There’s Value in Staying the Course

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

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 +1.56% based on net asset value versus +1.11% for its blended 60/40 benchmark. Year-to-date, the Fund has returned +8.69% versus 5.59% for its benchmark. The Fund outperformed due to its equity overweight, its heavy bias towards value in the U.S. and its regional equity overweight to Europe ex U.K.

The Goldilocks environment is keeping the re-opening trade alive and well. The May employment reports showed that non-farm payrolls increased by 559k, but short of the expected 650k. This result provided the market with confidence that the Fed will maintain its ultra-accommodative policies. The wild card is inflation. A Consumer Price Index (CPI) of 5%, with a 1.5% yield on U.S. Treasury notes is unheard of in the U.S. and, if inflation does persist, it puts upward pressure on yields. However, as far as the market has been concerned, this is a problem for another day. In May, the cyclically sensitive segments of the market, such as small-cap value stocks, posted very strong results. The Russell 2000 Value Index was up 3.11% versus +0.70% for the S&P 500^® Index.

This month, the Fund maintained its overweight allocation to equities. It reduced its exposure to the Emerging Markets and increased its exposures to both Europe ex. U.K. and the U.S. Within the U.S., the Fund increased its exposure to small-cap value.

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 2.02%; Net 1.31­­%. Expenses are capped contractually until 05/01/22 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.

Performance

The top-level asset allocation remained overweight stocks vs. bonds, with an 80% allocation to stocks and a 20% allocation to bonds. The Fund’s allocation to equities returned +2.08%, while its allocation to bonds returned +0.18%.

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

Data as of May 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.

Regionally, the Fund’s allocations detracted from performance. The Fund’s largest overweight exposure was to the U.S., which was negatively impacted by the falling U.S. dollar. The Fund’s allocation to the U.S. returned +1.22%. It was also overweight Europe ex. U.K., which returned +4.55%, the Emerging Markets, which returned +1.73%, and Canada, which returned +6.35%. It was underweight the U.K., which returned +3.87%, and did not have exposure to Pacific ex. Japan, which returned +2.14% return.

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

Data as of May 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 Fund’s positioning within the U.S. was a large contributor to performance. It was overweight value stocks, which outperformed growth stocks by a wide margin. The Fund’s large-cap value stocks returned +2.27% and its large-cap growth stocks returned -1.39%. The performance differentials across style within small-cap stocks were even more extreme. The Fund’s small-cap value position returned +3.17% and its small-cap growth position returned –2.76%.

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

Data as of May 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

The charts below demonstrates the Fund’s positioning:

 

Source: VanEck Research. Data as at June 2, 2021.

The Fund maintained its 20% equity overweight based on strong technical indicators, such as market breadth, trend and mean reversion, and positive macroeconomic and fundamental indicators, such as positive global earnings growth, strong global PMI data and tight credit markets.

The reduction in the Emerging Markets exposure, from 11.3% to 8.8%, was due to price mean reversion between the Emerging Markets and the other equity regions, and a decline in PMI activity in the Emerging Markets. Below is the composite of Emerging Market equities relative to the other equity regions. Scores above 55 are bullish for the Emerging Markets and scores below 55 are bearish.

NDR EMGL Composite Model (as of June 2021)

Data as of June, 2021. Copyright 2021, Ned Davis Research, Inc. Furthur 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/.

We are nearly half-way through 2021 and, so far, knock on wood, it has been a strong environment for most asset classes. The stability across asset classes has allowed the Fund to maintain its overweight positioning and noticeably outperform thus far. However, given the rapid ascent of equity prices and the significant obstacles on the horizon, we are far from out of the woods. Ed Clissold at NDR recently warned of a market correction in the second half of 2021 based on the patterns of previous economic and stock market cycles. Regardless of when the next correction comes, the Fund is prepared to adjust its exposures, from offensive to defensive, as needed.

NDR Indicator Summary, June 2021

Source: VanEck, Ned Davis Research. Data as of June 2, 2021.

Allocations Since Inception

Source: VanEck, Ned Davis Research. Data as of June 2, 2021. Copyright 2021, Ned Davis Research, Inc. Furthur 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/.

Originally published by VanEck, 6/22/21

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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.

¹ 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.

² Morningstar category averages are equal-weighted category (total) returns. The calculation is the average of the total returns for all funds in a given category. The standard category average calculation is based on constituents of the category at the end of the period. Total return reflects performance without adjusting for sales charges or the effects of taxation, but is adjusted to reflect all actual ongoing fund expenses and assumes reinvestment of dividends and capital gains. If adjusted, sales charges would reduce the performance quoted.

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 March 31, 2021, the Fund ranked 118 out of 243 funds for the 1 month period; 95 out of 243 funds for the YTD period; 139 out of 242 funds for the 1 Year period; 157 out of 228 funds for the 3 Year period; and 124 out of 213 funds since inception. As of May 31, 2021, the Fund ranked 94 out of 254 funds for the 1 month period; 105 out of 252 funds for the YTD period; 115 out of 251 funds for the 1 Year period; 145 out of 235 funds for the 3 Year period; and 52 out of 206 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. The Nasdaq Composite Index is the market capitalization-weighted index of over 2,500 common equities listed on the Nasdaq stock exchange. 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.

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