Russel Chesler

The gold price has surged back above US$1,200 per ounce as investors have poured back into the safe haven asset to protect themselves against uncertainty from Trump’s failure to provide clear details on how he plans to make America great again, according to Russel Chesler, Director, Investments & Portfolio Strategy, VanEck Australia.

Gold ended 2016 at US$1,146 and has since risen above US$1,200 per ounce. Gold mining stocks, which provide leverage to the gold price, have enjoyed a surge in January with the VanEck Vectors Gold Miners ETF (ASX code: GDX) gaining 8.79% for the month.

“Prior to Trump being sworn in the market had ridden a wave of euphoria. Equity markets were focusing on Trump’s planned stimulus however his proposal to have Mexico ‘pay’ for the wall via a tax on Mexican imports and the implementation of his immigration policy have caused markets to reassess what a Trump presidency may actually mean,” Mr Chesler said.

“So far Trump’s policies have caused uncertainty. The question now is will the current gold run last?” Mr Chesler said. According to Chesler, gold is not just responding to political uncertainty but also due to fears of inflation. “Gold has traditionally been used by investors as a hedge against rising inflation and fiscal stimulus could support the rise of inflation in the US. Infrastructure spending, tax cuts and deregulation could still occur with Republicans in control of the White House and both houses of Congress. All of these policies could encourage spending and put pressure on prices,” Mr Chesler said.

“Furthermore if you look back historically since Nixon abandoned the gold standard in 1971, there have been seven new US presidents inaugurated to the White House prior to Trump. In the year following each of those inaugurations gold has outperformed equities five out of seven times.

“With rising inflationary pressures and significant concern regarding the stability of Trump’s leadership, gold is well positioned to rally in 2017,” Mr Chesler said.

Australian investors can access global gold miners by investing in GDX which is the world’s largest ETF of its kind and gives investors instant access to a diversified gold portfolio in a single trade on ASX.

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Russel Chesler

An enormous shortfall in global infrastructure over the past three decades will drive a US$40 trillion investment in the global infrastructure sector by 2030 according to a new white paper launched by VanEck yesterday.

VanEck’s ‘Investing in global infrastructure’ white paper highlights that the growth of the infrastructure sector will be driven by two structural factors: a growing population, and a significant underinvestment in infrastructure over the past 30 years in particular in western economies. Both factors will lead to infrastructure investment of over US$40 trillion by 2030.

Russel Chesler, Director of Investments and Strategy, VanEck Australia said, “While the substantial deficit in infrastructure assets will prompt governments around the world to invest considerably in infrastructure assets in the coming years. The defensive characteristics of global infrastructure securities are just as likely to drive private sector investment in the sector as a shield against ongoing market volatility.

“Infrastructure assets are generally long lived, protected by barriers to entry and benefit from inelastic demand providing investors with a steady and reliable income stream which is particularly attractive in the current environment of slow economic growth, market volatility and constrained returns.

“Investors have been forced to allocate assets to risker investments in a search for income. Global listed infrastructure provides a mid-range dividend yield which is more stable than other equity yields. The capital growth is also much more stable than other equities and both the income and capital growth have some protection against inflation,” Mr Chesler said.

“Infrastructure securities have also demonstrated a low correlation to other asset classes providing diversification benefits for investors wising to complement existing asset classes such as Australian equities, international equities or global fixed income.

“These factors make global infrastructure securities a compelling investment proposition for investors. Global infrastructure has been one of the best performing asset classes returning 12.78 percent[1] year-to-date.

“Historically, investment in large infrastructure assets has been limited to large institutional investors.
“This year, VanEck launched Australia’s first global infrastructure ETF on the ASX giving investors easier access to a well diversified portfolio of global infrastructure securities one trade on ASX. VanEck Vectors FTSE Global Infrastructure (Hedged) ETF (ASX code: IFRA) tracks the FTSE Developed Core Infrastructure 50/50 Hedged into Australian dollars Index, the world’s leading diversified global infrastructure benchmark,” Mr Chesler said.

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Joe Foster

The gold market is building strength and acting as a financial hedge against uncertain financial markets. The gold price traded above US$1,300 per ounce in May for the first time since January 2015 reflecting investors’ increasing unease towards a weakening financial system according to a leading US gold expert from VanEck.

Joe Foster, Portfolio Manager of VanEck’s Gold Strategies said, “Global conditions today aren’t that different than six months ago when gold struggled near its lows. In our view, the fundamental change is investors’ view of central banks. Investors are realising that central bank policies lack efficacy and have run their course without accomplishing their intended results.

“In general, central banks appear to be rapidly running out of options to help stimulate economies. In fact, rather than helping, quantitative easing, zero rates and negative rates have created distortions in capital allocation leading to the mispricing of assets and currencies, wealth inequality, and possibly other harmful, unintended consequences on the financial system. We think the solution of the world’s problems hinges on re-establishing robust economic growth,” Foster said.

“Another factor contributing to this year’s spectacular gold rally is the fact that gold mining businesses are in a much better position than they were a few years ago. They have successfully slashed costs, cut debt, gained efficiencies and generated cash. The elimination of short selling pressure has also supported the rise in gold stocks since they crashed in 2013,” he said.

“The gold price was much higher in 2011, topping US$1,921 per ounce, but we think the earnings power of the gold sector is greater now than back then. We estimate that a US$100 (roughly 8 per cent) move in the gold price from US$1,300 to US$1,400 per ounce would result in a 38 per cent increase in free cash flow for the majors in our research universe, while the mid-tier producers would see a 68 per cent increase in free cash,” Foster said.

The performance of gold stocks is another sign of strength of the current gold market. The NYSE Arca Gold Miners Index (GDMNTR)1 advanced 28.1 per cent in April. Many of the larger producers announced favourable first quarter results in April, which further boosted the performance of gold equities.

Russel Chesler, Director Investments & Portfolio Strategy, VanEck Australia said, “In early 2016, the gold market has “woken up” after a lengthy slumber and now, gold is “hitting the gym” and building strength. After a brief consolidation, the gold price reached its 2016 high in early May and ended the month of April up 5%. Meanwhile, gold equities look like they may be training for a “bodybuilding competition”, gaining nearly 30% in April.

“Gold has fallen off slightly this week as the US dollar hit a new three-week high following expectations the central bank could soon raise interest rates, however we still expect there to be opportunities for gold to rally as investors remain uncertain about financial risks.

“Gold is up 18 per cent YTD and gold equities are up 75 per cent. During the 5 year gold bear market, gold equities were down 80 per cent. Gold equities relative to the gold bullion price as measured by the Barrons Gold Miners Index2 is still below its 1942 lows and needs to increase at least another 25 per cent to get back to that previous historical low

“There is no doubt that gold has been front of mind for Australian investors. We are seeing strong inflows from Australian investors into the VanEck Vectors Gold Miners ETF (GDX) which was cross-listed on the ASX mid last year. GDX is one of the top 20 most traded ETFs on the NYSE, with an average daily trading volume in excess of US$1 billion,” Mr Chesler said.

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Russel Chesler

The decision by the IMF to include the renminbi into the Special Drawing Rights (SDR) currency basket is another positive step in the ongoing and long-term transition and liberalisation of China’s economy and financial markets according to fund manager Van Eck Global. The announcement by the IMF means that the renminbi joins only four other currencies (US dollar, euro, yen and British pound) in the SDR.

Russel Chesler, Director – Investments and Portfolio Strategy, Van Eck Global Australia, said: “China is currently only around 2.5% of the MSCI World All Countries Index, but it is 30% of world GDP growth. The IMF’s announcement will have a positive long-term effect for China as investors, like the IMF, adjust their portfolios to align more closely with economic reality. The renminbi’s reserve currency status, effective 1 October 2016, of 10.92% is larger than the yen and the British pound.”

“While a significant achievement in its own right the SDR status of the renminbi also recognises the long-term growth potential of China and the successfully managed transition of China’s economy thus far,” said Mr Chesler.

In June this year Van Eck Australia launched the first ETF on the ASX giving Australian investors pure direct exposure to China’s A-shares market. The Market Vectors ‘China ETF’, having ASX code ‘CETF’, tracks China’s CSI 300 Index which represents the largest and most liquid shares listed on mainland China’s two stock exchanges, Shanghai and Shenzhen.

CETF gives Australian investors the opportunity to access a diversified portfolio of the most traded and largest 300 China A-shares at a very early stage of China’s transition to a consumption based economy and before A-shares are included in major global indices.

“The IMF’s decision has symbolic significance for all investors that China is now one of only five currencies included and clearly shows the growing acceptance of China and the need to include China exposure as part of a diversified portfolio,” said Mr Chesler.

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Russel Chesler

Equity managers and investors fearful of straying too far from their S&P/ASX 200 benchmark have been caught asleep at the wheel by August’s 8% fall and extreme volatility. The flight to large cap dividend yielding companies in the past few years has skewed the concentration risk in Australia’s share market, with the big four banks distorting benchmark conscious portfolios towards financial stocks.

Russel Chesler, Director – Investments and Portfolio Strategy at Van Eck Global Australia said: “With ANZ down 14.5%, CBA down 11.4%, Westpac down 10.7% and NAB down 10.3%, any investor with a portfolio dominated by these companies would have experienced a disappointing month due to the concentration risk these shares have on the Australian market. One approach for creating a more diversified portfolio is to equally weight each constituent of a portfolio. Investors in Market Vectors Australian Equal Weight ETF (ASX code: MVW) benefited from its significantly reduced exposure to the banks tumbling share prices.

“In total MVW was down 5.92%, a relative outperformance of 1.88% versus the 7.80% fall of the S&P/ASX 200. Looking at the performance attribution for August 2015, it is clear that the underweight holding in the large banks and miners has added significant value to the total portfolio. More than half the outperformance came from the underweight financials position, while another two-thirds of a per cent came from being underweight the big miners.

“With the looming Fed decision on US rates, China’s slowing economy creating global jitters and Australia’s own uncertain economic picture, volatility on the ASX looks likely to remain for the near future and investors could take some risk off the table and improve their returns by adopting an equal weight investment strategy.

“It is not just in downward markets that equal weighting has proven its worth. Earlier this year during the strong bull market the equal weighted ETF was ahead of the S&P/ASX 200 by 6.13% for the 12 months ending 31 May 2015 – proving that the inherently contrarian equal weight passive investment strategy can both reduce risk and add additional performance to a portfolio,” concluded Chesler.

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Along with the surge in the Commonwealth Bank’s share price to a record high of $79.95 this week, Westpac reached a fresh high of $35.99, while ANZ broke through $35, reaching a high of $35.07 yesterday.

Partly explaining the surge in prices is the expectation of record profits in the first half reporting season, as well as anticipated higher dividends for shareholders. ANZ is expected to report its first-half profit on May 1, Westpac on May 5 and National Australia Bank on May 8.

The Commonwealth Bank has already reported its first-half profit, which surged 16 per cent to $4.27 billion, boosted by cost cutting and strong growth in mortgage lending, despite sluggish economic growth.

Russel Chesler, Director, Investments & Portfolio Strategy, Market Vectors Australia, says the big banks are attracting broad based investor support, with retail and institutional investors attracted by dividend growth as well as the big banks’ track record of delivering impressive capital gains.

“Three of the big banks are expected to unveil higher dividends in May and report strong, if not record, earnings for the first half, driven by continual cost cutting, strong growth in home lending and low levels of borrower default rates. This expectation is drawing investors to the sector, which has rallied in recent days ahead of the profit announcements,” Mr Chesler said.

“With dividend yields on banks around 5% compared to term deposits which are not yielding much more than 3%, many investors are choosing to invest in the banks. This search for yield outside of cash has seen bank share prices perform strongly this year and prices could continue to run given the powerful and entrenched market position the big banks hold in the Australian market,” Mr Chesler said.

“We’ve made it easy for people to invest in the bank sector by taking the stock selection decision making out of the investment process.  We offer investors the only exchange-traded fund (ETF) to gain pure, targeted exposure to Australian banks.  Market Vectors Australian Banks ETF which is available on the Australian Securities Exchange (ASX) under ASX code: MVB, is an efficient and cost effective way for investors to get exposure to Australia’s largest banks in a single trade.

“With a yield of 4.97% of the underlying portfolio, MVB tracks the Market Vectors Australia Banks Index, which currently provides diversified exposure to the seven largest and most liquid Australian banks.

“The Market Vectors Australia Banks Index caps any one bank’s weighting at 20 per cent to ensure no one bank dominates, removing the large capitalisation bias found in traditional market capitalisation weighted indices.  MVB is the only Banks ETF on the ASX,” Mr Chesler said.

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Resources shares seen as a source of potential strong gains in 2014.

Investors are turning their attention to resources shares as a source of potential strong gains in 2014 and over the longer term, according to Russel Chesler, Director Investments & Portfolio Strategy from Market Vectors ETFs, the exchange traded funds business of Van Eck Global.

“We believe demand for commodities will continue, driven by growth in emerging markets and resurgence in developed market consumption. This, together with possible near-term merger and acquisition activity, should support the value of Australian resources companies this year which are well positioned for any upturn,” said Mr Chesler.

“Investors want to be part of an upswing if it comes and they are turning to resources companies as a source of expected gains. The sector is also currently delivering income yields well in excess of inflation, making it even more attractive. Values are relatively low at present and we could see some mergers and acquisitions activity in the sector. Some of the smaller resources companies may have assets of interest to the big companies, which are reviewing costs to improve business profitability,” Mr Chesler said.

Shawn Reynolds, co-portfolio manager for Van Eck’s global resources strategy commented:

“Globally, we’re not running out of commodities but we’re running out of cheap commodities. It has become increasingly difficult and more expensive to develop new supplies of natural resources.  Consequently, we think that commodity prices will likely rise in the long run and we believe emerging markets’ demand will continue to underpin that growth over the next 10 to 20 years,” Mr Reynolds said.

According to Mr Reynolds, gold stocks could also rebound this year, building on the rally of recent weeks. The precious metal fell 28% in 2013, its largest calendar-year decline in 32 years. “We believe gold is forming an important base around the US$1,200 per ounce level and this recent resilience adds to our conviction,” Mr Reynolds said.

“2014 may be a year of mean reversion for the gold sector. While it may take a year or two for this to fully develop as GDP growth returns to historic norms, we could see destabilising levels of asset inflation, consumer price inflation, or other dislocations in the global economy create new risks that are supportive of gold and gold shares,” Mr Reynolds said.

“Easy monetary policies may be creating new financial bubbles in equities or other assets. It is probably prudent to start thinking about inflation, since it has fallen off many investors’ radars.

“We believe gold mining companies are well positioned for an improvement in the gold market.  They’ve been struggling with rising costs for years now. Those costs are coming under control now with new managements. They are looking for better returns out of the projects they build and they are executing with better capital discipline,” Mr Reynolds said.

Market Vectors ETFs provide investors with two easy ways to access the growth and yield potential offered by the Australian resources sector.

“Market Vectors Resources ETF gives investors direct exposure to 32 of the largest and most liquid ASX-listed resources companies via a single trade on the ASX. The fund provides greater diversification and lower pricing than other resources sector based ETFs in the market. MVR caps an individual company’s weight at 8% of the portfolio, reducing the large capitalisation bias to BHP Billiton found in traditional market capitalisation weighted indices,” Mr Chesler explains. “The dividend yield for MVR as at 31 January 2014 was 3.36%.”

“Market Vectors Australian Emerging Resources ETF (ASX code: MVE) is the first ETF in Australia to give investors targeted exposure to small-cap resources companies.  MVE gives investors direct exposure to the 64 most liquid ASX-listed small-cap resources companies via a single trade on the ASX and also caps an individual company’s weight at 8%. The dividend yield for MVE was 3.28% as at 31 January 2014,” Mr Chesler said.

“ETFs are easy to access via the ASX, can be bought and sold just like trading a share, and investors receive the same benefits as holding the underlying shares directly, including dividend income and franking credits. In this way, MVR and MVE can be used as building blocks in a portfolio to gain a truly diversified exposure to the potential growth and yield opportunities that we see currently exist in the Australian resources sector,” Mr Chesler said.

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Timothy Bethe

Market Vectors ETFs (Market Vectors), the exchange traded fund (ETF) business of Van Eck Global, today announced its senior team in Australia. 

Matthew McKinnon has joined Market Vectors Australia as Director, Intermediary and Institutional, responsible for overseeing and developing client relationships in the intermediary and institutional sectors. Prior to joining Market Vectors, McKinnon worked for Perpetual Limited as General Manager of Distribution for Equities and the Superannuation and Investment Solutions divisions. Before that, he held senior roles at Rothschild and IOOF.

Russel Chesler has joined Market Vectors Australia as Director, Investments and Portfolio Strategy from Sunstone Partners, a boutique consulting firm specialising in advice to the asset and wealth management sectors. He is responsible for investment portfolio management, new product development and capital markets. Chesler is a qualified actuary with over 20 years’ experience in financial services. Prior to joining Market Vectors Australia he held senior positions at Perpetual Limited, Grange Securities and Alexander Forbes in South Africa.

Arian Neiron, Managing Director, Market Vectors Australia, said, “I am delighted to announce the appointment of two highly reputable and skilled professionals to our team in Australia. Both have exceptional experience and a genuine passion for working in the ETF industry.

“Matthew has a wealth of experience in business development and brings strong relationships with financial advisers, private banks, stockbrokers, accountants, family offices and institutions. Russel will be responsible for working closely with our New York investment team on the portfolio management of all locally domiciled ETFs, as well as new product development and capital markets in Australia.”

Market Vectors has been building its Australian team as part of its aim to become one of the largest ETF providers in the Australian market. The firm plans to list new Market Vectors ETFs on the Australian Securities Exchange (ASX), providing investors with targeted exposure to key investment sectors.

McKinnon and Chesler join Timothy Bethe and Michael Brown, who have been in their positions since late 2012 and early 2013 respectively. Timothy Bethe is Senior Director, Product and Governance for Market Vectors Australia, previously working for BlackRock where he was responsible for cross-listing iShares ETFs on the ASX. Timothy was part of the team that launched iShares in Australia and its expansion into domestic ETFs.  Michael Brown is Director, Operations and Finance for Market Vectors Australia bringing over 30 years’ experience in the financial services sector. Previously, Brown was Head of Tax at Perpetual, MLC and BT Funds Management.

“These appointments build on the depth of experience of the Van Eck Global team and demonstrate our commitment to growing our business in Australia. Australia’s ETF market is still in its infancy with many opportunities ahead. We believe our ETFs will have broad appeal to financial advisers, direct investors, self-managed super fund investors (SMSFs) and institutions,” Mr Neiron said.

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