Inflation Concern Sparks Real Asset Rally | Beyond Basic Beta Channel

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

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.


The VanEck Vectors® Real Asset Allocation ETF (“RAAX”) and real assets broadly both finished the year on a positive note. RAAX returned +0.44% versus +4.97% for the Bloomberg Commodity Index and +4.82 for the Blended Real Asset Index. However, the total return for RAAX with the yearend distribution included was +6.53%, outperforming both indices during the month.[1]

The rally in real assets continued into December as investors continued to weigh the near-term risks of inflation. RAAX has been a huge beneficiary of this change in sentiment because of the ability of real assets to hedge against inflation. Regardless of where you stand on the “great inflation debate”, it seems unwise to ignore this risk and fail to position your portfolio accordingly.

Average Annual Total Returns (%) as of December 31, 2020[1]
1 Mo YTD 1 Yr Life
RAAX (NAV) 0.44 -13.73 -13.73 -3.50
RAAX (Share Price) 0.18 -13.72 -13.72 -3.51
Bloomberg Commodity Index* 4.97 -3.12 -3.12 -2.86
Blended Real Asset Index* 4.82 1.88 1.88 3.26
Average Annual Total Returns (%) as of September 30, 2020
1 Mo YTD 1 Yr Life
RAAX (NAV) -5.08 -21.67 -18.32 -7.53
RAAX (Share Price) -5.00 -21.62 -18.36 -7.51
Bloomberg Commodity Index* -3.35 -12.08 -8.20 -6.85
Blended Real Asset Index* -3.57 -14.00 -9.28 -3.26

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.

1Source:  Bloomberg. Please note that the returns include the distribution on the ex-date of December 29, 2020 but not the potential reinvestment that occurred on January 5, 2021.  Had the returns above included reinvested distributions, the returns would have been higher.  Please visit our website at for additional information.

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.

The chart below illustrates the U.S. M2 money supply, in billions of dollars. As you can see, the money supply has increased by 25% since the start of the pandemic!

More Money + Increase in Economic Activity + Larger Deficits = Near-Term Inflation Risk

U.S. M2 Money Supply (as of December 31, 2020)

More Money + Increase in Economic Activity + Larger Deficits = Near-Term Inflation Risk U.S. M2 Money Supply (as of December 31, 2020)

Data as of December 31, 2020. Source: Bloomberg.

Way more money in the system plus the potential for an increase in economic activity post-COVID-19 plus much larger government deficits equals a real risk of near-term inflation. This risk increases even further given the Fed’s new position of allowing inflation to rise moderately above its 2% target, if needed, to support the economy.

Let’s now take a look at the performance of RAAX in December. Every real asset within RAAX posted a strong monthly return, but there were some clear standouts. As illustrated below, these top performing real assets included diversified metals, oil services equities and low-carbon energy.

Real Asset Monthly Performance (December 2020)

Real Asset Monthly Performance (December 2020)

Data as of December 31, 2020. Source: Bloomberg. Past performance does not guarantee future results.

The chart below demonstrates the current, previous months and recent shifts in RAAX’s asset allocation. The recent shifts include reductions in exposure to diversified commodities, base metal equities and oil related equities, and increases in exposure to REITs and low carbon energy.

Monthly Sector Exposures

Monthly Sector ExposuresThe chart below shows the real asset risk composite, which is used to measure the overall risk regime in real assets. 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 17, which indicates a stable risk regime for real assets.

Overall Risk Score

Overall Risk Score

Real Asset Sector Allocations Since Inception

Real Asset Sector Allocations Since Inception

Real Asset Class Allocations

Jan-21 Dec-20 Change from Previous Month
REITs 13.6% 5.0% 8.6% Increase
Agribusiness Equities 6.8% 3.8% 3.0% Increase
Low Carbon Energy Equities 6.8% 5.0% 1.8% Increase
Gold Bullion 20.8% 20.1% 0.7% Increase
Gold Equities 5.4% 5.0% 0.3% Increase
Oil Services Equities 3.3% 3.0% 0.3% Increase
MLPs 5.1% 5.0% 0.2% Increase
Unconventional Oil & Gas Equities 3.1% 2.9% 0.2% Increase
Cash 0.0% 0.0% 0.0% No Change
Global Infrastructure 5.0% 5.0% 0.0% No Change
Energy Equities 4.8% 5.0% -0.1% Decrease
Steel Equities 2.7% 3.7% -1.1% Decrease
Global Metals & Mining Equities 2.6% 3.8% -1.1% Decrease
Coal Equities 0.0% 3.8% -3.8% Decrease
Diversified Commodities 20.1% 29.1% -9.0% Decrease

Originally published by VanEck, 1/21/21



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