VanEck NDR Managed Allocation Fund
The VanEck NDR Managed Allocation Fund (MUTF:NDRMX) tactically adjusts its asset class exposures across global stocks, U.S. fixed income, and cash using an objective investment process driven by more than 130 macroeconomic, fundamental, and technical indicators developed by Ned Davis Research (NDR). The following commentary briefly explores recent fund performance, current allocation, and the weight of the evidence that are covered in more detail here.
Weight of the Evidence Continues to Point to Global Stocks
Although the weight of the evidence remains bullish, NDR's macroeconomic and fundamental indicator composite became decidedly less optimistic as investor sentiment turned bearish in January (see chart below). In response, NDRMX's overweight position in global stocks was reduced from 85.6% as of January 1 to 81.7% as of February 1. At the same time, the fund's bond exposure increased from 9.8% to 17.8%, and its 4.1% cash allocation was removed.
The "Trump bump" continued in January as stocks posted impressive returns, with the Dow Jones Industrial Average breaking through the much anticipated psychological barrier of 20,000. For most of the month, the market continued to cheer the prospects of lower taxes, infrastructure spending, and less regulation, but some doubts as to the successful implementation of these promises set in by month end. In January, the segments of equity markets which had been post-election laggards caught up and outperformed; thus, we saw the reversal in which global stocks, large-caps, and growth outperformed their U.S. stocks, small-cap, and value counterparts.
January 2017 Performance Review
Equity markets turning negative in the final three trading days of January, and until then, NDRMX had been outperforming; however, for the full month, the fund returned 1.19% for the month versus 1.73% for its benchmark of 60% stocks (MSCI All Country World Index) and 40% bonds (Bloomberg Barclays US Aggregate Bond Index). Although the fund benefited from its overweight allocation to global stocks in January, its emphasis on U.S. small-cap versus large-cap equities, and value versus growth, dampened results. On a since inception (5/11/16) basis, it continues to outperform its benchmark,1 with a return of 6.52% return versus 5.68%.
|Total Returns (%) as of January 31, 2017|
|1 Mo†||Since Inception†|
|Class A: NAV |
|Class A: Maximum 5.75% load||-4.61||-0.41|
|60% MSCI ACWI/ |
40% Bloomberg US Agg.1
|Total Returns (%) as of December 31, 2016|
|1 Mo†||Since Inception†|
|Class A: NAV |
|Class A: Maximum 5.75% load||-4.39||-0.77|
|60% MSCI ACWI/ |
40% Bloomberg US Agg.1
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). 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 1.47%; Net 1.34%. Expenses are capped contractually until 05/01/18 at 1.15% for Class A. Caps exclude certain expenses, such as interest.
Fund Positioning February 2017
At this writing, NDRMX is 81.7% in global stocks, 17.8% in bonds, and 0.5% in cash. In terms of its regional allocation, the fund increased its exposure to Pacific ex Japan, Europe ex U.K., the Emerging Markets, and the U.K., while reducing its exposure to the U.S. and Japan and eliminating exposure to Canada. In terms of U.S. equities positioning, it increased its exposure to growth and large-cap, while reducing exposure to value and small-cap.
(Source: VanEck. Data as of February 1, 2017)
Weight of the Evidence: Investor Sentiment Turned Bearish in January
Studying investor sentiment is a big component of NDR's research. In fact, there are nine "rules" that govern their research philosophy. Two of these rules are "Don't Fight the Tape" and "Be Wary of the Crowds at the Extremes." You may notice that these two rules speak directly to investor behavior and appear to be in conflict. "Don't Fight the Tape" involves investing along with the herd; this is the nature of trend-following. To beat the herd, however, you must inevitably, at times, be positioned as a contrarian, especially when sentiment reaches extreme positive or negative levels.
Sentiment indicators are designed to measure the short-term psychology of investors. This is done by measuring both what people say they are doing (surveys) and what they are actually doing (market indicators). Using surveys to measure investor sentiment is like political polling; the goal is to sample investors to understand their feelings on investing. Market indicators give another important perspective on sentiment because they provide insight into how investors are actually positioning their portfolios. These indicators include such things as a put-to-call ratios, implied volatility, and fund flows.
This chart is a composite, or an aggregation, of sentiment indicators used by NDR. It shows that sentiment became extremely optimistic in late November (a warning sign that stocks may be overbought), and then began to revert towards normal levels in January (sentiment is reversing, which is a signal to reduce exposure).
NDR Daily Trading Sentiment Composite (January 2016 - January 2017)
Source: Ned Davis Research. Data as of January 31, 2017.
Copyright 2017 Ned Davis Research, Inc. Further 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/. Past performance is no guarantee of future results.
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1 The Fund's benchmark is a blended index consisting of 60% MSCI All Country World Index (NASDAQ:ACWI) and 40% Bloomberg Barclays US Aggregate Bond Index. The MSCI ACWI captures large and mid cap representation across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries and covers approximately 85% of the global investable equity opportunity set. The MSCI benchmark is a gross return index which reinvests as much as possible of a company's gross dividend distributions. 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.
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 that exhibit higher price-to-book and forecasted earnings are used to form the Russell 3000 Growth Index. The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.
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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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. An index's performance is not illustrative of the Fund's performance. Indices are not securities in which investments can be made.
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. All mutual funds are subject to market risk, including possible loss of principal. 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 smaller companies, foreign securities, emerging markets, debt securities, commodities, and derivatives. 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. Because Van Eck Associates Corporation relies heavily on third party quantitative models, the Fund is also subject to model and data risk. For a description of these and other risk considerations, please refer to the Fund's prospectus and summary prospectus, which should be read carefully before you invest.