Category: RAAX

RAAX – ETF of the Week: VanEck Vectors Real Asset Allocation ETF (RAAX)

ETF Trends CEO Tom Lydon discussed the VanEck Vectors Real Asset Allocation ETF (RAAX) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.

RAAX is an actively managed fund of funds that seeks to maximize long-term real returns. It invests in ETPs with exposure to real assets, such as real estate, commodities, natural resources, or infrastructure, and may hold up to 100% cash or equivalents.

Real assets have the potential to protect investors’ portfolios from the effects of rising inflation. Many market observers believed that we would not have high inflation and that any inflationary forces would be mild. This was not correct. As of May 31, 2021, the year-over-year inflation change was 5%, based on the Consumer Price Index.

Commodities and other real assets have significantly underperformed the stock market since the great financial crisis. Following the market bottom, in March 2009, the S&P 500 Index has returned a gain of 561% versus a loss of 15% for the Bloomberg Commodity Index. With higher inflation, real assets have finally awoken from their decade-plus hibernation, and most are leading the markets higher. The lost decade-plus in commodities has created a situation where, relative to stocks, the prices of commodities and natural resource equities may still be cheap and have a lot more room to run.

Gold has, so far, been left behind in the latest inflation-led rally, but that may be starting to change as inflation concerns rise. Over the past month, the price of gold has increased from $1,685 per ounce to hovering around the $1,900 level. No firm conclusions can be drawn yet from such a short period of time, but history does tell us that gold is likely to kick into overdrive if high inflation persists.

Opportunity In Bitcoin?

RAAX now has exposure to bitcoin. There was an initial investment of 2% into the Grayscale Bitcoin Trust. Digital assets may offer RAAX many of the same benefits as gold. Most notably, protection against inflation and currency debasement in addition to overall portfolio diversification.

Bitcoin has sometimes been referred to as ‘digital gold,’ with supporters suggesting it could be a good safe-haven investment. The cryptocurrency has tended to trade closer to equity markets in recent times and has been plagued by massive volatility, making investors fortunes or crushed them. Like gold, it is scarce, cannot be counterfeited, and is easily exchangeable. These attributes have created competition between bitcoin and gold.

Listen to the full podcast episode on the RAAX:

For more podcast episodes featuring Tom Lydon, visit our podcasts category.

RAAX – Is the RAAX Real Asset ETF the Real Deal?

Real assets can give investors a strong diversifier when it comes to adding portfolio components that are uncorrelated with the broad equity markets. Investors can bundle diverse real assets in the convenience of an ETF wrapper via the VanEck Vectors® Real Asset Allocation ETF (RAAX).

Furthermore, the fund uses an active management style, cutting down on the guesswork of having to select individual real assets.

The fund’s primary goal is to seek long-term total return. In pursuing long-term total return, the Fund seeks to maximize real returns while seeking to reduce downside risk during sustained market declines by allocating primarily to exchange-traded products that provide exposure to real assets, which include commodities, real estate, natural resources, and infrastructure.

The Fund seeks to reduce downside risk by using a rules-based approach to determine when to allocate a portion of the Fund’s assets to cash and cash equivalents. Its expense ratio comes in at 0.75%.

RAAX Chart

Turning Down The Volatility Volume

One of the prime reasons to add real assets to a portfolio is to get uncorrelated exposure relative to the broad market. Real assets, given their illiquid nature, will be able to turn down the volatility when markets are swinging wildly.

“Private equity and real assets resist the volatility caused by increased market transactions as a means to rebalance and provide stability to multi-asset portfolios,” a Pensions & Investments article said. “It is one of the rudimental characteristics that define it from traditional assets, such as equities. Take the global financial crisis in 2008 and 2009 as an example, where an illustrative portfolio of private equity funds showed a contraction of distributions by 65%, while contributions decreased by 20% relative to predictions. This is a development to be expected during a market crisis, where valuations for all assets are collapsing.”

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