Heightened risk levels can be seen across many areas of the market. Portfolio Manager David Schassler discusses the current environment and provides an overview of VanEck’s Guided Allocation suite, which is designed to comprehensively measure risk and tactically adjust allocations accordingly.
Responding to Rising Risks
TOM BUTCHER: I'm here today with David Schassler who heads up VanEck's Portfolio and Risk Solutions or PARS group. David, thanks so much for joining me today.
DAVID SCHASSLER: Tom, thank you very much.
BUTCHER: What do you see as the broad risks in the market at the moment?
SCHASSLER: There's a lot of risks right now in the market. Global growth has been slowing for some time. We've been talking about that for a while now. You layer on tariffs, you layer on increasing interest rates, and it puts the market in a pretty vulnerable spot. Those are the risks.
Now, how is the market reacting to that? You see it in the fixed income markets, spreads are widening. Look at credit spreads, credit spreads are widening, a sign that default risks are higher. You're seeing parts of the yield curve invert. What does that mean? It means the fixed income market is pricing in a higher chance of recession.
You see it within the fixed income markets, and these models are picking up on that, but you also see it in equity markets. Volatility is higher, realized and implied volatility is higher. Market breadth, I'm talking about global market breadth. Most countries were selling off prior to the U.S. The U.S. has finally joined the sell-off party.
Now you've got global weakness being exacerbated because the U.S. are the largest portion of the world's markets and pulling the world markets down now. You're seeing a lot of pricing pressures.
And you look at commodities as well, right now there's an oversupply situation in oil. Oil prices have gone down a lot. You're seeing gold responding well as a risk-off asset. There are a lot of risks in the market, and the markets are picking up on that, and the models are adjusting to that.
BUTCHER: VanEck has launched a number of guided allocation products. What's the philosophy behind them?
SCHASSLER: These are all objective, data-driven products. The idea is, participate when things are going really well, but preserve when they're not. Play offense when things are going in your favor, play defense when they're not.
Each one of these products has three things in common. The first is it uses this comprehensive view. When I'm talking about a comprehensive view, it's trying to measure risk. If you want to measure risk, you can't just do it by looking at one or two things, you've got to look at a lot of different data. The second thing that these funds do is they remove emotion from the process. The last thing that the strategies do is they're very adaptive and they're very flexible. When you’re in a true risk-off event, these strategies can all raise up to 100% cash. When risk gets really high, these strategies will get very, very defensive and very, very defensive could be 100% cash at some point.
BUTCHER: Great, thank you. And can you tell me a little bit about each one?
SCHASSLER: Sure. The VanEck NDR Manage Allocation Fund is a global tactical asset allocation strategy. It's designed to participate in markets, because markets typically rise, but get very defensive during these stress events. That's one of the strategies.
The second is LFEQ, which is a long/flat equity fund. It's an ETF, LFEQ. What it does it's the S&P 500 long/flat. Think S&P 500 with guardrails. It uses the industries to get a technical gauge of risk and get very defensive when industry risk gets very high.
The last part is real asset allocation. The ticker's RAAX, and what it does is it gives you exposure to real assets, real assets defined as commodities, natural resource equities, infrastructure REITS, MLPs. It gives you exposure to those assets, but it does it with a lot less volatility than investors in those assets are used to. So the idea is participate in real assets when the wind is at your back, but get very defensive when things are not. And that’s really how I describe each of these three products.
BUTCHER: Great. Thank you very much indeed, David.
SCHASSLER: Tom, thank you very much.
BUTCHER: For more information and these and other products, please go to the VanEck website, www.vaneck.com.
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