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  • Guided Allocation

    Reflation Boosts Emerging Markets Exposure

    David Schassler, Portfolio Manager and Head of Portfolio and Quantitative Investment Solutions, VanEck
    February 19, 2021
     

    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.

    Overview

    The VanEck NDR Managed Allocation Fund (the “Fund”) returned +0.13% in November versus -0.53% for its blended 60/40 benchmark. The Fund outperformed due to its stock/bond, regional equity and U.S. market cap and style allocations.

    January started off strong, but fear eventually overwhelmed the markets and caused the major indices to give back their gains and then some. The reasons for the reversal in sentiment were disappointing U.S. economic growth data, perceived shortcomings in Johnson & Johnson’s vaccine results, concerns over more virulent COVID-19 strains and some high profile short squeezes.

    Average Annual Total Returns (%) as of January 31, 2021
      1 Mo YTD 1 Year 3 Year Since
    Inception
    Class A: NAV
    (Inception 5/11/16)
    0.13 0.13 9.12 2.25 6.45
    Class A: Maximum 5.75% load -5.63 -5.63 2.85 0.25 5.12
    60% MSCI ACWI/
    40% Bloomberg Barclays USAgg.
    -0.53 -0.53 13.02 7.67 9.70
    Morningstar Tactical Allocation
    Category (average)2
    0.25 0.25 10.32 4.03 6.59

    Average Annual Total Returns (%) as of December 31, 2020
      1 Mo YTD 1 Year 3 Year Since
    Inception
    Class A: NAV
    (Inception 5/11/16)
    3.64 8.35 8.35 3.44 6.54
    Class A: Maximum 5.75% load -2.32 2.12 2.12 1.42 5.19
    60% MSCI ACWI/
    40% Bloomberg Barclays USAgg.
    2.85 13.75 13.75 8.91 10.01
    Morningstar Tactical Allocation
    Category (average)2
    3.67 9.83 9.83 5.15 6.67

    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). An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made. Index returns assume that dividends of the Index constituents in the Index have been reinvested.

    † Returns less than a year are not annualized. 

    Expenses: Class A: Gross 2.03%; Net 1.32%. Expenses are capped contractually until 05/01/21 at 1.15% for Class A. Caps excluding acquired fund fees and expenses, interest, trading, dividends, and interest payment of securities sold short, taxes, and extraordinary expenses.

    The top-level asset allocation favored stocks over bonds, with an 80% allocation to stocks and a 20% allocation to bonds. As the chart below illustrates, this helped because stocks outperformed bonds. The Fund’s allocation to equities returned +0.36%, while its allocation to bonds returned -0.80%. It was overweight stocks because, in aggregate, the NDR stock/bond composite strongly favored stocks. This was primarily due to strong stock price momentum, moderate levels of volatility, tight credit spreads and cyclical market leadership.

    Global Balanced Allocation: Fund vs. Neutral Allocation (as of January 31, 2021)

    Global Balanced Allocation: Fund vs. Neutral Allocation (as of January 31, 2021)

    Data as of January 31, 2021. Source: NDR, VanEck, FactSet. Past performance is no guarantee of future results The neutral allocation is (60% MSCI ACWI/ 40% Bloomberg Barclays US Agg.). This represents the starting allocation point absent an alternative recommendation based on model indicators. These are not recommendations to buy or sell any security.

    The regional equity positioning also added value relative to the Fund’s neutral allocations. The largest regional equity contributors to performance were the U.S. and Emerging Markets. The largest regional equity detractors from performance were Europe Ex. U.K. and Japan. The Fund was overweight both the U.S. and the Emerging Markets due to strength in both relative technical indicators and fundamental and macroeconomic indicators.

    Global Regional Equity Allocation: Fund vs. Neutral Allocation (as of January 31, 2021)

    Global Regional Equity Allocation: Fund vs. Neutral Allocation (as of January 31, 2021)

    Data as of January 31, 2021. Source: NDR, VanEck, FactSet. Past performance is no guarantee of future results The neutral allocation is (60% MSCI ACWI/ 40% Bloomberg Barclays US Agg.). This represents the starting allocation point absent an alternative recommendation based on model indicators. These are not recommendations to buy or sell any security.

    The U.S. market cap and style allocations, in aggregate, also contributed to performance. The Fund was overweight large- and small-cap and growth and value. The largest contributors were the Fund’s allocations to small-cap value and small-cap growth, which returned +5.05% and +4.78%, respectively. The allocations to large-cap value and large-cap growth weighed on performance. The Fund’s allocation to large-cap value returned -0.94% and its allocation to large-cap growth returned -0.79%. Small-cap and value stocks have benefited recently from anticipation of more fiscal stimulus and what is expected to be strong economic growth in the second half of 2021.

    U.S. Cap and Style Allocation: Fund vs. Neutral Allocation (as of January 31, 2021)

    U.S. Cap and Style Allocation: Fund vs. Neutral Allocation (as of January 31, 2021)

    Data as of January 31, 2021. Source: NDR, VanEck, FactSet. Past performance is no guarantee of future results The neutral allocation is (60% MSCI ACWI/ 40% Bloomberg Barclays US Agg.). This represents the starting allocation point absent an alternative recommendation based on model indicators. These are not recommendations to buy or sell any security.

    Weight-of-the-Evidence

    Entering February, the Fund maintained its 80% allocation to stocks and 20% allocation to bonds. This bullish score is being driven by unanimously strong technical indicator readings, combined with mostly bullish macroeconomic and fundamental indicator readings. The only two indicators in the composite that are bearish are a declining rate of change in global manufacturing PMI activity and negative trends in global long-term earnings growth. However, these are more than offset by a plethora of bullish indicators.

    The most notable shift this month was the Fund’s increased exposure to the Emerging Markets (now 14% from 10% in January) as the benefits of the reflation trade continue. The model is picking this up through strong technical readings for emerging markets equities relative to the other equity regions, solid asset flows into emerging markets equities and bullish price trends in commodities. The chart below demonstrates how the reflation trade, which is directly benefiting commodity prices, is also benefiting the Emerging Markets.

    Emerging Markets and Commodities Responding to Reflation

    MSCI Emerging Markets, MSCI ACWI ex. EM, and CRB Raw Industrials Index (as of February 11, 2021)

    MSCI Emerging Markets, MSCI ACWI ex. EM, and CRB Raw Industrials Index (as of February 11, 2021)

    Data as of February 11, 2021. Source: NDR, VanEck, Bloomberg. Past performance is no guarantee of future results CRB Raw Industrials Spot Price Index is a price index constructed from a basket of various industrial commodities including copper scrap, lead scrap, steel scrap, tin, zinc, burlap, cotton, print cloth, wool tops, hides, rosin, rubber, and tallow.

    NDR recently made some revisions to its Global Regional Equity Model after it completed an extensive nine-month review of the existing indicators and the testing of new indicators. In summary, some slower moving macroeconomic data sets were replaced with more timely fundamental data sets, and there was also some simplification within how sentiment is measured within the different regions. NDR believes that the revisions will provide a more well-rounded collection of indicators to measure both risks and rewards across the different equity regions.

    In summary, the Fund continues to position itself to benefit from reflation with both its bullish exposure to stocks, the Emerging Markets and, within the U.S., both small-cap and value stocks. While we are excited and positioned for a continuation of the market rally, we are also cognizant of the risks and will remain nimble in case the tides turn.

    NDR Indicator Summary, February 2021

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

    Allocations Since Inception

    Allocations Since Inception

    Asset Class Positioning vs. Neutral Allocation, February 2021

    Asset Class Positioning vs. Neutral Allocation, February 2021

    Asset Class Positioning Changes from Prior Month

    Asset Class Positioning Changes from Prior Month

    IMPORTANT DISCLOSURES

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

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

    The Morningstar Tactical Allocation category includes portfolios that seek to provide capital appreciation and income by actively shifting allocations across investments. These portfolios have material shifts across equity regions, and bond sectors on a frequent basis. To qualify for the tactical allocation category, a fund must have minimum exposures of 10% in bonds and 20% in equity. Next, a fund must historically demonstrate material shifts in sector or regional allocations either through a gradual shift over three years or through a series of material shifts on a quarterly basis. Within a three-year period, typically the average quarterly changes between equity regions and bond sectors exceeds 15% or the difference between the maximum and minimum exposure to a single equity region or bond sector exceeds 50%. As of December 31, 2020, the Fund ranked 104 out of 245 funds for the 1 month period; 125 out of 243 funds for the YTD period; 125 out of 243 funds for the 1 Year period; 162 out of 232 funds for the 3 Year period; and 129 out of 217 funds since inception. As of January 31, 2021, the Fund ranked 90 out of 246 funds for the 1 month period; 90 out of 246 funds for the YTD period; 117 out of 245 funds for the 1 Year period; 155 out of 232 funds for the 3 Year period; and 132 out of 217 funds since inception.

    Global stocks are measured by the MSCI ACWI and U.S. bonds are measured by the Bloomberg Barclays US Aggregate Bond Index. Large-cap stocks are measured by the Russell 1000 Index, an index of the largest 1,000 companies in the Russell 3000 Index. The Russell 1000 Index comprises over 90% of the total market capitalization of all listed U.S. stocks. Small-cap stocks are measured by the Russell 2000 Index, an index which measures the performance of the smallest 2,000 companies within the Russell 3000 Index. Value stocks are measured by the Russell 3000 Value Index, a market-capitalization weighted equity index based on the Russell 3000 Index, which measures how U.S. stocks in the equity value segment perform. Included in the Russell 3000 Value Index are stocks from the Russell 3000 Index with lower price-to-book ratios and lower expected growth rates. Growth stocks are measured by the Russell 3000 Growth Index, a market capitalization weighted index based on the Russell 3000 Index. The Russell 3000 Growth Index includes companies that display signs of above average growth. Companies within the Russell 3000 Index that exhibit higher price-to-book and forecasted earnings are used to form the Russell 3000 Growth Index. U.S. stocks are measured by the Russell 3000 Index which is a capitalization-weighted stock market index that seeks to be a benchmark of the entire U.S stock market. It measures the performance of the 3,000 largest publicly held companies incorporated in America and is based on market capitalization. The MSCI Europe ex UK Index captures large and mid cap representation across developed markets (DM) countries in Europe. The MSCI Canada Index is designed to measure the performance of the large and mid cap segments of the Canada market. The MSCI Pacific ex Japan Index captures large and mid cap representation across developed markets (DM) countries in the Pacific region (excluding Japan). Emerging Markets stock are measured by the MSCI Emerging Markets Index which captures large and mid cap representation across emerging markets (EM) countries. The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market. The S&P 500® Index consists of 500 widely held common stocks, covering four broad sectors (industrials, utilities, financial and transportation). International stocks are measured by the MSCI EAFE captures large and mid cap representation across developed markets countries around the world, excluding the US and Canada. U.S. Dollar Index (DXY) indicates the general international value of the U.S. dollar. The DXY does this by averaging the exchange rates between the U.S. dollar and six major world currencies: Euro, Japanese yen, Pound sterling, Canadian dollar, Swedish kroner, and Swiss franc. Please note that the information herein represents the opinion of the author, but not necessarily those of VanEck, and these opinions may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.

    All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made. Results reflect past performance and do not guarantee future results.

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

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

    © 2021 VanEck.

  • Authored by

    David Schassler
    Portfolio Manager and Head of Portfolio and Quantitative Investment Solutions, VanEck