VanEck ETF investment ideas for the 2nd half of 2021

Investment rationale:

• MOAT invests in US Wide Moat companies exhibiting relative value.

• As the reflation narrative has played out, it has reinforced the need to not only seek identifiable companies with long-term competitive advantages but also to be selective based on valuations.

• As at 31 May 2021, MOAT exhibited a value bias compared to the S&P 500 Index.

Supply Chain / Demand Issues: Semiconductors

ETF names:

• VanEck Vectors Semiconductor ETF (NASDAQ: SMH)

Investment rationale:

• News of semiconductors in short supply is everywhere. A booming consumer electronics demand coupled with an unexpected rebound in demand for cars following the collapse in sales during the pandemic has led to a global chip crunch.

• With the shortage set to persist, chipmakers are benefiting from expectations of robust sales growth, pushing their share prices higher.

• SMH’s net expense ratio of 0.35% is lower than many of its peers.

The rise of China

ETF names:

• VanEck Vectors China Growth Leaders ETF (NYSE: GLCN)
• VanEck Vectors ChinaAMC SME-ChiNext ETF (NYSE: CNXT)

Investment rationale:

• China’s continued economic recovery, coupled with supportive fiscal and monetary policies have buoyed the domestic equity markets.

• The wealth effect from current market moves should not be ignored. We expect the associated improvement in consumer confidence to have a positive economic and market impact. A-share companies in the consumer, healthcare, and technology-related sectors, which source the bulk of their profits and revenues from the domestic market, look well placed to benefit from the economic expansion.

• The inclusion of Chinese onshore equities in major global indices also presents significant investment opportunities.

• One of the ways that investors can tap into China’s growth is via VanEck’s suite of China ETFs:

• GLCN provides exposure to fundamentally sound Chinese companies with attractive growth potential that are priced at reasonable valuations. It has the potential to outperform traditional capitalisation-weighted benchmarks by selecting top-ranked companies.

• CNXT allows investors to tap into some of the sectors that are driving China’s “new economy”. The portfolio comprises 100 of the largest and most liquid China A-share stocks listed on the Small and Medium Enterprise Board and the ChiNext Board of the Shenzhen Stock Exchange.

Lower rates for longer: Local currency emerging market bonds

ETF names:

• VanEck Vectors J.P. Morgan EM Local Currency Bond ETF  (NYSE: EMLC)

Investment rationale:

• With developed markets interest rates at rock-bottom lows the pursuit of yield is far more pronounced. Emerging markets bonds offer a relative yield premium to developed markets bonds and typically benefit during a synchronised and sustained global recovery.

• EMLC could be an attractive way to position for a rebound as risk appetite returns and the search for yield continues.

• Emerging markets’ currencies (EMFX) have lagged the commodity price rally, so EMFX is potentially positioned to rally just to catch up.

• Tactical or strategic exposure through EM local currency bonds via an ETF is attractive because of the low trading costs and high liquidity.

• At the same time, although yields have compressed globally, the yield pickup against developed markets sovereign bonds and US Treasuries has widened, and the asset class continues to provide attractive real interest rates.

Lower rates for longer: Fallen angel bonds

ETF names:

• VanEck Vectors Fallen Angel High Yield Bond ETF (NASDAQ: ANGL)

Investment rationale:

• Fallen angels are now high yield bonds that were originally issued as investment grade corporate bonds.

• The higher quality, high income approach with alpha potential makes ANGL an attractive strategic holding within a credit portfolio.

• Compared to the broad HY bond market, fallen angels have historically offered differentiated sector exposure, price appreciation, and a higher quality focus, which have contributed to their good performance over the long term.

• ANGL provides attractive through-the-cycle high yield exposure – the ability to benefit from current favourable dynamics, downside protection in the event of a market downturn, and systematic buying of oversold bonds as downgrades rise.

Inflation: Commodity ETFs I

ETF names:

• VanEck Vectors Agribusiness ETF (NYSE: MOO)

Investment rationale:

• Commodity prices, including agricultural commodities, have been rising steadily since last summer. The momentum appears well supported as inflation worries resurface; the sector tends to benefit from rising prices and can therefore add value to portfolios during periods of higher inflation.

• Exponential growth in the global population is driving up food demand. This, coupled with increased consumption of high-protein food, climate change and urbanisation will shape agricultural markets in many ways not seen before.

• These factors contribute to the potential of the global agribusiness industry that spans the entire spectrum of businesses related to food production – from farm to table.

• Broader trends such as demographics and climate change underpin the industry’s longer-term prospects.

• Investors can tap into the global megatrend by investing in MOO. The fund provides exposure to companies across the agribusiness industry, from seeds and fertilisers to farming equipment and food processors.

ETF names:

• VanEck Vectors Natural Resources ETF (NYSE: HAP)

Investment rationale:

• US consumer-price inflation hit decade highs during the quarter. Elsewhere, the inflation rate in the G20, which represents 80% of global economic activity, hit 3.8% in April, up from 3.1% in March.

• While we won’t know until 2022 whether the recent rise is a temporary aberration of the pandemic, this is the first time in over 30 years that inflation is becoming a credible risk.

• Some central banks’ willingness to let prices move even higher before asserting a more hawkish stance has allowed inflation expectations to run well past what is currently being reflected in standard measures, in our view.

• Policies aimed at securing new trade patterns and supply-chain dynamics may exacerbate inflationary risks associated with the transition to new energy resources.

• There are various ways to fight inflation, but we think investors should be revisiting an allocation to natural resources and commodities as a hedge against inflation.

• Investors can gain exposure to commodity-related companies via HAP. The portfolio comprises global companies involved in six natural resources segments: agriculture; base/industrial metals; energy; forest products; precious metals; and alternatives such as water and renewable energy sources.

ETF names:

• VanEck Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX)

Investment rationale:

• Expectations that a robust economic recovery will drive the demand for rare earth metals have boosted the sector.

• Rare earth metals are critical in the production of new technologies such as electric vehicle batteries, hybrid vehicles, LEDs and many components used in smartphones.

• REMX offers investors exposure to companies primarily engaged in producing, refining and recycling of rare earth and strategic metals and minerals, without the risk presented when investing in an individual rare earth stock.

• China, which dominates the global rare earths industry, makes up almost half (~42%) the portfolio’s country exposure, followed by Australia (~26%) and the US (~15%).

Inflation: Commodity ETFs IV

ETF names:

• VanEck Vectors Oil Services ETF (NYSE: OIH)

Investment rationale:

• Oil is clawing back from last year’s doldrums, supported by continued fiscal and monetary support, an improved demand outlook following the reopening of economies and easing travel restrictions. Oil prices are currently around US$70 per barrel, higher compared to the lows last April, when it slumped to less than US$20 a barrel.

• Oil services companies, which historically tend to move in tandem with oil prices, could drive the recovery further. Some of these companies remain focused on controlling costs, free cash flow and disciplined capital allocation.

• OIH is play on the rebound in energy prices, providing exposure to some of the biggest and most liquid companies in the industry.

• The fund is the largest oil services fund in the market, with a low management charge of 0.35% compared with the higher charges levied by its peers for similar funds.