It's been a wild market for investors. But fund issuer VanEck thinks it's providing investors with the best ETFs and mutual funds to navigate the volatility.
The world is still dealing with Covid. Investors are also grappling with rising interest rates, a hawkish Federal Reserve. And the possibility of a recession looms. Yet, by expanding its offering with some of the best mutual funds and ETFs, New York-based VanEck says its funds can be positioned to tackle any environment.
"One of the things I'm proud of and that VanEck has done quite well is diversify our fund lineup," Ed Lopez, VanEck's managing director and head of product management, told IBD. "We used to be very heavy gold miners — still our largest funds — but we have large ETFs across many of the broad asset class categories."
As of July 31, the firm managed $71 billion in assets globally, which includes mutual funds, ETFs and separately managed accounts. Its ETF business in the U.S. counts 65 ETFs, representing about $53.6 billion in assets.
The fund issuer has spread its reach into various asset classes and strategies. It has funds that help navigate inflation and manage higher interest rates. And it also has funds for investors to participate in innovation and digital transformation, as well as the crypto space. It has nine thematic, 14 natural resources and 12 country equity ETFs. VanEck also offers strategic equity, equity income, U.S. and global bond, commodity and digital assets funds.
Lopez, who is also the host of VanEck's "Trends with Benefits" podcast, has been with the firm since summer of 2009 – right in the middle of the financial crisis. He's responsible for the product management team that includes ETFs and mutual funds.
Below he shares his insights on the current strategies, some of the best ETFs, the future and outlook.
IBD: What has changed at the firm in the past two years?
Lopez: Our view on the vast potential of digital assets and cryptocurrencies is reflected in how we have built product, portfolio management and research teams dedicated to supporting our efforts in the U.S and globally. These efforts range from publicly listed products, in regions where allowable, to privately offered funds. In May, we became the first asset manager to launch a stand-alone NFT (Non-Fungible Token) community.
In regards to ETFs, we've recently launched transparent, actively-managed strategies. One in particular, VanEck Future of Food ETF, taps the fundamentally based stock selection and expertise of our natural resources team.
IBD: What new ETFs have you launched recently?
Lopez: This year we've launched three ETFs so far: VanEck Digital India ETF offers access to local market companies positioned to lead in India's digital adoption, VanEck Digital Assets Mining ETF provides access to the companies that help secure, record and store data on the blockchain, and our newest launch, VanEck CLO ETF, provides exposure to investment-grade floating-rate collateralized loan obligations.
IBD: Which funds saw the biggest inflow and which had the best performance?
Lopez: Year-to-date, as of July 31, 2022, VanEck Semiconductor ETF has seen the largest flows of our suite of funds with approximately $2.2 billion of inflows. The best performing fund over the same time period was VanEck Oil Services ETF with a NAV return of 30.88%.
IBD: How have you addressed the changing macro-economic environment?
Lopez: One of the ways that we're focusing our efforts from a sales and marketing standpoint, as well as product development, is inflation fighting. Also, income remains a key consideration for people.
One fund that had recent success in this environment is VanEck Inflation Allocation ETF. It's an ETF of other ETFs, both VanEck and non-proprietary ETFs. It could hold a commodity fund, a gold fund, an infrastructure or agribusiness fund and the like. So, basically we own real asset-oriented ETFs. We've seen decent success and interest from clients in this fund this year. It's an active fund built on an internal model that is optimized to be a well-balanced portfolio while allocating to the top-performing real assets and adjusting exposures to maintain a stable risk profile over time.
One of the ways for income investors to help fight inflation, which usually comes with rising interest rates, is to move from fixed coupons to floating coupons. We've had a couple of products that do that already. And then we've launched a new one this year. For instance, we have a very short-term oriented income strategy: VanEck Investment Grade Floating Rate ETF. Floating rate notes have coupons that reset every quarter, so their coupons can move up as interest rates do.
Something on the other side of the risk spectrum from that is business development companies: VanEck BDC Income ETF. These are companies that are making loans to middle markets, to private companies. A lot of the loans are structured on a floating rate basis. So BDCs have some inherent floating rate characteristics as well.
Also related to these products, which is the newest one that we launched, is the VanEck CLO ETF. Collateralized loan obligations are pools of leveraged loans that issue multiple tranches of floating rate bonds. The bonds, in addition to being backed by a diversified pool of bank loans, have different levels of seniority and are structured with multiple risk protections. With investment grade CLOs you get an enhanced yield from the credit exposure of the loans but with much lower levels of credit risk. And because of the floating-rate nature, you have limited interest-rate exposure. It's also an active fund.
IBD: What are some of the more innovative themes you have addressed?
Lopez: Green metals is another area in the hard assets space, and potentially in the inflation-fighting space in that it's commodity oriented.
The transition to renewable energy is going to require a whole lot more of these metals that go into electric vehicles, batteries, solar and wind technologies.
So VanEck Green Metals was launched to target metals that are feeding those technologies. We think it will be another long-term play. Of course, the market has softened a bit from the beginning of the year. But maybe that offers opportunities for people to come in.
What's also interesting in the commodities space is that there continue to be supply constraints. Supply hasn't really caught up with demand. And if we end up in a recession, it's unlikely that producers will spend more on supply. So supply will continue to be constrained into the future. So that helps set the base for when demand starts to come back and for the potential price appreciation of those metals and the producers of those metals.
IBD: How is the ETF industry changing? What are some of the latest developments?
Lopez: The passing of the "ETF Rule" and the subsequent synchronization of ETF listing standards have led to the launch of ETFs that provide exposure to strategies or asset classes that weren't possible before. VanEck CLO ETF is an example of such a strategy. Other trends continue, such as actively managed ETFs and more complex strategies, like those that use options overlays to structure a specific outcome. As markets change and evolve, developments in ETFs will evolve with them.
IBD: What is your outlook and what asset classes are poised to do well?
Lopez: We've written recently that we are still in the early innings of inflation, particularly considering how record-setting spending stimulus has led to wage inflation. While there may be some short-term relief, we believe we will be in an elevated inflation regime for an extended period of time. This kind of environment has historically been conducive for real assets and commodity equities. It may also lead income investors to seek investments that adjust with inflation levels or have floating rate coupons, like floating rate notes or CLOs.
Longer term, two themes we are particularly interested in are "the resources transition" and blockchain. We're particularly keen on companies involved in the metals that build electric vehicles and clean energy components. (Also) innovative agribusiness companies that develop more efficient sustainable food production. We view the recent drawdown in cryptocurrencies as a buying opportunity in quality crypto projects and crypto-focused companies, again a long-term view.
