By David Schassler, Portfolio Manager and Head of Portfolio and Quantitative Investment Solutions, VanEck Global
The VanEck Vectors® Real Asset Allocation ETF (RAAX®) uses a data-driven, rules-based process that leverages over 50 indicators (technical, macroeconomic and fundamental, commodity price, and sentiment) to allocate across 12 individual real asset segments in five broad real asset sectors. These objective indicators identify the segments with positive expected returns. Then, using correlation and volatility, an optimization process determines the weight to these segments with the goal of creating a portfolio with maximum diversification while reducing risk. The expanded PDF version of this commentary can be downloaded here.
In July, the VanEck Vectors® Real Asset Allocation ETF (“RAAX”) returned +6.59% versus 5.71% for the Bloomberg Commodity Index and 4.65% for its custom blended benchmark.
July was an incredible month for both RAAX and most real assets. Of the stellar performances, gold’s was the most notable. Gold bullion was up 11% and gold equities were up 18%. That worked well for RAAX since, between its investments in bullion and equities, it held a 33% allocation to gold. RAAX’s second largest position, with a 26% weighting in the portfolio, was in diversified commodity futures, which returned +5.64%. Its bottom performing positions were in the energy sectors. RAAX’s investments in MLPs, oil services and the broad energy sector returned +0.72%, +1.54% and -0.45%, respectively.
There were minimal changes to RAAX’s asset allocation in August. It modestly increased its gold equity allocation, from 9% to 11%, and reduced its gold bullion allocation from 26% to 25%. In addition, it slightly trimmed its allocation to diversified commodity futures.
|1 Mo†||YTD†||1 Year||Life|
|RAAX (Share Price)||5.99||-19.52||-17.16||-6.97|
|Bloomberg Commodity Index*||5.71||-14.80||-12.07||-8.97|
|Blended Real Asset Index*||4.65||-14.78||-10.59||-3.85|
|1 Mo†||YTD†||1 Year||Life|
|RAAX (Share Price)||1.03||-24.07||-21.75||-9.62|
|Bloomberg Commodity Index*||2.28||-19.40||-17.38||-11.17|
|Blended Real Asset Index*||1.63||-18.57||-15.31||-5.93|
The table presents past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect temporary contractual fee waivers and/or expense reimbursements. Had the ETF incurred all expenses and fees, investment returns would have been reduced. Investment returns and ETF share values will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost.
†Returns less than a year are not annualized.
Expenses: Gross 1.13%; Net 0.75%. Expenses are capped contractually at 0.55% through February 1, 2021. Expenses are based on estimated amounts for the current fiscal year. Cap exclude certain expenses, such as interest, acquired fund fees and expenses, and trading expenses.
A Deeper Dive
Below is the overall real asset composite. A score of 0 represents the lowest risk level and a score of 100 represents the highest risk level. A score of 60 or higher will result in our most defensive posture. The current score is 24, which is a reduction from the score of 28 from last month. This indicates a stable risk regime for real assets.
Overall Risk Score
The risk score can be decomposed into key factors that drive real asset prices. These include price trends, economic activity, realized volatility and investor sentiment.
Price trends continue to remain positive after recovering from the drawdown in March. This is an indication of near-term stability in real asset prices.
Price Trend Risk Score
The economic composite remains bearish as the supply and demand dynamics continue to be negatively impacted by the COVID-19 pandemic.
Economic Risk Score
Price volatility remains low across real assets, which provides another bullish signal for investors.
Price Volatility Risk Score
Investor sentiment is no longer at an extreme. This, too, indicates that prices are not overly vulnerable to a near-term correction.
Investor Sentiment Risk Score
In conclusion, July was a great month for both real assets, as an investment class, and RAAX. Gold has been the darling asset of not only real assets, but also of the entire market. The shiny metal is rallying as a result of the economic devastation of COVID-19 and the side effects of programs designed to combat the economic fallout from the virus. These side effects include lower interest rates, a dramatic increase in the money supply and huge fiscal deficits. RAAX has maintained a large allocation to gold throughout the year and now it is getting even larger.
As always, RAAX will continue to monitor the current environment and adjust its allocations to balance the risk and rewards of real asset investing.
Real Asset Sector Allocations Since Inception
Real Asset Class Allocations
|Low Carbon Energy Equities||3.6%||3.4%||0.2%||Increase|
|Global Metals & Mining Equities||3.5%||3.5%||0.0%||No Change|
|Agribusiness Equities||3.5%||3.5%||0.0%||No Change|
|Oil Services Equities||3.4%||3.4%||0.0%||No Change|
|Unconventional Oil & Gas Equities||3.3%||3.5%||-0.2%||Decrease|
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.
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*The Blended Real Assets Index consists of an equally weighted blend of the returns of Bloomberg Commodity Index, S&P Real Assets Equity Index, and VanEck® Natural Resources Index. Equal weightings are reset monthly. The S&P Real Assets Equity Index measures the performance of equity real return strategies that invest in listed global property, infrastructure, natural resources, and timber and forestry companies. The VanEck Natural Resources Index is a rules-based index intended to give investors a means of tracking the overall performance of a global universe of listed companies engaged in the production and distribution of commodities and commodity-related products and services. Sector weights are set annually based on estimates of global natural resources consumption, and stock weights within sectors are based on market capitalization, float-adjusted and modified to conform to various asset diversification requirements. The S&P 500® Index (S&P 500) consists of 500 widely held common stocks, covering four broad sectors (industrials, utilities, financial and transportation).
The S&P Real Assets Equity Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2020 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spdji.com. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
The Solactive MLP & Energy Infrastructure Index tracks the performance of MLPs and energy infrastructure corporations. The MVIS U.S. Listed Oil Services 25 Index is intended to track the overall performance of U.S.-listed companies involved in oil services to the upstream oil sector, which include oil equipment, oil services, or oil drilling. The Dow Jones Equity All REIT Index, designed to measure all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. The NYSE Arca Gold Miners Index is a modified market capitalization-weighted index composed of publicly traded companies involved primarily in the mining for gold. The Index is calculated and maintained by the New York Stock Exchange. The S&P® North American Natural Resources Sector Index: a modified capitalization-weighted index which includes companies involved in the following categories: extractive industries, energy companies, owners and operators of timber tracts, forestry services, producers of pulp and paper, and owners of plantations. The S&P® GSCI Total Return Index is a world production-weighted commodity index comprised of liquid, exchange-traded futures contracts and is often used as a benchmark for world commodity prices.
Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
An investment in the Fund may be subject to risks which include, among others, in fund of funds risk which may subject the Fund to investing in commodities, gold, natural resources companies, MLPs, real estate sector, infrastructure, equities securities, small- and medium-capitalization companies, foreign securities, emerging market issuers, foreign currency, credit, high yield securities, interest rate, call and concentration risks, all of which may adversely affect the Fund. The Fund may also be subject to affiliated fund, U.S. Treasury Bills, subsidiary investment, commodity regulatory (with respect to investments in the Subsidiary), tax (with respect to investments in the Subsidiary), liquidity, gap, cash transactions, high portfolio turnover, model and data, management, operational, authorized participant concentration, no guarantee of active trading market, trading issues, market, fund shares trading, premium/discount and liquidity of fund shares, non-diversified and ETPs risks. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund’s returns. Small- and medium-capitalization companies may be subject to elevated risks.
Diversification does not assure a profit or protect against a loss.
Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
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