VanEck has unveiled the VanEck Vectors Real Asset Allocation ETF (RAAX US) on NYSE Arca. The actively managed fund seeks to provide an inflation-hedge and a play on global growth through exposure to a range of real asset investments.
Real asset investments include commodities, natural resource companies, real estate, and infrastructure.
Real assets are considered distinct from financial assets, which derive their value from a claim on other assets. Real assets get their value from their own intrinsic and inherent qualities, such as commodities and natural resources, real estate, and infrastructure.
Real asset investments offer many potential benefits to traditional stock/bond portfolios including lower volatility, enhanced diversification, and an inflation-hedge.
Perhaps most importantly, real assets have historically tended to perform well during periods of market stress and, as such, are potentially useful as a risk management tool, offering downside protection.
“VanEck has been a long-time proponent of the benefits of real asset investments, both from a performance and portfolio diversification perspective,” said David Schassler, portfolio manager for RAAX.
The new fund uses a rules-based model to allocate among approximately 12 exchange-traded products, sourced from VanEck’s own ETP suite as well as other, external providers. The security selection model chooses real asset ETPs through examining a range of metrics including technical indicators, macroeconomic factors, and sentiment indicators.
The range of eligible ETPs offer exposure to agribusiness, coal, infrastructure, real estate, steel, oil services, unconventional oil & gas, and gold mining companies as well as diversified commodity futures exposure and physical gold.
The two largest current exposures, accounting for over half the total portfolio weight, are the PowerShares Optimum Yield Diversified Commodity Strategy No K-1 Portfolio ETF (30.2%) and the VanEck Vectors Agribusiness ETF (20.0%).
While real asset investments have several important benefits, they are not without their risks. These include susceptibility to adverse economic events, natural disasters, geopolitical risks, and supply and demand disruptions.
“We also understand that the volatility of real asset investing is a challenge for many investors,” continued Schassler. “These are predominantly cyclical sectors that experience frequent periods of high volatility. RAAX was specifically designed to address this. It is a real asset investment solution with built-in risk management.”
In order to better navigate periods of market stress, RAAX has the flexibility to allocate up to 100% of its portfolio to cash and cash equivalents.
“RAAX is the type of solution-oriented ETF our investors expect from us”, said Ed Lopez, head of ETF product at VanEck. “Its innovative allocation and risk-management methodology is indicative of VanEck’s commitment to offering forward-thinking investment solutions.”
RAAX has a total expense ratio (TER) of 0.74% due to a contractual fee waiver in place until at least February 2020. The fund’s TER includes an estimate of the fees incurred in acquiring the underlying ETP exposures. RAAX has a gross expense ratio of 0.81%.
Investors could achieve cheaper access (based on fees) to a real asset strategy through the FlexShares Real Asset Allocation Index Fund (ASET US), from FlexShares, the ETF issuing arm of Northern Trust. ASET is also a fund-of-funds, investing in three FlexShares ETFs that together provide exposure to equities focused on real assets: infrastructure, real estate and natural resources.
The FlexShares is completely passive so does not have the same risk management flexibility as RAAX but is notably cheaper with an expense ratio of 0.57%. It has struggled to attract significant interest from investors, however, and has less than $10 million in AUM.