Gold undervalued: Van Eck Global

Gold stocks are likely to rise over the next year from their current undervalued levels. Additionally merger and acquisition activity could heat up with any rise in the gold price towards US$1400 an ounce, according to Joe Foster, Portfolio Manager of Van Eck Global’s gold strategies.

Mr Foster said in a recent outlook on the gold market that while the gold price and gold stocks are off their 2013 lows, further gains in price are likely given the extent of last year’s sell-off.

“Gold stocks have done very poorly over the last several years as they have been out of favour. It’s going to take a lot to make up the lost value that has been destroyed over the last several years.  We’re in the process of recovering that value,” said Mr Foster.

“Even though gold stocks are up from 2013 levels, with some stocks up some 30% or so this year, we think they’ve got a long way to go to reach fair value. Valuations still look very attractive to us now.”

Mr Foster said several factors could help support the gold price over the coming year, which has formed a solid base around US$1200 per ounce.

“Gold continues to trade in the US$1200 per ounce to US$1400 per ounce range and we maintain our view that the price has established an important base. Fundamentally, Chinese demand is expected to increase, and lower costs of production, heightened geopolitical risk and an absence of persistent bullion exchange-traded product (ETP) selling are helping to support the gold price at current levels,” he said.

“People are worried about events in Iraq, Gaza and stability in the Middle East generally. Ukraine remains unstable. We expect these uncertainties and conflicts to continue to underpin the gold price throughout this year and next,” he said.

“In the US, financial-market and monetary policy risk remain. In the current low-growth recovery the US Government has piled up trillions of dollars of debt that looks like it is here to stay. We like to think of gold as a hedge against irresponsible policies from Washington, D.C. and possible asset bubbles or inflationary pressures, particularly,” Mr Foster said.

According to Mr Foster, M&A activity will likely rebound with any further gains in the price to US$1400 per ounce, which could positively impact Australian gold miners.

“I think M&A will continue at relatively low levels, as long as the gold price remains at current levels. If we get a move through US$1400 an ounce and we see a more positive trend in the gold market, I would expect to see M&A activity start to heat up as valuations rise and higher takeover offers are made for gold miners,” he said.

“In the first quarter, we saw a hostile takeover attempt.  This underscores  my point that the takeover target, Canadian miner Osisko, wasn’t willing to be purchased at current valuations.  The acquirer, Goldcorp, had to go hostile.

“Osisko, in the end, was taken over by a combination of two companies, Yamana and Agnico. Again, takeover activity has been at low levels because companies aren’t willing to be taken over at these low valuations as this struggle indicated,” Mr Foster said.

“We haven’t seen much on the mega-merger front in recent times because a lot of that activity has already occurred; these companies are already at a very large size. In fact, there was recent news about changes in top management at Barrick. Barrick is the largest gold company in the world and we think that they realise that this mega gold company model might not be the best way to run a gold company.

“We could see changes at Barrick that reflect what we’re talking about, the fact that some of these companies have gotten too big for their own good,” Mr Foster said.

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Emerging markets look good for the rest of 2014: Van Eck Global

Emerging markets economies are poised to offer higher economic growth for the remainder of 2014 than recent previous corresponding periods, according to Van Eck Global, the US parent company of its exchange traded fund business, Market Vectors ETFs. Van Eck Global currently manages over US$35 billion in assets.

David Semple, Portfolio Manager and Head of Van Eck Global’s Emerging Markets Equity Investment Team said, “The tide is turning for emerging markets, which outperformed the broad US market in the second quarter of 2014—an event we’ve not seen for some time. The asset class attracted particularly strong inflows in April and May this year, the highest inflows since March 2013.

“In the second half of 2014 we believe emerging markets will continue to perform solidly, providing better earning outcomes than we’ve seen in the past three years.”

According to Mr Semple, investors are beginning to warm up to emerging markets again as better earnings typically indicate a recovery. He believes the main risks for emerging markets in the second half of 2014 are geopolitical and interest rate sensitivity.

“Ongoing tensions in Ukraine have impacted the Russian economy and the escalation of sanctions will have a broader impact on a fragile European economy. The earnings impact from the sanctions as they exist today is fairly mild, but we think the cost of equity will rise as investors shy away from the possibility of further and more serious geopolitical tension, combined with the possible implementation of full sanctions on listed companies.

“China continues to provide a mixed picture. There is a wide range of opinions, and a great deal of scepticism about the China story,” Mr Semple said. “There is a continuing tug of war between significant positive and negative economic variables. We believe the ongoing modest and targeted stimulus is expected to continue and keep growth above the 7% to 7.5% level. Despite all that, it’s important not to forget the positives, such as the fact that China has the largest e-commerce economy in the world,” he said.

Despite geopolitical risk, Mr Semple believes most emerging markets countries have absorbed a significant amount of bad news. According to Semple, there are good opportunities in Taiwan, India and Latin America.

“The decisive win for the Bharatiya Janata Party (BJP) in India appeared to be beneficial for the stock market, although there are major hopes for better governance and acceleration of capital expenditure in the near-term. In Brazil, the outcome of the election in early October will be important. We expect a change of government will have a positive impact and will help reinvigorate the stagnant economy,” he said.

“Indonesia has some very significant long-run advantages in terms of demographics and resources, but has significant work to do to increase the return on those assets. This will mean increasing the ease of doing business, whether by investing in infrastructure, streamlining bureaucracy, reducing subsidies, and providing a level playing field for investments.

“We believe emerging market economies will continue to offer higher economic growth in the medium term, particularly as investors increasingly diversify away from their domestic economies and identify better value in stronger performing emerging market economies this year and into 2015,” Mr Semple said.

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Founded in 1955 and based in New York, Van Eck Global currently manages US$35.2 billion across investments in commodity equities, emerging markets, gold, fixed income, and other specialised asset classes. Under its Market Vectors ETFs brand, Van Eck Global offers 63ETFs (including five listed on the ASX) and is one of the largest providers of ETFs in the US and worldwide.

John Caulfield joins as Vice President, Institutional Business Development, responsible for driving growth of its institutional business in Australia across Van Eck Global’s active and ETF capabilities.

Mr Caulfield previously worked for FTSE, where he was responsible for growing FTSE’s domestic business. He also provided technical product expertise and client relationship management for FTSE. Before that, he worked as a relationship manager with the London Metal Exchange.

Young Marinis has been named as Vice President of Business Development, joining the Melbourne office responsible for driving business development business in Victoria, South Australia and Western Australia. Mr Marinas previously worked as a regional investment specialist with ANZ Global Wealth.

Henry Mortlock has been appointed as Associate, Business Development. Both Mr Marinis and Mr Mortlock will focus on the exchange traded fund business, Market Vectors ETFs, working closely with financial advisers and brokers.

Arian Neiron, Managing Director, Australia, said, “We are delighted to announce these important appointments to the Australian business. Mr Caulfield will join Matthew McKinnon to drive growth of institutional clients in Australia, while Mr Marinis and Mr Mortlock will focus on driving our ETF business with advisers and brokers, an important part of the local ETF market.

“These appointments strengthen our sales and marketing capabilities, which was also bolstered by the recent appointment of Brad Livingstone-Foggo in the newly created role of Marketing Manager. Mr Livingstone-Foggo, who was previously at Aberdeen Asset Management, is responsible for building the Van Eck Global and Market Vectors ETFs brands in Australia.

“In line with our commitment to Australia and the increasing demand for ETFs from all types of Australian investors, we have expanded our capacity and reinforced the expertise of our sales and marketing teams.

“These appointments reinforce Van Eck Global’s commitment to the Australian market,” said Mr Neiron.

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Arian Neiron

Market Vectors Australia, the exchange traded fund (ETF) business of Van Eck Global, has launched a holistic education initiative with the intention of communicating to advisers and their clients the benefits of ETFs, how they work and how to use them.

“While ETFs have been around for almost 15 years, there’s still a lot of work to be done to address the lack of awareness about investing in ETFs across the adviser, direct and self managed super fund segments,” said Arian Neiron, Managing Director, Market Vectors Australia.

“Most advisers and investors have heard of ETFs, but there are still a lot of questions being asked what the benefits of ETFs are and how to use ETFs in a portfolio.

“As issuers, one of the biggest challenges we face is ensuring investors fully understand the benefits that ETFs can bring to their portfolio and fully understand the difference between products they are investing in,” Mr Neiron said.

This week, to help address the education void Market Vectors has launched an all-encompassing education microsite designed to provide a holistic overview of investing in ETFs to help Australian advisers and investors better understand and navigate the ETF industry. This follows the ASIC launch of its National Financial Literacy Strategy last week.

Market Vectors’ education series highlights the many benefits of ETFs over other investment vehicles.

“The tax advantages of ETFs are often underplayed by the industry and not fully understood by advisers. One of the greatest benefits that advisers can provide to their clients is tax effective structuring of their clients’ portfolios. ETFs deliver better capital gains tax outcomes than unlisted managed funds for two reasons. The first, as they are passively managed, is their generally lower portfolio turnover. The second is that trading on the ASX allows for a more efficient and equitable allocation of capital gains when other investors redeem from the fund.”

Another focus area for Market Vectors’ education initiative is to help advisers and their clients understand the difference between indices that ETFs track.  Market Vectors’ education series looks at how an index is constructed, the types of ETF indices available in Australia and how they compare against each other.

“A lot of investors don’t look under the bonnet of the ETFs they are invested in. Understanding the index behind the ETF is one of the most fundamentally important aspects of passive investing,” Mr Neiron said. Market Vectors has launched a series of easy-to-follow education videos and ETF tips on its microsite. To also support the education initiative, Market Vectors has developed an “ETFs 101” presentation, enabling advisers to earn CPD points while they learn about ETF investing.

“We are fully committed to engaging with Australian advisers and investors to help them better understand what comes with investing in ETFs. The industry has come a long way since the first ETF listed on the ASX in 2001 and we hope the industry will continue to grow. Education is a key part of that growth,” Mr Neiron said.

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Gold looking to improve price

Several factors could support further increases in the gold price for the second half of 2014, according to Joe Foster, Portfolio Manager of Van Eck Global’s gold strategies.

Speaking on the outlook for gold recently, Foster said geopolitical risks, and lingering concerns about developed economies could favour the gold price over the coming months.

“Geopolitical risks in emerging markets have probably been the main driver of gold this year. Investors’ concern of political unrest and a possible contraction in Thailand, Venezuela, Ukraine, and Turkey has led to an outflow of capital. With no resolution in sight for many of these countries, we think these geopolitical risks will continue to underpin the gold price throughout the year.

“Economic growth in China and its banking system is also a concern for investors. After clocking double-digit growth rates over the last three decades, China’s economy has slowed as the government repositions activity to rely more on domestic demand. Despite those efforts, China’s first-quarter annualised growth rate of 7.4% was the lowest level in 18 months. Any further signs of a slowdown in China could create financial risks that drive investors to gold,” Mr Foster said.

According to Foster, changes in gold demand in India and China could also generate further gains in the gold price.

“In the second half of 2013, gold demand out of India dropped off significantly because of exchange controls and import restrictions that were placed on the Indian gold market. There are talks this year about India reversing or relaxing many of those controls. If so, that could be another catalyst that could move gold prices higher later in the year.

“As for gold demand in China, in a recent report the World Gold Council predicts that its will remain flat in 2014. While some analysts have put a negative spin on this, we see it as positive for gold. Last year saw unprecedented demand as the Chinese stepped in to take advantage of the collapse in gold prices. Demand that approaches similar levels this year would still be very supportive of gold. The Gold Council further reckons that Chinese demand will rise about 25% in the next four years, which would likely be another significant factor supporting its price,” Mr Foster said.

“The current US recovery is now longer than the average for post-World War II recoveries, yet growth has been half the average and unemployment has never been higher at this stage in past recoveries. The withdrawal of US Fed stimulus may have unintended consequences, putting further pressure on a weak US economy. Gold could respond favourably if the Fed finds it needs to reverse its tapering initiative.

“On a more positive note, we believe valuations on gold stocks are very attractive. Mergers and acquisition activity is on the radar for gold miners around the globe, including those in Australia. Assets are the cheapest they have been in years and bigger gold miners will be considering their options,” Mr Foster said.

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Matthew McKinnon

Market Vectors ETFs, the exchange traded fund business of Van Eck Global, announced that its Market Vectors Australian Property ETF has received a four-star superior rating from SQM Research, an independent property advisory and forecasting research house.

Matthew McKinnon, Director, Intermediary and Institutions, Market Vectors Australia said, “We are thrilled to receive a four-star rating from SQM Research, one of Australia’s leading property advisory and research houses. The rating confirms the robust nature of our Market Vectors Australian Property ETF, which provides investors with easy access to the largest and most liquid Australian listed real estate companies.”

The research house confirmed in its report that a positive feature of the Fund is its diversification across A-REITs, “The Fund offers investors a unique and diversified exposure compared to other A-REIT focused ETFs, with the Fund aiming to replicate the Market Vectors Australia A-REITs Index (the Benchmark).

“The Benchmark is a pure-play Australian sector Index that tracks the performance of the largest and most liquid ASX listed A-REITs. Through a cap-weighted methodology, the Benchmark seeks to achieve diversification through capping individual security holdings at 10%. The Benchmark is also required to hold a minimum of ten stocks at any time,” the report said.

The report confirmed the Fund’s Index has outperformed the S&P/ASX 200 A-REIT Accumulation Index over the long term.

“The Fund’s underlying Index has produced robust returns relative to the S&P/ASX 200 A-REIT Accumulation Index. The Benchmark has been able to steadily build upon its cumulative excess return to the S&P/ASX 200 A-REIT Accumulation index, recorded at 9.6% at 31 March 2014.

“As a result of the Benchmark’s 10% capping, the Benchmark is significantly underweight to Westfield (WDC). At 31 March 2014, WDC accounted for over 24.7% of the S&P/ ASX 200 A-REIT Index (which peaked at over 50% in 2009). The Benchmark’s relative performance to S&P/ASX 200 A-REIT Accumulation Index will be driven by the relative performance of WDC,” the research house confirmed.

Another positive feature of the Fund is its fee structure according to SQM Research, “The Fund’s on-going fee structure is slightly below peers, which has positively affected the Fund’s rating. The annual management fee of the Fund is 0.35% p.a. of the Fund’s net assets,” the report said.

According to the research house, the Fund’s rating has also been positively influenced by the resources and capabilities of the Parent entity – Van Eck Global.

“Van Eck Global displays a solid track record in issuing and managing ETFs, having launched its first Market Vectors ETF in 2006. Moreover, over the years Van Eck Global has been able to successfully expand its ETF business, offering over 60 Market Vectors ETFs and developing into the eighth largest Exchange Traded Product (ETP) provider in the United States.

Mr McKinnon commented, “We have seen strong demand for our purpose-built Market Vectors Australian Property ETF since it listed on the ASX in October last year. Investors are actively seeking a liquid and more diversified exposure to a portfolio of A-REITs at a lower cost. We expect demand will continue for our purpose-built ETFs as investors’ continue to seek out exposure to particular investment opportunities.”

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Arian Neiron

Market Vectors Australia, an exchange traded fund (ETF) business of US-based investment manager Van Eck Global, today announced that research proves an investment portfolio that follows an equal weight index produced stronger long-term returns and better diversification than traditional market-cap weighted indices. 

A white paper by Market Vectors Index Solutions, a German-based index provider, revealed that its Market Vectors Australia Equal Weight Index outperformed the S&P/ASX 200 Index in nine out of the last 12 years.

The research found that a hypothetical $10,000 invested in the Market Vectors Australia Equal Weight Index in January 2003 would have been worth $30,304 after ten years of investment. The same amount invested in the S&P/ASX 200 Index would have been worth $27,910 over the same period.

The white paper also cites a CSIRO-Monash Superannuation Research Cluster research paper published in 2013, which concluded that an equal weight index delivered the best performance over the long-term when compared to fundamental indices and market capitalisation indices in the US. The research found that $1 invested in an equal weight index in 1962 would have grown to $100.86 in 2009.  A $1 investment in a market-cap weighted index would have returned $59.04 for the same period.

Lars Hamich, Chief Executive Officer of Market Vectors Index Solutions, said, “Traditional indices were primarily designed as academic tools or economic indicators and not necessarily to underlie financial products.

“It is crucial that index methodology focuses on key features such as liquidity, diversification and pure-play exposure. These are important characteristics when it comes to the design of indices which are expected to underlie ETFs.

“The Market Vectors Australia Equal Weight Index is characterised by all of the above features. Moreover, its equal weight capping overcomes concentration issues because it removes the heavy bias to a few Australian large-capitalisation companies such as BHP and CBA,” said Mr Hamich.

Market Vectors Australia recently launched its Australian Equal Weight ETF (ASX code: MVW) – the first Australian equity equal weight ETF available to Australian investors. MVW tracks the Market Vectors Australia Equal Weight Index, which currently provides investors with equal exposure across 76 of the most liquid ASX-listed securities.

Arian Neiron, Managing Director, Market Vectors Australia said, “Australia has one of the most concentrated equity markets in the world with the top ten companies making up more than half of the market capitalisation of Australia’s top 200 listed stocks. The Market Vectors Australian Equal Weight ETF provides investors with diversified exposure to the Australian equity market and may form the core investment in a portfolio.

“We believe that MVW is an optimal portfolio construction tool.  It may be used as a starting point for a diversified portfolio.  Around an equal weight core, investors can take sector and stock positions to create an investment mix that reflects the investor’s own investment objectives and future expectations of the market,” he said.

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Matthew McKinnon

Market Vectors ETFs (Market Vectors), the exchange traded fund (ETF) business of US-based investment manager Van Eck Global, today announced it has received an ‘Investment GradeIndex’ rating from research house, Lonsec, for its recently listed Market Vectors Australian Equal Weight ETF (ASX code: MVW).

Market Vectors Australian Equal Weight ETF is designed to track a purpose-built index, the Market Vectors Australia Equal Weight Index, which currently provides investors with equal exposure across 76 of the most liquid large and mid-cap ASX-listed securities.

Matthew McKinnon, Director, Institutions and Intermediaries at Market Vectors Australia, commented, “We are pleased to receive a positive review from Lonsec for Market Vectors Australian Equal Weight ETF – the first equal weight ETF available to Australian investors. Equal weight investing is well established in Europe and the United States, where it is used to build a diversified core portfolio.  The methodology is well suited to the Australian market, which is heavily concentrated with the top 10 stocks making up more than 50% of the top 200 listed companies by market capitalisation. Our research shows that MVW’s underlying equal weight index has outperformed the S&P/ASX 200 Index by 23% over the last 10 years.

“What sets our ETFs apart is the rigorously designed methodology and rules governing the construction of the underlying indices. Each of our ETFs is based on a Market Vectors’ purpose-built index which focuses on liquidity and diversification to design investable indices. Our ETFs therefore comprise portfolios of assets that are liquid and diversified, cost effective and easily accessible to investors via a single trade on the ASX.

“The index methodology for MVW reduces exposure to the large-capitalisation companies that typically dominate Australian benchmark indices and increases exposure to the most liquid Australian mid-caps, providing an alternative to ETFs based purely on market capitalisation indices.

“We are confident that MVW will attract a range of investors from direct and SMSF investors to intermediary and institutions seeking diversified balanced exposure to the Australian equity market,” Mr McKinnon said.

Market Vectors listed its Market Vectors Australian Equal Weight ETF on the ASX this month. The equal weight index has been especially developed by Market Vectors Index Solutions (MVIS), the independent index company of Van Eck Global based in Germany.

Lonsec review – Market Vectors Australian Equal Weight ETF (MVW) 

Lonsec has conviction that Market Vectors Australian Equal Weight ETF can achieve its objective. “The Market Vectors Australian Equal Weight ETF tracks an index that is new to the Australian market and is designed to provide a more diversified exposure than traditional market cap-weighted indices which, given the nature of the Australian economy, have a highly concentrated weighting to banks and miners,” Lonsec said.

“The Fund offers a simple and easy means of gaining a diversified exposure to the Australian share market via a single transaction. The Fund tracks the Market Vectors Australia Equal Weight Index, which provides greater diversification across industries versus traditional market cap-weighted indices,” the ratings report said.

Lonsec favourably noted the transparency of the index. “Lonsec considers the index rules to be very transparent and commends the Van Eck group of companies on making the full index methodology and index constituent selection and review processes readily available to investors.”

“It is Lonsec’s belief that not all index providers are as forthcoming with this information. Furthermore, Lonsec believes that access to transparent, straight forward information on index products, their underlying indices and how they are constructed is crucial to investors’ understanding and ability to gauge suitability,” the report said.

“By equal weighting the index constituents, the underlying index has a significantly higher weighting to mid-cap stocks, and is more diversified by sector and individual security weightings than the S&P/ASX 200 Index,” Lonsec said

Analysis by MVIS reveals that its equal-weight index has outperformed the S&P/ASX 200 in nine out of the last 12 years. Overall, the Market Vectors Australia Equal Weight Index has outperformed the S&P/ASX 200 since 2002 to March 2014 by 23 per cent, according to MVIS

The Market Vectors Australian Equal Weight ETF joins four existing Market Vectors sector-based ETFs which were listed on the ASX in October last year. They are the Market Vectors Australian Banks ETF (MVB), Market Vectors Australian Property ETF (MVA), Market Vectors Australian Resources ETF (MVR) and Market Vectors Australian Emerging Resources ETF (MVE).

Market Vectors Australia is planning to launch more ETFs on the ASX later this year as it continues to gain market share in the Australian ETF market.

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Arian Neiron

Market Vectors, the exchange traded fund business of US-based investment manager Van Eck Global, will shortly launch a new exchange traded fund (ETF) on the ASX with a unique equal weight methodology.

The new Market Vectors Australian Equal Weight ETF (ASX code: MVW) will be the first of its kind in Australia, providing simple and cost-effective access to the most liquid ASX-listed companies, all weighted equally, and can be accessed via a single trade on the ASX.

MVW is designed to track a purpose-built index, the Market Vectors Australia Equal Weight Index, which provides equal exposure to the largest, mid and small cap ASX-listed securities and has demonstrated the potential for strong outperformance versus traditional market cap weighted indexes.

Arian Neiron, Managing Director of Market Vectors Australia, said: “Once launched, MVW will provide investors with more diversified broad based exposure to the Australian equity market and can be used as the core of a portfolio seeking exposure to Australian equities.

“Currently, there are 77 Australian securities that are all equally weighted in the Market Vectors Australia Equal Weight Index, including the big banks such as Commonwealth Bank and Westpac, the big miners such as BHP Billiton and Rio Tinto, as well as smaller securities such as TPG Telecom and SEEK. Each security currently has an equal weighting of approximately 1.30%. This results in a more balanced exposure to Australian companies.

“We believe MVW better captures the performance and diversification of the Australian economy. It removes the large capitalisation biases found in traditional market capitalisation Australian indices, such as the S&P/ASX 200 Accumulation Index, where the top five securities account for almost 40% and top 10 securities account for over 50% of the Index,” said Mr Neiron.

“Our in-depth analysis of the performance of the Market Vectors Australia Equal Weight Index over the last 10 years has demonstrated the potential for MVW to outperform traditional market capitalisation weighted indexes.”

Neiron believes MVW will appeal broadly to all investors including self-managed superannuation funds (SMSFs), advisers and institutions who are seeking diversified exposure to the Australian equity market.

Lars Hamich, Chief Executive Officer of Market Vectors Index Solutions (MVIS), said: “Traditional indexes often don’t provide pure diversification across a given market. The Market Vectors Australia Equal Weight Index is purpose-built to give investors pure exposure to the performance of the Australian economy.

“MVIS conducts detailed analysis of ASX-listed securities in order to determine their inclusion in the Index. Our demanding liquidity screens and pure-play rules deliver a well-balanced and diversified index exposure.

“Our commitment to the best possible transparency is enhanced through easy-to-access index data on our website (marketvectorsindices.com), a free service that enables investors to monitor the underlying index around the clock – a methodology that has been developed in response to a changing global investment landscape,” said Mr Hamich.

Market Vectors now offers over 60 exchange traded products (ETP) spanning international markets, commodities, emerging markets, global equities, fixed income and currency sectors. Market Vectors has clients worldwide and has approximately $US22 billion in assets under management, making it the seventh largest ETP family in the US and the tenth largest worldwide as of 31 January, 2014.

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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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