Allocation Shifts To Neutral
Summary
- The VanEck NDR Managed Allocation Fund returned -3.57%% in September based on net asset value versus -2.80% for its benchmark (60% MSCI ACWI Index and 40% Bloomberg Barclays US Aggregate Bond Index).
- Last month, global stocks (MSCI ACWI Index) were down -4.00% and U.S. bonds (Bloomberg Barclays US Aggregate Bond Index) were down -0.87%.
- The markets are facing resistance from persistently high inflation, slowing economic activity and the potential tapering from the Fed.
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VanEck NDR Managed Allocation Fund (MUTF: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.
Overview
The VanEck NDR Managed Allocation Fund (the “Fund”) returned -3.57%% in September based on net asset value versus -2.80% for its benchmark (60% MSCI ACWI Index and 40% Bloomberg Barclays US Aggregate Bond Index). Over the past 12-months, the Fund has returned +19.65% versus +15.74% for its benchmark.
Risk is rising in the markets and the NDR model is responding. The latest CPI report verifies that inflation is stickier than most had hoped, weak jobs data suggest that the economy is slowing and the U.S. Federal Reserve (FED) is reducing its $120 billion in monthly purchases of Treasuries and mortgage-backed securities (MBS).
The NDR model is measuring and reacting to the market stress by reducing its stock exposure from overweight (80% stocks) to neutral (60% stocks). This move was based on warning signs from three types of indicators:
- Market Prices: Credit spreads have widened and, until the very recent jump in equity prices, stocks were struggling to make new highs.
- Macroeconomic: Global Purchasing Managers’ Index (“PMI”) activity is slowing. This suggests that economic activity is declining.
- Fundamental: Analysts are revising their estimates of corporate earnings downwards. This is another warning sign of slowing economic activity.
| Average Annual Total Returns (%) as of September 30, 20211 | ||||||
| 1 Mo† | YTD† | 1 Year | 3 Year | 5 Year | Since Inception | |
| Class A: NAV(Inception 5/11/16) | -3.57 | 7.47 | 19.65 | 5.66 | 6.60 | 7.03 |
| Class A: Maximum 5.75% load | -9.11 | 1.29 | 12.77 | 3.59 | 5.35 | 2.86 |
| 60% MSCI ACWI/40% Bloomberg Barclays US Agg.2 | -2.80 | 6.20 | 15.74 | 10.39 | 9.60 | 9.78 |
| Morningstar Tactical AllocationCategory (average)3 | -3.23 | 7.96 | 18.72 | 7.30 | 7.41 | 7.64 |
| Average Annual Total Returns (%) as of June 30, 20211 | ||||||
| 1 Mo† | YTD† | 1 Year | 3 Year | 5 Year | Since Inception | |
| Class A: NAV(Inception 5/11/16) | 0.41 | 9.14 | 25.18 | 7.14 | 7.56 | 7.71 |
| Class A: Maximum 5.75% load | -5.36 | 2.86 | 17.98 | 5.05 | 6.29 | 6.47 |
| 60% MSCI ACWI/40% Bloomberg Barclays US Agg.2 | 1.10 | 6.75 | 22.46 | 11.55 | 10.46 | 10.40 |
| Morningstar Tactical AllocationCategory (average)3 | 0.88 | 9.15 | 25.65 | 8.58 | 8.10 | 8.23 |
Source: VanEck. †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.
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. Please call 800.826.2333 or visit vaneck.com for performance current to the most recent month ended.
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. Please see additional information regarding benchmark and Morningstar category performance on last page.
Performance
Last month wasn’t kind to either equity or bond investors. Global stocks (MSCI ACWI Index) were down -4.00% and U.S. bonds (Bloomberg Barclays US Aggregate Bond Index) were down -0.87%. The Fund underperformed during this period due primarily to its equity overweight. The chart below demonstrates the Fund’s top-level asset allocation positioning, the performance and detractors from performance for each asset class.
Global Balanced Allocation: Fund vs. Neutral Allocation
Data as of September 30, 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. Past performance is not indicative of future performance.
Regionally, the Fund’s positioning was not helpful to performance. The Fund was most overweight the U.S. and Europe ex. U.K., which were down the most during the period.
Global Regional Equity Allocation: Fund vs. Neutral Allocation
Data as of September 30, 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. Past performance is not indicative of future performance.
The performance of the U.S. equity allocation was mixed last month. The Fund was most overweight value, which helped, but also more overweight large-cap than small-cap, which detracted.
U.S. Cap and Style Allocation: Fund vs. Neutral Allocation
Data as of September 30, 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. Past performance is not indicative of future performance.
Weight-of-the-Evidence
The chart below demonstrates the Fund’s current positioning:
Source: VanEck. Data as at October 6, 2021.
The markets are facing resistance from persistently high inflation, slowing economic activity and the potential tapering from the Fed. The increased risk has been evident in the recent market action across both the equity and fixed income markets. This, together with the warnings from the economic and fundamental indicators, is enough evidence to warrant a shift to neutral.
NDR Indicator Summary, October 2021
| Macro/Fundamental | Technical | Overall | ||
| Stocks, Bonds, or Cash | Stocks (vs. Bonds) | Bearish | Bullish | Neutral |
| Bonds (vs. Cash) | Neutral | Neutral | Neutral | |
| Global Regional Equity | U.S. | Neutral | Neutral | Neutral |
| Canada | Neutral | Bullish | Neutral | |
| U.K. | Neutral | Bearish | Neutral | |
| Europe ex. U.K. | Neutral | Bullish | Neutral | |
| Japan | Bearish | Bullish | Neutral | |
| Pacific ex. Japan | Bearish | Bearish | Bearish | |
| Emerging Markets | Bearish | Bearish | Bearish | |
| U.S. Cap & Style | Large-Cap | Bullish | Bullish | Bullish |
| Small-Cap | Bearish | Bearish | Bearish | |
| Growth | Bearish | Bullish | Neutral | |
| Value | Bullish | Bearish | Neutral |
Source: Ned Davis Research. Data as of October 6, 2021.
Allocations Since Inception
Source: VanEck, Ned Davis Research. Data as of October 6, 2021. Copyright 2021, 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/.
Important Disclosures
1 Source: VanEck, Bloomberg.
2 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.
3 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 June 30, 2021, the Fund ranked 166 out of 247 funds for the 1 month period; 110 out of 245 funds for the YTD period; 115 out of 244 funds for the 1 Year period; 146 out of 229 funds for the 3 Year period; and 55 out of 199 funds since inception. As of September 30, 2021, the Fund ranked 164 out of 249 funds for the 1 month period; 129 out of 247 funds for the YTD period; 89 out of 244 funds for the 1 Year period; 151 out of 227 funds for the 3 Year period; 115 out of 200 funds for the 5 Year period; and 56 out of 198 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. The MSCI Japan Index is designed to measure the performance of the large and mid cap segments of the Japanese market. With 272 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Japan. The Purchasing Managers' Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors. 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.
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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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