Get Used to Higher Rates and Inflation. Focus on These Assets

November 06, 2023

Watch Time 3:46 MIN

David Schassler, Head of Multi-Asset Solutions, explains that we are in a new regime with structurally higher interest rates and inflation that favors assets with scarcity.

Video Transcript

Let's recap the first half of the year. The first half of the year was all about stocks. Specifically, it was about growth stocks. The growthier they were and the larger cap they were, the better that you did. It was a market with very, very narrow leadership, but a few companies that represent a huge part of the broad indices were up a ton.

The second half of the year, starting June 30th, you saw the long end of the curve start to go up as interest rates started to normalize. With that, you got significant outperformance from commodities over stocks. We think that trend continues throughout the rest of the year, but more importantly, we think that that's a long-term trend that's going to continue. Let's talk about why.

Pre-COVID was all about low inflation, low interest rates. We believe that we are in a structurally different regime, a regime that's going to give you continually high interest rates, persistently high inflation, materially above 2% with several peaks and troughs, inflationary periods, disinflationary periods, but an average level of inflation materially higher, and again, an average level of interest rates materially higher.

Introduce diversification into your portfolio. During periods of extreme uncertainty, you have to rely on diversification, particularly diversification to asset classes that you may not have a lot of exposure to.

Focus on investments with scarcity

So we do believe we are in the early stages of what we believe will shake out to be a supercycle in commodities. We think that you're successful in this period by focusing on investments with scarcity. Let's be more specific. Commodities, natural resource equities, natural resource equities benefit generally from higher commodity prices. Gold bullion. Gold bullion has been catching a significant bid recently, and continues to be, in our view, the ultimate store of value asset. And lastly, people should consider income generating real assets. We're talking about things like REITs. Generally speaking, property values continue to rise during these periods of higher inflation. The yields off these properties have adjusted to the new higher interest rate regime. But the key here with REITs, you want to focus on shorter duration REITs that can adjust pricing on a pretty regular basis to keep up with the new regime that we're in.

Let's talk about two solutions. The first one, the VanEck Inflation Allocation ETF, the ticker is RAAX. This is a really cool solution because it gives you a one-stop shop for diversified real assets.

The second I want to talk about is PIT. PIT, that's the ticker for the VanEck Commodity Strategy ETF. It seeks to improve upon passive commodity investments which dominate where most the AUM is in commodity investments.

So let's recap everything we spoke about. We believe that we are in a new regime. This new regime will be hallmarked by structurally higher interest rates, structurally higher inflation. And because of that, that puts us in a new paradigm. That paradigm favors assets with scarcity. Those key assets with scarcity are commodities, natural resource equities, gold bullion, gold equities, and even income generating real assets.

Thank you very much for your time today.

IMPORTANT DISCLOSURE

This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.

An investment in the VanEck Inflation Allocation ETF (RAAX) may be subject to risks which include, among others, risks related to investing in real assets ETPs, which may subject the Fund to commodities, gold, natural resources companies, MLPs, real estate sector, infrastructure, ETP-related equity securities, small- and medium-capitalization companies, foreign securities, emerging market issuers, ETP-related foreign currency, credit, interest rate, call, concentration and derivative risks, all of which may adversely affect the Fund. The Fund may also be subject to fund of funds, affiliated fund, U.S. Treasury Bills, subsidiary investment, commodity regulatory (with respect to investments in the Subsidiary), tax (with respect to investments in the Subsidiary), cryptocurrency, cryptocurrency tax, liquidity (with respect to commodities instruments), gap, cash transactions, high portfolio turnover, models and data, active management, operational, authorized participant concentration, no guarantee of active trading market, trading issues, market, fund shares trading, premium/discount and liquidity of fund shares, and non-diversified risks. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's returns. Small- and medium-capitalization companies may be subject to elevated risks.

An investment in the VanEck Commodity Strategy ETF (PIT) may be subject to risks which include, among others, commodities and commodity-linked instruments and tax, futures contract, U.S. Treasury Bills, subsidiary investment, commodity regulatory, subsidiary tax, gap, cash transactions, liquidity, high portfolio turnover, active management, credit, interest rate, derivatives, counterparty, pooled investment vehicle, repurchase agreements, regulatory, affiliated fund, market, operational, authorized participant concentration, new fund, absence of prior active market, trading issues, fund shares trading, premium/discount, liquidity of fund shares, non-diversified, concentration, municipal securities, money market funds, securitized/asset-backed securities, and sovereign bond risks, all of which may adversely affect the Fund.

Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.

There are inherent risks with equity investing. These risks include, but are not limited to stock market, manager, or investment style. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

Gold investments are subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary and political developments. Investments in gold may decline in value due to developments specific to the gold industry. Foreign gold security investments involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, or political, economic or social instability. Gold investments are subject to risks associated with investments in U.S. and non-U.S. issuers, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, gold-mining industry, derivatives, emerging market securities, foreign currency transactions, foreign securities, other investment companies, management, market, non-diversification, operational, regulatory, small- and medium-capitalization companies and subsidiary risks.

Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation.

666 Third Avenue, New York, NY 10017