance and finished July relatively flat. Pharmaceutical and biotech names fared well during the month led by Gilead Sciences, Inc. (GILD US, +7.50%), and Biogen, Inc. (BIIB US, +6.72%). By contrast, medical distributors and pharmacy benefits managers such as Patterson Companies, Inc. (PDCO US, -10.60%) and Express Scripts (ESRX US, -1.88%) have struggled recently. Several financials firms excelled in July led by investment manager T. Rowe Price Group (TROW US, +11.47%) which boasted record levels of assets under management. Wells Fargo & Company (WFC US, -2.65%) was the only financial company to post negative returns in July, as it continues to be dogged by the fallout from overly aggressive past sales practices. Consumer discretionary was the top detracting sector for the U.S. Moat Index in July given poor results from L. Brands, Inc. (LB US, -13.92%). Victoria's Secret, L. Brands' top product line, saw second quarter sales decrease by 12%.

International Moats: Frisky Financials

Financial firms led the way in July for the International Moat Index as all 16 constituents from the sector posted positive performance. The Index's financial sector exposure was led by Belgian bank KBC Group (KBC BB, +8.96%), which has a sizable share of the Belgian and Czech Republic markets, and Chinese banks ICBC (1398 HK, +9.26%) and Oversea-Chinese Banking Corp (OCBC SP, +6.81%). KION Group (KGX GR, +13.27%), an industrial firm specializing in forklift production, was a top Index performer following better than expected quarterly results released late in the month. In July, healthcare was the only sector that detracted from Index performance, while no single country or regional allocation detracted from the Index. Several individual companies, however, did struggle in July, notably MGM China Holdings Limited (2282 HK, -11.45%) which now trades at a sizable discount to Morningstar's assigned fair value of 21 HKD.

 

(%) Month Ending 7/31/17

Domestic Equity Markets

International Equity Markets

(%) As of 7/31/17

Domestic Equity Markets

International Equity Markets

(%) Month Ending 7/31/17

Morningstar
Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers
Constituent Ticker Total Return
T. Rowe Price Group TROW US 11.47
V.F. Corporation VFC US 7.97
Gilead Sciences, Inc. GILD US 7.50
Biogen Inc. BIIB US 6.72
Visa Inc. Class A V US 6.16

Bottom 5 Index Performers
Constituent Ticker Total Return
Zimmer Biomet Holdings, Inc. ZBH US -5.51
Varian Medical Systems, Inc. VAR US -5.88
Starbucks Corporation SBUX US -7.43
Patterson Companies, Inc. PDCO US -10.60
L Brands, Inc. LB US -13.92

View MOAT's current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Top 5 Index Performers
Constituent Ticker Total Return
Baytex Energy Corp. BTE CN 15.39
KION GROUP AG KGX GR 13.27
ENN Energy Holdings Limited 2688 HK 12.58
Wipro Limited WPRO IN 12.54
Tencent Holdings Ltd. 700 HK 12.20

Bottom 5 Index Performers
Constituent Ticker Total Return
Ansell Limited ANN AU -3.64
Sonic Healthcare Limited AHL AU -4.21
CSL Limited CSL AU -4.99
GlaxoSmithKline plc GSK LN -6.02
MGM China Holdings Limited 2282 HK -11.45

View MOTI's current constituents

As of 6/16/17

Morningstar
Wide Moat Focus Index (MWMFTR)

Index Additions
Added Constituent Ticker
L Brands Inc LB US
T Rowe Price Group Inc TROW US
CH Robinson Worldwide Inc CHRW US
General Electric Co GE US
BlackRock Inc BLK US
John Wiley & Sons Inc. A JW/A US

Index Deletions
Deleted Constituent Ticker
Mead Johnson Nutrition Co MJN US
Jones Lang Lasalle Inc JLL US
CBRE Group Inc. CBG US
Mastercard Inc A MA US
Varian Medical Systems Inc VAR US
Cerner Corp CERN 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
Roche Hldgs AG Ptg Genus Switzerland
Telefonica SA Spain
Bayer Motoren Werke AG (BMW) Germany
Potash Corp of Saskatchewan Canada
China Resources Gas Group Ltd. China
Canadian Imperial Bank of Commerce Canada
Westpac Banking Corp Australia
SFR Group France
Mobile TeleSystems PJSC Russian Federation
Wipro Ltd India
Koninklijke Philips Electronics NV Netherlands
Meggitt United Kingdom
Novartis AG Reg Switzerland
America Movil SAB de CV L Mexico
Murata Manufacturing Co Ltd Japan
DBS Group Holdings Singapore
HeidelbergCement AG Germany
Commonwealth Bank Australia Australia
National Bank of Canada Canada
Ansell Ltd Australia
Julius Baer Group Switzerland

Index Deletions
Deleted Constituent Country
Kao Corp Japan
Seven & I Holdings Co Ltd Japan
William Demant Hldg Denmark
Telstra Corp Ltd Australia
Carsales.com Ltd Australia
DuluxGroup Ltd Australia
Fisher & Paykel Healthcare Corporation Limited New Zealand
Swire Properties Ltd Hong Kong
Infosys Ltd India
Tata Consultancy Services Ltd India
Ramsay Health Care Ltd Australia
Airbus SE France
Singapore Exchange Ltd Singapore
GEA Group AG Germany
London Stock Exchange Plc United Kingdom
Vicinity Centres Australia
China Mobile Ltd. China
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. Mexico
Iluka Resources Ltd Australia
KDDI Corp Japan

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



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Cost Leadership Creates Moats https://www.vaneck.com/blogs/moat-investing/cost-leadership-creates-moats/ Cost advantage is the second most frequent source of moat ratings according to Morningstar, but one of the hardest competitive advantages for a company to maintain. 

 

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VanEck Blog 8/8/2017 12:00:00 AM

"How Moats Translate into Sustainable Competitive Advantages" is a five-part moat investing education series that explores the primary sources of economic moats. The idea of an economic moat refers to how likely a company is to keep competitors at bay for an extended period. According to Morningstar Equity Research, there are five key attributes that can give companies economic moats, and which are viewed as sources of sustainable competitive advantages: 1) Network Effect; 2) Intangible Assets; 3) Cost Advantage; 4) Switching Costs; and 5) Efficient Scale. Here we explore the concept of "Intangible Assets."  

Cost Leadership Provides Market Control

The attribute of "cost advantage" is the second most frequent source of economic moat ratings according to Morningstar. Companies that are able to produce and offer products or services at lower costs than competitors are often able to achieve much higher profit margins. Within many industries, cost leaders have a distinct competitive advantage and often exert significant control over market prices. Morningstar Research explains cost advantage as:

Cost Advantage. Firms with a structural cost advantage can either undercut competitors on price while earning similar margins, or they can charge market-level prices while earning relatively high margins. For example, Express Scripts ESRX controls such a large percentage of U.S. pharmaceutical spending that it can negotiate favorable terms with suppliers like drug manufacturers and retail pharmacies.

Cost advantages are often gained through economies of scale, lower distribution and manufacturing costs, and/or access to a less expensive resource base. For moat-rated companies, cost advantage is one of the most difficult "moaty" attributes to maintain given the increasing competition in our modern global economy. For example, over the past 30 years, the U.S. manufacturing and consumer goods industries have been flattened by punishing price competition from overseas.

Economic Moat
Five Sources of Sustainable Competitive Advantage

Five Sources of Sustainable Competitive Advantage

Source: The Morningstar® Economic Moat Rating System.  

Cost Advantage in Action: Four Case Studies of Moat Companies

To demonstrate the power of cost advantages in creating economic moats, we highlight four moat companies: U.S. based Starbucks and Compass Mineral, and international moat companies: Kao (Japan) and Ramsay Health Care (Australia).

Starbucks Corp (SBUX US) boasts a "wide economic moat" rating from Morningstar from two sources: its strong brand intangible asset and cost advantages: "We view Starbucks as one of the most compelling growth stories in the global consumer space today, poised for top-line growth and margin expansion through menu innovations, sustainable cost advantages, and evolution into a diversified retail and consumer packaged goods platform." Starbucks is best known for producing and serving premium coffee and espresso, and distributes a wide range of packaged products under several brand names. The company operates more than 13,500 locations in the U.S. (26,000 globally), which represents a sizable lead over competitor Dunkin' Donuts 8,900 U.S. locations. Morningstar believes that Starbucks has developed a strong brand that commands premium pricing and meaningful scale advantages, and that Starbucks should be able to maintain its leadership position while successfully accessing new growth avenues.

Compass Mineral International (CMP US) has been given a "wide economic moat" rating from Morningstar, based on an "enviable portfolio of cost-advantaged assets." Compass produces salt and magnesium chloride (used in highway de-icing), and plant nutrients including potash (a premium fertilizer) that it delivers mostly to North America. Compass is able to deliver de-icing salt at a low cost given its Goderich rock salt mine in Ontario. Goderich is the world's largest active salt mine and boasts unique geology with convenient access to a deep-water port. Also, Compass' operations at the Great Salt Lake in Utah produce sulfate of potash from one of only three naturally occurring brine sources, which avoids the costs incurred through chemical processing. Writes Morningstar, "Compass' cost advantages have led to solid returns on invested capital."

Kao Corp (4452 JP) is Japan's largest household and personal care company. Wide-moat rated Kao gets its moat from two sources according to Morningstar: "intangible assets resulting from its strong brand mix and entrenched retailer relationships, as well as cost advantages, primarily in its domestic market." Kao is a leader in providing food and beverage, sanitary, and oral care consumer goods primarily to Japanese consumers. The company also boasts the top disposable baby diaper brand (Merries) in Japan since 2007. Kao enjoys lower distribution costs given that delivers products through its subsidiaries and not through wholesalers, as do most other Japanese consumer products manufacturers. Morningstar also believes that Kao's competitive edge is bolstered by cost advantages it has gained from its origins as a manufacturer of soap, and writes, "Kao's direct operating margin remains above 30%, which is similar to its peers with a cost advantage, such as Unilever."

Ramsay Health Care (RHC AU) is Australia's largest private hospital operator and has been given a "narrow economic moat" rating from Morningstar due its competitive cost advantages. Ramsay operates more than 200 hospitals and day surgery facilities, and employs more than 60,000. Ramsay owns and runs the highest quality private hospitals in Australia which enables it to generate strong returns on capital. Ramsay is a cost leader with considerable pricing power, given its negotiating strength with Australia's private health insurance funds. Ramsay has branched out to the U.K. and France, successfully exporting its culture of cost control and high levels of customer service. Morningstar asserts that Ramsay offers "quality healthcare/services at the lowest cost of all private hospitals in Australia….and has historically delivered the highest industry profit margins when compared with its main competitor, Healthscope."

VanEck Vectors® Morningstar Wide Moat ETF (MOAT®) and VanEck Vectors® Morningstar International Moat ETF (MOTI®) provide access to global moat-rated companies, by seeking to replicate the Morningstar® Wide Moat Focus IndexSM and Morningstar® Global ex-US Moat Focus IndexSM, respectively. Each Index tracks the overall performance of attractively priced companies with sustainable competitive advantages in their respective markets according to Morningstar's equity research team.

MOAT holdings and learn more about moat investing  

MOTI holdings and learn more about moat investing  

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Asset TV Masterclass: Municipal Bonds https://www.vaneck.com/blogs/muni-nation/asset-tv-municipal-bonds/ Portfolio Manager James Colby participated in Asset TV’s recent Muni Bond Masterclass video panel, and shares his current thoughts and outlook on the muni bond market.

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VanEck Blog 8/3/2017 12:00:00 AM

James Colby, VanEck Vectors Portfolio Manager and Senior Municipal Strategist, participated in Asset TV's recent Muni Bond Masterclass video panel, hosted by Asset TV's Gillian Kemmerer. Colby joined municipal bond industry experts Terry Hults of AllianceBernstein, Suzanne Finnegan of Build America Mutual, and John Miller of Nuveen.

Jim Colby's comments are excerpted below.

GILLIAN KEMMERER: Welcome to Asset TV's Municipal Bonds Masterclass. Municipal bonds have dominated headlines in recent months with an influx of crossover buyers and pockets of credit concern impacting the fate of the sector. Investors are grappling with a legislative agenda that could make its mark on this space, but with no sense of the timeframe in which those changes may be enacted. What does the opportunity set look like right now and what do investors need to know? Today, I am joined by a panel of experts who will share their insights.

Muni Market's Evolution in the Past Decade

KEMMERER: Let's start with Jim Colby. How has the municipal market changed, either in terms of composition or opportunity set, over the past few years?

JIM COLBY: Looking back at the last 10 years, I would say that the financial crisis [2008-2010] really opened up the marketplace to new concepts and new ideas. Municipal bonds have been a tried and true performer, and a core holding in many asset models. Now we have innovation, and I'm not just talking about derivative structures. I'm talking about true innovative structures in the marketplace which are pleasantly, I think, offsetting in terms of where opportunities exist not only on the yield curve and the credit spectrum, but for different types of investors. We have a range of different types of fund structures from closed-end funds to UITs [unit investment trusts], to now ETFs [exchange traded funds], which is the part of the market I represent. I think we now have a collection of asset opportunities that lends itself not just domestically, but here's the big change, even internationally. We see interest in the municipal bond space, specifically the Build America Bonds program, which was an offshoot of the financial crisis, that has opened up a whole new venue of potential investing opportunities in Europe, in Asia, and we see that continuing.

KEMMERER: Are you saying that the opportunities in the muni bond market in terms of fund structure have really changed?

COLBY: Absolutely. I mean it's an opportunity because the disruption of the market to some degree has created a comparative value analysis, if you will. We are not just saying here is tax exempt income to the buyer. We're saying, compare what they are delivering compared to corporates. Compare what they are delivering to equities over a long period of time. And these comparisons have been very favorable to munis in the past decade.

Recent Muni Market Performance

KEMMERER: Let's look at performance specifically from Q4 of last year through the first half of 2017. We saw some interesting movements in munis in response to the election. Jim, how would you characterize the past couple of quarters of muni performance?

COLBY: Along with the election for the Republicans in November came a concern that tax reform was in play in a big way. What impact this would have on the municipal marketplace was very uncertain. I think this led to the outflows that occurred in the municipal space, through probably the mid part of December and through the end of the year. That uncertainty was in great part mitigated by the slowness that occurred in terms of Trump's administration putting forth measures that would get enacted in that timeframe that he had hoped for. So with the potential of tax reform impacting munis, I think that we returned to a more orderly municipal market in the first quarter.

KEMMERER: Interesting. It seems that munis have reacted to the slow pace of legislative growth faster than other asset classes, which might still be riding a little tail end of that wave of the election.

COLBY: I would say that's a fair analysis.

Muni Supply Demand Dynamics

KEMMERER: Jim, coming to you, how do you look at the demand supply imbalance in munis right now?

COLBY: I think it's very favorable for our marketplace, and it is a dynamic that we have been pointing out to our clients, and that we've written about, over the last three years. And the supply demand imbalance has occurred for slightly different reasons in each year. For example, in January, one of our leading strategists in the industry did predict an enormous wave of refinancing, contributing to nearly $500 billion in terms of new issuance this year. But then I had a conversation with him at the end of the first quarter, and asked him, "Well, what's happened?" He said, "No refinancing." With refunding volume down, that is a big part of the supply picture. At the same time, demand is strong; it keeps reappearing in the form of new investors looking at the marketplace and looking for "relative value opportunities". And also with the amount of roll off that's occurring – bond calls, coupon payments, bond maturities – this month, with June 30 and July 1, for example, going to be very significant dates, there is an enormous amount of cash coming back in to client accounts for reinvestment opportunity.

Muni Opportunities Based on the Yield Curve

KEMMERER: Let's discuss market technicals. How has the shape of the yield curve changed, and what are some of the best entry points?

COLBY: At VanEck, we have built portfolios that are positioned to provide client opportunity for different outcomes in the marketplace. We subscribe to two key thoughts. One concerns the intermediate part of the municipal curve which is supported not only by individual investors but by substantial institutions in this country ― they could be insurance companies, big property and casualty companies, and banks in particular. In the 7-12 year intermediate part of the curve there is a great deal of issuance and that coincides with a greater demand from those institutions. And as John was just saying, high yield has been for quite some time, on a comparable basis to corporate high yield, well above its long-term mean in terms of the nominal yield deliverable. From a technical point of view, when you do the math to represent apples to apples, taxable equivalent returns for munis versus other asset classes, are still favorable. And that's what drives both the intermediate part of the curve opportunities as well as high yield.

The GO-Revenue Bond Debate

KEMMERER: Jim, what are your thoughts on the general obligation versus revenue bond debate?

COLBY: We look at the muni universe in a slightly different fashion because our management process focuses on matching up our ETF portfolios against specific indices, and an index will reflect what's in the marketplace. And if it's, say, a 65/35 division between general obligation and revenue bonds and more granular than that of course, we're certainly trying to do two things. Number one, we're trying to reflect what the index reflects. Number two, we do care about what's happening with Detroit, with Puerto Rico, with Illinois in particular because, as we look at what might occur two weeks or two months from now, it will have a big impact upon the structure of the index. And the index doesn't pay out returns, but our portfolios do. If we are even slightly overweight in a sector in a revenue situation or a GO like the State of Illinois and it drops below investment grade status, then of course we have to adjust. We do a similar analysis to manage all our ETF portfolios, but with a bit of a wait and see approach given that we are not supposed to manage proactively.

KEMMERER: Jim, let's talk about Illinois. When you look at the possibility that Illinois might get downgraded, what's the process you go through to look at your indices and the composition or your portfolios, and re-jigger them? Will Illinois automatically go into your high yield index?

COLBY: Given the makeup of our high yield index, we carry triple B-rated securities, as a condition of meeting New York Stock Exchange requirements as well as the SEC, in terms of fulfilling the need for what is liquid or represents liquidity in high yield. Illinois is also part of our investment grade index, the bottom rung. As I mentioned, we're looking at the relative weighting in the index of Illinois GOs, of its political subdivisions. And doing our best to match up to those weightings with a hopeful eye that something positive will materialize in Springfield. Right now it is anybody's guess, and I am an outsider looking at the big picture. For two years now we have seen no legislative compromise to create any certainty around what the outcome will be.

State Pension Liability

KEMMERER: Jim, unfunded pension liability is an absolutely enormous issue in the U.S. What's your outlook? And is any state getting it right in a way that other states can model?

COLBY: That's a question for some very focused analysts. States, including Connecticut, New Jersey, Kentucky, Pennsylvania, and now Illinois, are all laboring under intense scrutiny in a way that they have not experienced in prior years. I can remember going back some 25 years or so and hearing about the unfunded pension liabilities in some of these states. At that time, it got very little focused attention because economically states were doing well in other areas. There were revenue streams that covered up some of those issues, or legislatively the executive branches had the ability to say, "Well, all right, we'll set that aside for another year, allocate the money into different resources." I do think, however, that it is a grave concern when we're growing at less than 2% CPI year over year. Yes, there's job creation, but it's not as economically productive as it might otherwise be, which translates into slower revenue growth, which means that the POPs ― the Pension Obligation Performers ― are going to struggle with a lack of ready available cash in order to do what they are supposed to do internally within their own states, as well as fund their pension requirements.

KEMMERER: Jim, what are some of the opportunities that you see right now along the yield curve?

COLBY: Unquestionably, the intermediate part of the curve has almost never ― and I know as soon as I say something like this that somebody will prove me wrong ― flattened or inverted, which means that you're getting the benefit by being positioned in that part of the curve of opportunity, what we call roll down. The maturity of bonds that are 10 years right now, next January are going to be 9-year bonds. All things being equal, that means some incremental performance opportunity accrues to that part of the curve. For high yield, I do think that there are opportunities that are generally not recognizable to the average investor embedded in the different sectors. The long-term profile of high yield, low default rates in the muni market, higher recovery rates when defaults do occur than in the corporate sector. And the high taxable equivalent returns compared to other asset classes really are what recommends munis.

KEMMERER: With munis, we have tax free income, liquidity, and security. Jim, last but not least, where do munis fit into a larger investment portfolio?

COLBY: ETFs are a product that are relatively new on the scene, nearly 10 years old probably this September. Investors should ask, what do I need to anchor stability in my portfolio? While munis, as we discussed are clearly a preferential option, the ETF structure provide a structure that is low cost and transparent. ETFs trades on the exchange so that at any time, any moment, you can go buy $100 worth of a stock instead of spending $5,000 to buy one particular municipal bond, which is the typical trading unit for these bonds.

KEMMERER: Thank you all for taking time to paint this really interesting picture of the municipal market. From the Asset TV studios in New York, I am Gillian Kemmerer, and this was the Municipal Bonds Masterclass.

Watch Video Asset TV Masterclass: Municipal Bonds

James Colby, VanEck Vectors Portfolio Manager and Senior Municipal Strategist, participated in Asset TV's recent Muni Bond Masterclass video panel, hosted by Asset TV's Gillian Kemmerer. Colby joined municipal bond industry experts Terry Hults of AllianceBernstein, Suzanne Finnegan of Build America Mutual, and John Miller of Nuveen.

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Free Lunch? Get 90 bps Yield Pickup with Emerging Markets High Yield https://www.vaneck.com/blogs/emerging-markets-bonds/free-lunch/ Compared to U.S. high yield, emerging markets high yield bonds offered a 90 bps yield pickup as of June 30, 2017.

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VanEck Blog 8/1/2017 2:57:14 PM

Higher Yield and Lower Duration

Compared to U.S. high yield bonds, emerging markets high yield bonds offered a 90 bps yield pickup as of June 30, 2017.1 The extra yield came with a lower duration (3.75 vs. 4.04) and a higher average credit quality. Approximately 60% of the emerging markets high yield index is rated BB- or higher versus less than 50% in its U.S. counterpart.

Historical yield pickup versus U.S. high yield bonds

Historical yield pickup versus U.S. high yield bonds Chart

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

A Diverse and Growing Category

The emerging markets high yield bond market has grown tremendously over the past 10 years, from $56 billion at the end of 2007 to $440 billion as of June 30, 2017.2 In addition to growing in size, diversity within the category has also increased. Investors currently gain exposure to 349 issuers in 48 different countries across the emerging markets. The quality and diversification help to explain why default rates in emerging markets corporates have been lower on average than in U.S. corporates.3 And because the bonds are denominated in U.S. dollars, investors are not taking on additional currency risk in their portfolios.

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Big Story Behind Neutral https://www.vaneck.com/blogs/allocation/big-story-behind-neutral/ The Fund’s allocations have shifted to support neutral weightings to stocks and bonds.

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VanEck Blog 7/24/2017 12:00:00 AM

VanEck NDR Managed Allocation Fund (NDRMX) tactically adjusts its asset class exposures each month across global stocks, U.S. fixed income, and cash. It utilizes an objective, data-driven process driven by macroeconomic, fundamental, and technical indicators developed by Ned Davis Research ("NDR"). The Fund invests based on the weight-of-the-evidence of its objective indicators, removing human emotion and decision making from the investment process. The expanded PDF version of this commentary can be downloaded here.

June Performance

VanEck NDR Managed Allocation Fund (NDRMX) returned 0.18% in June, slightly lagging the 0.26% gain for its benchmark of 60% global stocks (MSCI All Country World Index) and 40% bonds (Bloomberg Barclays US Aggregate Bond Index).1 At the same time, however, the Fund did outperform the Morningstar Tactical Allocation Category average which returned 0.0% in June.2

The largest contributor to June performance was the Fund's overweight exposure to stocks. The largest regional equity contributors to performance were an underweight exposure to the U.K. and an overweight exposure to Pacific ex Japan. The largest regional equity detractors from performance were the Fund's holdings within the U.S. and an underweight exposure to Canada. The U.S. positioning detracted given the Fund's overweight exposure to growth over value and not having exposure to small-cap equities.

Fund Positioning July 2017: Equity Exposure is Reduced

At the start of July, VanEck NDR Managed Allocation Fund's (NDRMX) asset class positioning shifted slightly. The Fund's equity allocation was reduced from 61% to 59%, the bond allocation increased from 38% to 40%, and the minimal cash position remained unchanged at 0.6%. The largest regional equity allocation shifts were an increase in exposure to Japan (3.3% to 12%) and reductions to Pacific ex Japan (4.9% to 0%) and the Emerging Markets (3.8% to 0%). Within the U.S. market cap and style positioning, the overweight exposure to large-cap growth was reduced.

Fund Positioning July 2017 Pie Charts

Source: VanEck. Data as of July 3, 2017.

June 2017 Performance Review

VanEck NDR Managed Allocation Fund's (NDRMX) asset class positioning was a significant contributor to performance in June.

As we hit the mid-year point, we remain optimistic about performance through the end of the year. As of June 30, global stocks (MSCI All Country World Index) were up 11.82%, U.S. stocks (S&P 500 Index) had gained 9.34%, and bonds (Bloomberg Barclays US Aggregate Bond Index) had risen 2.27%. The stock market continues to be faced with dueling forces. The U.S. Federal Reserve and other central banks have created headwinds, signaling their intent to wind down the scope of accommodative monetary policies. Opposing this, President Trump's goals of lowering taxes, more fiscal spending, and less regulation, have created tailwinds.

Total Returns (%) as of June 30, 2017
  1 Mo Since Inception
Class A: NAV
(Inception 5/11/16)
0.18 11.68
Class A: Maximum 5.75% load -5.57 6.02
60% MSCI ACWI/
40% BbgBarc US Agg.1
0.26 10.49
Morningstar Tactical Allocation
Category (average)2
0.00 8.49
Total Returns (%) as of March 31, 2017
  1 Mo Since Inception
Class A: NAV
(Inception 5/11/16)
1.31 9.85
Class A: Maximum 5.75% load -4.51 3.55
60% MSCI ACWI/
40% BbgBarc US Agg.1
0.75 8.59
Morningstar Tactical Allocation
Category (average)2
0.81 8.91

The tables present past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect applicable fee waivers and/or expense reimbursements. Had the Fund incurred all expenses and fees, investment returns would have been reduced. Investment returns and Fund share values will fluctuate so that investor's shares, when redeemed, may be worth more or less than their original cost. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at net asset value (NAV). Index returns assume that dividends of the index constituents in the index have been reinvested.

Returns less than a year are not annualized.

Expenses: Class A: Gross 3.60%; Net 1.38%.
Expenses are capped contractually until 05/01/18 at 1.15% for Class A. Caps exclude certain expenses, such as interest.

Weight-of-the-Evidence: There is More to the Story of Being Neutral Stocks and Bonds

We always like to explain the benefits of indicator diversity. The price-based indicators (or technical indicators) and non-price-based indicators (or macroeconomic, fundamental, and sentiment indicators) complement each other nicely. The price-based indicator composite had been bullish all year until July when it turned neutral. The non-price-based indicator composite was last bullish in January, continuing to signal that the market may be getting ahead of itself and causing the model to reduce equity exposure throughout the year.

The small asset class shift between stocks and bonds implies that not much changed for July. However, if you only look at the changes in the Fund's positioning you may miss the larger story.

Sentiment, as measured by the NDR Daily Sentiment Composite, recently turned bullish. Sentiment is a contrarian indicator that seeks to be wary of the crowd at extremes. Warren Buffett is probably the most quoted investor of all time, and for very good reason. Mr. Buffett once said that investors should be “fearful when others are greedy and greedy when others are fearful.” That is exactly what this indicator is trying to achieve. It is comprised of nearly 20 unique measures of investor sentiment. These include various inputs such as investor surveys, asset flows, implied volatility, and trading volume. This indicator turned bearish in May when investors were overly optimistic and became bullish in June when investors became overly pessimistic.

The dotted lines demonstrate the extremes. The NDR Daily Sentiment Composite changes its reading when sentiment reaches an extreme and then reverses.

NDR Daily Sentiment Composite

NDR Daily Trading Sentiment Composite Charts

Source: Ned Davis Research. Data as of June 30, 2017.
Copyright 2017 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/. Past performance is no guarantee of future results.

The bullish sentiment reading was, however, offset by a global breadth indicator turning bearish. Breadth is a technical indicator that helps us to understand the health of a trend in the market. It measures how many constituents, within an index, are participating in a trend. The breadth indicator that we are focusing on measures the percentage of countries in the MSCI All Country World Index that are trading either at or below their 50-day moving average. In the chart below, we can see that at the end of June more than 50% of the countries were trading below their 50-day moving average. When this happens we typically experience weak global equity markets.

NDR Breadth Composite

NDR Breadth Composite Chart

Source: Ned Davis Research. Data as of June 30, 2017.
Copyright 2017 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/. Past performance is no guarantee of future results.

This is the first time all year that we have had agreement among the stock/bond indicator composites. Both the price-based and non-price-based indicator composites are now at neutral readings. Therefore, there is much more to the story than just being neutral stocks and bonds for the past two months.

Additional Resources

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Early Cycle Pause Motivated by Skepticism, Not Data https://www.vaneck.com/blogs/natural-resources/early-cycle-pause-by-skepticism/ In 2Q, the most significant impact on the natural resources market and our strategy came from lower crude oil prices, which ground down through the quarter. 

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VanEck Blog 7/20/2017 12:00:00 AM

2Q 2017 Hard Assets Equities Strategy Review

During the quarter, VanEck's hard assets strategy returned -13.35% (measured by VanEck Global Hard Assets Fund, Class A (GHAAX), excluding sales charge). On a relative basis, the strategy underperformed its commodity equities-based benchmark index, the Standard & Poor's® (S&P) North American Natural Resources Sector Index (SPGINRTR),1 which returned -7.09% over the same period.

Market Review

The most significant impact on the natural resources market and the strategy came from lower crude oil prices, which ground down through the quarter. In addition to these low prices, we believe that continuing dysfunction in Washington, DC had a significant impact on the market. Although 2016 drew to a close with the deflation/inflation "conversation" having shifted to include the prospect of forthcoming inflation, the general feeling of optimism with regard to both inflation expectations and infrastructure spending faded rapidly by mid-year.

Fundamental: Demand for most commodities has remained resilient. The long talked about cuts in capex continue to weigh on supply growth. Even in the U.S., despite a sharp increase in crude oil supply since the beginning of the year, the most recent data points indicate a drop in the rate of new U.S. rigs and at least some signs of lower oil production. This could be a very early response to weak oil prices. In addition, we are now seeing strategic asset allocation decisions being made by companies, whether through acquisitions and/or dividends.

Technical: In terms of relative performance, although energy may have had its worst ever first half, we still consider this to have been an early-cycle pause in the commodities rebound, which began in early 2016.

Macroeconomic: We see various supportive data points that suggest there is at least some synchronization in global growth. The latest Euro Purchasing Managers' Index2 (PMI) predict solid second quarter GDP expansion (see chart below), and China's economy still appears to be improving. Given these factors, as well as continued resilient demand for most commodities, we believe we are well positioned as we emerge from this stage of the rebound.

Manufacturing Purchasing Managers' Index (PMI) Values

Manufacturing Purchasing Managers' Index (PMI) Values Chart

Source: Bloomberg. Data as of June 30, 2017. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

Natural Resources Sub-Sector Review

Energy: We believe that OPEC's (Organization of Petroleum Exporting Countries) November meeting, and subsequent May agreement to extend quotas, can be described as "historic". The outcome has, though, been somewhat disappointing up to this point. However, we still think that the production quota system and long-term supply constraints from non-shale, non-OPEC producers, in conjunction with continued resilient demand growth, will bring the market back into balance.

Metals and Mining: Corporate restructuring in the global mining sector, we believe, has been successful. We are now starting to see real results from optimized operations, especially in terms of productivity. Broadly speaking, balance sheets are where companies said they would get them. Returns have improved and cash flows are definitely increasing. We believe that mining companies, including gold miners, have found a new foundation from which they can start to generate growth again (this time, hopefully, more prudently) and create sustainable shareholder value.

Agriculture: While healthy South American crops of both soy and corn limited any upward movement in prices, this was positive for proteins. The nitrogen fertilizers market benefited from the fact that, contrary to expectations, corn acreages increased at the expense of soy.

Top Quarterly Contributors/Detractors

Top Quarterly Contributors/Detractors Chart 2Q 2017

Source: FactSet; VanEck. Data as of June 30, 2017. Weights denoted with "0.0%" indicate a position sold during the quarter. Contribution figures are gross of fees, non-transaction based and therefore estimates only. Figures may not correspond with published performance information based on NAV per share. Past performance is not indicative of future results. Portfolio holdings may changes over time. These are not recommendations to buy or sell any security.

Outlook: Still in the Early Stages of Recovery

We continue to believe that we are still in the very early stages of coming out of a downturn that was characterized by considerable oversupply. It is, therefore, going to take a while to rebalance. In the oil market, we remain surprised by the skepticism that currently exists in the face of data that could not, we believe, be more compelling.

Even if one is of the opinion that U.S. shale oil is going to oversupply the market, this still implies that there are a number of E&P companies that are going to grow at very fast rates for a couple of years. We believe those will remain very good investments.

Perhaps what the industry is not communicating is that it has evolved. For example, now, from a multi-year, strategic standpoint, and in contrast with traditional oil exploration companies, U.S. shale oil companies can actually "throttle" production on and off and really focus on returns.

One of the main pillars of our investment philosophy continues to be to look for long-term growth. Since we remain convinced that positioning for the future and not just reacting to current circumstances is of paramount importance, our focus remains on companies that can navigate commodity price volatility and help grow sustainable net asset value.

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June Gains Extend Moats’ YTD Strength https://www.vaneck.com/blogs/moat-investing/june-gains-extend-moats-ytd-strength/ U.S. moat stocks were the shining stars in June, but international moats can’t be overlooked as both markets have posted strong relative performance through the first half of the year.

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VanEck Blog 7/20/2017 12:00:00 AM

For the Month Ending June 30, 2017

Performance Overview

June was a strong month for moat investors. Both moat-focused indices outperformed their respective broad market indices, and finished the first half of the year ahead by more than 4 percentage points. The U.S.-oriented Morningstar® Wide Moat Focus IndexSM ( MWMFTR, or "U.S. Moat Index") posted strong relative returns versus the S&P 500® Index in June (2.87% vs. 0.62%) extending its outperformance for the year-to-date period (13.86% versus 9.34%). International moat stocks, as represented by the Morningstar® Global ex-US Moat Focus IndexSM ( MGEUMFUN, or "International Moat Index"), modestly ouperformed the MSCI All Country World Index ex USA in June (0.35% versus 0.31%) and maintained its performance advantage for year-to-date period (18.48% vs. 14.10%).

U.S. Domestic Moats: Value Realized in Healthcare

A diverse set of companies contributed to the U.S. Moat Index's impressive month. As the largest sector in the U.S. Moat Index, healthcare was the top contributor. Led by Amgen, Inc. (AMGN US, +10.94%) and Gilead Sciences, Inc. (GILD US, +9.95%) the sector had strong performers from various sub-industries and all 16 constituents from the sector posted positive returns in June. State Street Corporation (STT US, +10.62%) was the standout from the financial sector as banks benefited from positive stress test results. Recreational vehicle producer Polaris Industries, Inc. (PII US, +10.32%) also boosted U.S. Moat Index returns in June. By contrast, several U.S. Moat Index constituents struggled during the month. Industrials companies Stericycle, Inc. (SRCL US, -6.67%), General Electric Co. (GE US, -6.22%), and C.H. Robinson Worldwide, Inc. (CHRW US, -2.03%) all detracted from performance. Starbucks (SBUX US, -8.33%) was the worst performing constituent in June as investors soured on the company.

International Moats: Positives and Negatives Come to Stalemate

ENN Energy Holdings Ltd. (2688 HK, +17.03%) was the standout constituent in the International Moat Index. The privately owned natural gas distribution company recovered following a May sell-off that Morningstar analysts believed was overdone following speculation of a potential China government imposed annual cap on natural gas distributor growth rates. Although ENN Energy Holdings Ltd. and China Resources Gas Group Ltd. (1193 HK, +9.81%) were the only two utilities firms in the International Moat Index, the sector was the top contributor to returns in a relatively flat month. Financials also performed well, but weak performance from consumer discretionary and telecommunication services companies kept the Index's total returns in check. Moat companies from Mexico posted impressive returns but their small weighting in the Index wasn't enough to overcome negative returns broadly from India, France, and China.

 

(%) Month Ending 6/30/17

Domestic Equity Markets

International Equity Markets

(%) As of 6/30/17

Domestic Equity Markets

International Equity Markets

(%) Month Ending 6/30/17

Morningstar
Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers
Constituent Ticker Total Return
Amgen Inc. AMGN US 10.94
State Street Corporation STT US 10.62
Polaris Industries Inc. PII US 10.32
Gilead Sciences, Inc. GILD US 9.95
Biogen Inc. BIIB US 9.52

Bottom 5 Index Performers
Constituent Ticker Total Return
salesforce.com, inc. CRM US -3.39
General Electric Company GE US -6.22
Stericycle, Inc. SRCL US -6.67
Mondelez International, Inc. Class A MDLZ US -6.90
Starbucks Corporation SBUX US -8.33

View MOAT's current constituents

Morningstar
Global ex-US Moat Focus Index (MGEUMFUN)

Top 5 Index Performers
Constituent Ticker Total Return
ENN Energy Holdings Limited 2688 HK 17.03
Cemex SAB de CV Cert Part Ord Repr 2 ShsA & 1 ShsB CEMEXCPO MM 14.24
IOOF Holdings Ltd IFL AU 11.57
Ramsay Health Care Limited RHC AU 10.02
CSL Limited CSL AU 10.00

Bottom 5 Index Performers
Constituent Ticker Total Return
SFR Group SA NUM FP -6.57
Orange SA ORA FP -7.53
Genting Singapore Plc GENS SP -7.61
Tata Motors Limited TTMT IN -9.34
Baytex Energy Corp. BTE CN -16.64

View MOTI's current constituents

As of 6/16/17

Morningstar
Wide Moat Focus Index (MWMFTR)

Index Additions
Added Constituent Ticker
L Brands Inc LB US
T Rowe Price Group Inc TROW US
CH Robinson Worldwide Inc CHRW US
General Electric Co GE US
BlackRock Inc BLK US
John Wiley & Sons Inc. A JW/A US

Index Deletions
Deleted Constituent Ticker
Mead Johnson Nutrition Co MJN US
Jones Lang Lasalle Inc JLL US
CBRE Group Inc. CBG US
Mastercard Inc A MA US
Varian Medical Systems Inc VAR US
Cerner Corp CERN 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
Roche Hldgs AG Ptg Genus Switzerland
Telefonica SA Spain
Bayer Motoren Werke AG (BMW) Germany
Potash Corp of Saskatchewan Canada
China Resources Gas Group Ltd. China
Canadian Imperial Bank of Commerce Canada
Westpac Banking Corp Australia
SFR Group France
Mobile TeleSystems PJSC Russian Federation
Wipro Ltd India
Koninklijke Philips Electronics NV Netherlands
Meggitt United Kingdom
Novartis AG Reg Switzerland
America Movil SAB de CV L Mexico
Murata Manufacturing Co Ltd Japan
DBS Group Holdings Singapore
HeidelbergCement AG Germany
Commonwealth Bank Australia Australia
National Bank of Canada Canada
Ansell Ltd Australia
Julius Baer Group Switzerland

Index Deletions
Deleted Constituent Country
Kao Corp Japan
Seven & I Holdings Co Ltd Japan
William Demant Hldg Denmark
Telstra Corp Ltd Australia
Carsales.com Ltd Australia
DuluxGroup Ltd Australia
Fisher & Paykel Healthcare Corporation Limited New Zealand