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We’ve Offered Inflation Solutions Since 1968

February 20, 2018

Watch Time 3:39 MIN

Although inflation may be a new concern for many investors today, we’ve been offering inflation-fighting solutions since 1968. CEO Jan van Eck discusses the origins of our gold strategy and its contribution to the firm’s investment philosophy.

Inflation may be new to many investors today…

But we’ve been talking about inflation-fighting assets since 1968.

KEMMERER: Let’s start with the origins of this gold fund. Obviously they date back to your father, so tell us a little bit about the opportunity he identified.

VAN ECK: I think there are two things: there is the narrative of what happened at the time and then, larger lessons for investing. Let’s talk first about the narrative. My father started the firm VanEck in 1955, originally to invest in international stocks in Europe and Japan after World War II. In his 40s (he married late and had little kids), even though he barely had enough money to cover the household expenses, he decided to get a PhD in economics at night. (Because people have so much free time after they have a couple of small kids at home, right?) He started studying at NYU under an Austrian economist named Ludwig von Mises, who was, basically, a hardcore monetarist. That’s the way I’d describe him. He really believed that credit cycles are what drive the world economy. After studying this, the way I describe it is, my father “drank the Kool-Aid” sold 80% of his stocks and put it into gold mining shares. The interesting thing about gold at the time was that it was fixed at $35 an ounce. If you know anything about modern finance theory that's based on risk, which is measured by volatility, they blow up if the volatility of an asset is zero. It was really an out of consensus, odd thing to do at the time. It basically said that, even though inflation hadn't been a problem in the United States for a long time, it was really going to be a problem in the near-term future, and that's why he offered that strategy.

Consequently, we broke off of the gold standard and gold went from $35 an ounce to $800 an ounce, and gold shares were spectacular. That fund was actually the best performing fund in the industry and it put my dad on the map. But more interesting to me is: What are the investment lessons learned? This really goes to what VanEck as a firm stands for, which is: Think out of the box! For example, what is going on? Don't just look at your Bloomberg and at what's happening in the financial markets, think rather: Are there trends over here? Political trends, economic trends, historical trends that are about to affect the financial markets, either for opportunity or for risk? That has been our overall approach. It explains international stocks and it explains gold. We got into emerging markets and ETFs. And even now we're looking at digital assets and bitcoin. I say that gold was kind of the Bitcoin of his time! When my dad started the gold fund, I’m sure people thought he was nuts. I think that's a useful analogy both ways, just as most people think that bitcoin's kind of crazy.

KEMMERER: But it is something that you've been willing to touch and talk about, which is very different from a lot of your competitors, which really reflects the story that your father told.

VAN ECK: I think the key is to identify asset classes before everyone knows they're an asset class. That is where you get the returns and the real diversifications. International stocks weren't really an asset class in the 1950s. And emerging markets, when people started the first emerging markets funds, they weren’t a Morningstar category. It is like digital assets today. The key is not to just chase fads. That's a tough qualitative judgment to make. We don't want to chase fads. We want to start strategies that really makes sense in portfolios.

IMPORTANT DISCLOSURE

The views and opinions expressed are those of the speaker and are current as of the video’s posting date. Video commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results. For more information about VanEck Funds, VanEck Vectors ETFs or fund performance, visit vaneck.com. Any discussion of specific securities mentioned in the video commentaries is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com.

Please note that Van Eck Securities Corporation offers investment products that invest in the asset class(es) included in this video.

You can lose money by investing in the Strategy. Any investment in the Strategy should be part of an overall investment program, not a complete program. The Strategy is 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. The Strategy’s overall portfolio may decline in value due to developments specific to the gold industry. The Strategy’s investments in foreign securities 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. The Strategy is subject to risks associated with investments in debt securities, derivatives, commodity-linked instruments, illiquid securities, asset-backed securities, and small- or mid-cap companies. The Strategy is also subject to inflation risk, short-sales risk, market risk, non-diversification risk, leverage risk, credit risk and counterparty risk.

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