Step Three: How to Allocate
Capital is allocated amongst assets on which the model is bullish on using an optimization process designed to maximize our diversification and minimize our volatility. In April, this resulted in a 50% exposure to commodities, a 45% exposure to natural resource equities, and a 5% exposure to MLPs. RAAX’s allocation in May has not changed drastically.
Allocation based on comprehensive industry analysis
The VanEck Vectors Real Asset Allocation ETF (RAAX) follows an investment process comprising comprehensive industry analysis that helps optimize portfolio returns and maximize diversification benefits. While allocating capital, the key focus areas for long-term considerations involve the analysis of factors like:
- industry-specific supply and demand modeling
- the consistency of cash flow generation
- expected future earnings
- risk drivers
Real asset categories that tend to offer more consistent returns over time form a core of the fund’s portfolio.
No major change in capital allocation in May
There wasn’t much change in capital allocation in May compared to April. But overall allocation to gold declined in May. Exposure to the VanEck Vectors Gold Miners ETF (GDX) dipped from 10.1% to 9.9% while exposure to the iShares Gold Trust (IAU) and SPDR Gold Shares (GLD) declined to 9.75% each from 9.98% and 9.97%, respectively. Allocation to the PowerShares Optimum Yield Diversified Commodity ETF (PDBC) increased from 29.9% to 30.3%.