How Performance and Positioning Matter in a Portfolio




Performance and Positioning

RAAX benefited from avoiding many of the poorer performing assets that plagued real assets investors, and also from its portfolio weighting methodology, which seeks to minimize volatility. In August, RAAX had no exposure to gold equities, global metals and mining, coal equities, and oil services equities. The average return of these asset classes was a dismal -7.5% last month.

RAAX’s model rapidly adjusts to the rising risks of the changing environment. In September, RAAX added a 33% exposure to U.S. Treasury bills, removed its positions in gold bullion and diversified commodities, decreased agribusiness exposure from 20% to 7%, and added a 5% weighting to oil services equities.

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Benefits of investing in real assets

Investing in real assets can be beneficial for various reasons, as we saw in the previous part of this series. Not only does it provide higher risk-adjusted returns, but it also gives diversification benefits, protects against inflation risk, and acts as a storage of value.

Real assets also have a low correlation to US stocks and bonds and other asset classes, as well as with each other. They thus provide diversification benefits in a portfolio, as shown in the chart above. Real assets also have a higher sensitivity to inflation and thus perform better when inflation rises.

Currently, increasing inflation fears have set off volatility, which could benefit the real assets sector. A research paper by QMA (Quantitative Management Associates) shows that adding 20% real assets to a traditional stock-bond portfolio generates higher returns in 70% of the cases, as shown in the chart below. Holding a diverse group of asset classes protects a portfolio during market distress.

How positioning in a portfolio affects performance

VanEck’s real asset ETF, the VanEck Vectors Real Asset Allocation ETF (RAAX), follows a comprehensive investment process. Its portfolio weighting methodology focuses on the sectors it’s bullish on and avoids sectors it’s bearish on in order to generate long-term total returns.


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