The Real Asset Quandary and an ETF Solution | Beyond Basic Beta Channel

Amid the COVID-19 pandemic, getting exposure to real assets presents a bit of a quandary given rising coronavirus cases and renewed social distancing measures. That said, ETF investors can still get real asset exposure safely within an active ETF wrapper using the VanEck Vectors Real Asset Allocation ETF (RAAX).

RAAX invests, under normal circumstances, primarily in (i) exchange-traded products that provide exposure to real assets through investment in domestic and foreign equity and debt securities, master limited partnerships (“MLPs”), and physical commodities, including ETFs and non-1940 Act (defined herein) commodity pools or commodity trusts and exchange traded notes (“ETNs”) (collectively, “ETPs”); and (ii) cash or cash equivalents.

Overall, RAAX gives investors:

  • Comprehensive allocation strategy that invests across commodities, natural resources equities, REITs, MLPs, and infrastructure.
  • Reduced volatility by responding to changing market environments including the ability to allocate to cash during market stress.
  • Optimized allocation process that considers various inputs to select real asset investments to manage overall portfolio risk and maintain real asset exposure across all market environments.

Real assets, such as commodities and natural resources, real estate, and infrastructure can give a portfolio the diversification it needs in today’s uncertain market. Holding real assets via an ETF can help lower the volatility we’ve seen recently by investing in a variety of assets as opposed to simple equities exposure.

Real assets can give investors that upside exposure that they tend to have during times of market stress like today with the COVID-19 pandemic still being a wild card. Additionally, if real assets outperform equities as a whole, investors can also capture that upside.

RAAX Chart

While the pandemic has certainly thrown a wrench into real asset acquisition plans for firms here in the U.S., there are signs of life in Europe. An uptick in real asset acquisitions can hopefully flow over into the U.S. and rebound once a vaccine is developed, which should be a boon for RAAX.

“Asset managers made fewer real asset acquisitions year over year in Europe in the third quarter, but deal activity increased from the lows of the second quarter due to the COVID-19 pandemic,” a S&P Global Market Intelligence report said. “The volume of real asset acquisitions made by listed and unlisted European asset managers dropped 11.3% to 267 deals during the third quarter, compared to 301 transactions during the same period in 2019, according to S&P Global Market Intelligence data.”

For more news and information, visit the Tactical Allocation Channel.