May Positioning: Fully Invested and Mostly Bullish
RAAX remains fully invested across commodities, natural resource equities, and MLPs. As they were at launch, the largest weightings remain in diversified commodities (30%), gold bullion (20%), and agribusiness equities (20%). However, its allocation to gold equities now stands at 10%, increasing overall gold exposure to 30%.
We are bullish on most real assets. Based on the model’s analysis, diversified commodities, gold, agribusiness equities, MLPs, steel equities, oil services equities, and unconventional oil and gas equities are all well positioned to perform. We are bearish on Real Estate Investment Trusts (REITs), infrastructure, base metal equities, and coal equities.
This month we increased our exposure to gold equities and removed our exposure to coal equities. Another notable point is that we are bearish on two interest rate sensitive sectors, REITs and infrastructure, as interest rates continue to rise.
Remember, RAAX only invests in asset classes that the model is bullish on, and the weightings themselves are not an indication of conviction but a byproduct of a quantitative process that seeks to maximize diversification and minimize volatility.
A small change in allocation
In May, the VanEck Vectors Real Asset Allocation ETF’s (RAAX) asset allocation remained more or less the same as April, though there were some small changes. Exposure to the PowerShares Optimum Yield Diversified Commodity ETF (PDBC) increased marginally to 30.3%, compared to 29.9% in April, while the allocation to the VanEck Vectors Agribusiness ETF (MOO) almost remained static. Year-to-date, the PDBC fund is up 7.11% while the fund has provided a healthy return of 19.4%. On the other hand, the VanEck Vectors Agribusiness ETF (MOO) gained 1.19%.
Allocation to the VanEck Vectors Gold Miners ETF (GDX) decreased from 10.1% in April to 9.92% in May. In the first four months of this year, GDX fund returned -4.13%. The iShares Gold Trust (IAU) saw allocation declining to 9.75% from 9.98% while the exposure to SPDR Gold Shares (GLD) reduced from 9.97% to 9.75%. Both GLD and IAU delivered marginal negative returns year-to-date.