VanEck Starts ETF Distribution in Denmark

VanEck Starts ETF Distribution in DenmarkVanEck Starts ETF Distribution in Denmark

VanEck  announced that its suite of UCITS Exchange Traded Funds (ETFs) is now registered for distribution in Denmark. The registration of the VanEck Vectors UCITS ETFs in Denmark marks the next step in the expansion of the firm’s ETF business in Europe. Going forward, Danish investors will have access to all fund information, research, investment themes, and other services relating to the VanEck UCITS ETFs. VanEck Starts ETF Distribution in Denmark.

“We are committed to making our funds and services available to European investors, and registering our ETFs broadly allows us to respond to investors’ interests,” said Eduardo Escario, Director International Business Development at VanEck. “Danish investors have been very interested in fixed income funds and we are particularly pleased to add our recently launched emerging markets fixed income UCITS ETF to the UCITS ETF line-up in Denmark,” Mr. Escario added.

The VanEck Vectors J.P. Morgan EM Local Currency Bond UCITS ETF (EMLC) allows investors to participate in local emerging markets economies, which tend to provide higher yields than developed markets and potential for currency appreciation. Local currency emerging markets bonds tend to have a lower correlation to the U.S. dollar and help to diversify a portfolio.

The VanEck Vectors Gold Miners UCITS ETF (GDX) and the VanEck Vectors Junior Gold Miners UCITS ETF (GDXJ) provide access to the global gold mining sector. GDX covers a comprehensive portfolio of large, mid-sized, and small global gold mining companies. GDXJ invests in micro-, small-, and medium-capitalisation mining companies, called “juniors” because they are in an exploratory or early mining phase.

The VanEck Vectors Morningstar US Wide Moat UCITS ETF is the only ETF in Europe to provide exposure to U.S. companies with a Morningstar® Economic MoatTM Rating of Wide. The underlying index developed by Morningstar is based on the idea of economic moats, i.e. long-term structural advantages that allow a company to withstand competition. The Morningstar Wide Moat Focus Index has outperformed the broader U.S. equity market since its inception.

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VanEck offers intelligently designed investment strategies that take advantage of targeted market opportunities. Founded in 1955, VanEck was a pioneer in global investing with a history of placing clients’ interests first in all market environments. The firm continues this tradition by offering active and ETF portfolios in hard assets, emerging markets, fixed income, and other assets classes.

The Morningstar® Wide Moat Focus IndexSM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell or promote the VanEck Vectors Morningstar US Wide Moat UCITS ETF and bears no liability with respect to that ETF. The index provides exposure to companies with a Morningstar Economic Moat Rating of “wide” that are trading at the lowest current market price/fair value ratios. Moat Ratings and fair value estimates are determined by the Morningstar Equity Research Team.

Getting more constructive on US assets

Getting more constructive on US assets

Getting more constructive on US assets. For April, our equity model suggests to remain neutral on US equities for the first time since August 2016. Our bond model suggests increasing allocation to government bonds as well as US investment grade corporates, while remaining neutral on US high yield as CDS levels are rising. The commodity model is going underweight all commodity sectors with the exception of industrial metals and livestock (see table below).

Our tactical portfolio continues to have 45% in equities, 45% in bonds and 10% in commodities. The S&P volatility index (VIX) still stands between its historical average and its lower band, suggesting a more balanced split between equities and bonds, while commodities will always remain at 10%.

For the first time since August 2016, our CAPE (Cyclically Adjusted Price to Earning) valuation model is neutral on US equities from previously underweight. The model also suggests reducing allocation in mainly European country equities (France, Spain, the Netherlands and Denmark), while going overweight Canada, Brazil, India, Russia and Turkey.

A change in direction in US and Europe inflation and interest rate expectations over the past three months has sent a bullish signal for bonds since March 2017. Combined with readings of each constituent CDS (Credit Default Swap) level, the bond model increases the weight of each constituent with the exception of US high yields. For the latter, concerns over rising CDS offsets the bullish signal from inflation and interest rate expectations, reducing our US high yields position to neutral. Meanwhile we double our position in US investment grades as CDSs in this sector recently crossed its lower band on the downside.

The contrarian model – applied to commodities – mainly underweights gold, corn, WTI oil and soybeans, taking higher exposure to aluminium, gasoline and tin on the other hand. Whilst underperforming the 60/40 benchmark by 0.2%, the tactical portfolio continue to outperform its strategic benchmark by 0.6% per year since 2004. The tactical portfolio has a lower volatility than the traditional balanced 60/40 portfolio, and the strategic benchmark, improving the Sharpe ratio by around 34% on average to 0.46 compared to 0.39 for the 60/40 and 0.31 for the strategic portfolio.

Overweight in black, underweight in red. Models for each asset class detailed in the individual notes using the following links: the equity-bond relative trade model for the allocation between equity and bond, the CAPE model for equities, the bond model for bonds and the contrarian model for commodities. Source: ETF Securities as of close of 31 March 2017

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Overweight in black, underweight in red. Models for each asset class detailed in the individual notes using the following links: the equity-bond relative trade model for the allocation between equity and bond, the CAPE model for equities, the bond model for bonds and the contrarian model for commodities. Source: ETF Securities as of close of 31 March 2017. Getting more constructive on US assets ETF Securities.

Edith Southammakosane, Multi-Asset Strategist at ETF Securities

Edith is a director, multi-asset strategist at ETF Securities, specialised in investment strategies across commodity, equity, currency and fixed-income. Edith has 9 years of experience in the ETP industry, with exposure to different aspects of the business, from product management to research and investment strategy. Prior to joining ETF Securities, Edith started her career working for Lyxor Asset Management in Paris as Marketing assistant. Edith holds a Master in Management with a major in Risk and Asset Management from the EDHEC business school (France).

Underweight US, Europe and precious metals

Underweight US, Europe and precious metals

ETF Securities Asset Allocation Research: Underweight US, Europe and precious metals

Summary

  • For October, in the equity space, the tactical portfolio continues to reallocate its weights from developed countries into emerging market stocks.
  • In the commodity space, we tactically underweight gold, platinum and palladium, increasing allocation across the board to keep commodities at 10% in the portfolio.
    Our tactical portfolio has much lower volatility than its strategic benchmark since 2005, returning 5.2% per year and enhancing the Sharpe ratio by 65%.
  • In this second edition of our asset allocation strategy, we will review the performance of our tactical portfolio compared to its strategic benchmark over the past quarter. We will also detail our tactical positions for October 2016.

October 2016 positioning

The following table highlights how our positions have changed over the past quarter in the tactical portfolio compared to the strategic benchmark. It also shows our positioning for October, based on the output of the aforementioned model recommendations as of end of September 2016.

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While market volatility measured by the VIX index is heading toward its lower band, the equity-bond relative trade model continues to suggest underweighting equities by 1,000bps to 45% for October and overweighting bonds by 1,000bps to 45% as well. If the volatility index continues to decline, the model will likely match the 55/35 split of the strategic benchmark in favour of equities accordingly.

The CAPE model suggests to remain underweight the US, France, the Netherlands, Italy and Denmark. The CAPE of these countries rose by 10% on average since end of June except for Denmark. While at 60% above its 10-years median, Denmark’s CAPE fell 21% over the period. On the other hand, based on the model, Canada, Brazil, Russia and two new countries: Turkey and Singapore should be overweight. Brazil’s CAPE is 54% below its 10-years median and continues to decline while Turkey’s CAPE is 7.1% below its historical median but rose 33% since the end of June.

The CDS model tells the tactical portfolio to remain neutral on all bond components, using the weights set by the benchmark.

The ETFS contrarian model was the most active over the past quarter, overweighting precious metals in July and August before underweighting the sector in September. For October, the commodity model is reducing the weight of gold, platinum and palladium, increasing the weight of lead, cotton and coffee.

As the UK is heading for a hard exit of the European Union, as a rate hike by the Fed is imminent and as China continues on its soft landing, our fundamental-based equity and commodity models are telling us to underweight US stocks, selective European stocks and precious metals in our tactical portfolio, three areas where we see higher risk for near term uncertainty to affect potential returns.

Q3 performance

Whilst underperforming its strategic benchmark in Q3, the tactical portfolio continues to post a much lower level of volatility at 1.3% annualised versus 3.9% for the benchmark, allowing for an increase of the Sharpe ratio by 28% from 0.22 for the benchmark to 0.28 for the tactical portfolio.

A closer look at each asset class shows that commodities and equities were the main contributors to the improved Sharpe ratio of the tactical portfolio compared to its benchmark while bonds contributed to both portfolios in the same way.

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Model performance

The tactical portfolio has the lowest level of volatility compared to the 60/40 and strategic benchmarks, improving the Sharpe ratio by 48% on average.

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Whilst underperforming the 60/40 benchmark, the tactical portfolio outperforms its strategic benchmark by 0.3% per year since January 2005.

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Each asset class in the tactical portfolio also outperforms their equivalent in the strategic benchmark, by 0.3% for equities and bonds and 2.8% for commodities, illustrating the efficiency of our fundamental-based models in improving the risk/return profile of their respective asset class as well as the portfolio.

The tactical portfolio also provides higher protection from the downside risk with a maximum drawdown of -21.6% only compared to -38.5% for the 60/40 and -39% for the strategic benchmark. Finally, the tactical portfolio recovers faster to its previous peak (2 years versus 3.25 years for the benchmarks).

The portfolio methodologies

This section provides a short description of our strategic and tactical portfolio methodologies.
Our strategic benchmark follows a long-only strategy with 60 investments across three asset classes: commodities (25), equities (28) and bonds (7). The initial weights as illustrated below are based on the weighting methodology of:

  • The Bloomberg Commodity Index for commodities
  • The MSCI AC World Index for equities
  • The Barclays bond indices for bonds

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The strategic portfolio represents a balanced portfolio with 55%, 35% and 10% allocated in equities, bonds and commodities respectively. Every month, the strategic portfolio rebalances into the weights set by the above benchmarks.

Our tactical portfolio aims to outperform its strategic benchmark by applying fundamental-based models to reflect our expertise in each asset class and our views of the global economy. The tactical portfolio rebalances every month to a new set of weights determined by the models below:

  • The equity-bond relative trade model sets the weights at the asset class level between equities and bonds while commodities will remain at 10% all the time
  • The CAPE model sets the weight for equities
  • The CDS model sets the weight for bonds
  • The ETFS contrarian model sets the weight for commodities

Important Information

General

This communication has been issued and approved for the purpose of section 21 of the Financial Services and Markets Act 2000 by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the “FCA”).

The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value.

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This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. Although ETFS UK endeavours to ensure the accuracy of the content in this communication, ETFS UK does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data. Where ETFS UK has expressed its own opinions related to product or market activity, these views may change. Neither ETFS UK, nor any affiliate, nor any of respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents.

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