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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.
With escalating near-term risks in many real assets, RAAX allocated defensively by raising cash for the first time since its launch.
- Risks continue to outweigh rewards in many real assets and RAAX allocated defensively with a 33% position in U.S. Treasury bills.
- Despite rising inflation and strong economic growth, escalating trade tariffs and a strong U.S. dollar are putting downward price pressure on many commodities and commodity-related equities, particularly impacting gold and diversified metals.
- Consequently, RAAX favored real asset investments with less sensitivity to commodities.
Performance and Positioning
RAAX benefited from avoiding many of the poorer performing assets that plagued real assets investors, and also from its portfolio weighting methodology, which seeks to minimize volatility. In August, RAAX had no exposure to gold equities, global metals and mining, coal equities, and oil services equities. The average return of these asset classes was a dismal -7.5% last month.
RAAX’s model rapidly adjusts to the rising risks of the changing environment. In September, RAAX added a 33% exposure to U.S. Treasury bills, removed its positions in gold bullion and diversified commodities, decreased agribusiness exposure from 20% to 7%, and added a 5% weighting to oil services equities.
A Closer Look at the What, When, and How
RAAX offers a risk-managed approach to real asset investing. It seeks to address key volatility considerations in each step of its process by evaluating: first, what asset classes to invest in; second, when to get defensive by transitioning to cash; and lastly, how much to allocate among asset classes. Decisions are made on a monthly basis using our rules-based, quantitative allocation process with the responsiveness to quickly adapt to changing market conditions.
RAAX only invests in asset classes that the model is bullish on, and the weightings themselves are not an indication of conviction but are instead determined by RAAX’s optimization process that seeks to maximize diversification and minimize volatility.
Source: VanEck. As of September 2018.
RAAX is responding to increasing risks, including heightened pressure from potential trade tariffs, by favoring assets with less sensitivity to commodity prices. In September, RAAX added a 33% allocation to U.S. Treasury bills. Should the number of bearish segments continue to increase, RAAX has the ability to expand its cash position and allocate up to 100% in cash to avoid a pervasive market drawdown. Positions in gold bullion and diversified commodities were removed, agribusiness equities were reduced from 20% to 7%, and a 5% allocation was added to oil services equities.
Real Asset Sector and Asset Class Weights
Source: VanEck. As of August 2, 2018.
Monthly Asset Class Changes
Source: VanEck. As of September 4, 2018. Past performance is not indicative of future results.
Download the full August 2018 Commentary PDF for in-depth details on RAAX's strategy, performance, and current positioning.
Visit the VanEck Vectors Real Asset Allocation ETF (RAAX) page for more information.
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).
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An investment in the Fund may be subject to risks which include, among others, 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, tax, liquidity, gap, cash transactions, high portfolio turnover, model and data, management, operational, authorized participant concentration, absence of prior active market, trading issues, market, fund shares trading, premium/discount and liquidity of fund shares, and non-diversified 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.
Diversification does not assure a profit or protect against a loss.
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