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Hard Assets Long Term Capital Growth

The global hard assets strategy focuses on seeking to provide top quartile, risk-adjusted returns from investments in hard asset sectors including, but not limited to, energy, precious metals, base metals, forest and paper products, and agriculture. Managers | 04.03.2014 02:00 Uhr
Shawn Reynolds, co-portfolio manager of the Van Eck – Global Hard Assets UCITS
Shawn Reynolds, co-portfolio manager of the Van Eck – Global Hard Assets UCITS Mr. Shawn Reynolds, you are the co-portfolio manager of the Van Eck – Global Hard Assets UCITS (ISIN: LU0839271862 and LU0839271789). When did you take over the responsibility of managing this fund?

Shawn Reynolds: On January 24, 2013, Van Eck launched the Van Eck – Global Hard Assets UCITS (“GHA UCITS” or the “Fund”) (available to non-U.S. investors), managed akin to the U.S. mutual fund managed by Van Eck Associates Corporation, Global Hard Assets Fund (“GHA”). I’ve been co-portfolio manager of GHA UCITS since inception and the U.S. mutual fund since September 30, 2010. What is the current size of the fund?

Shawn Reynolds: As of now, approximately USD 250 million in assets in GHA UCITS and over USD 6 billion in the strategy. Do you also manage other funds or mandates?

Shawn Reynolds: Yes. The Hard Assets Investment Team manages all of Van Eck’s actively managed hard assets funds including, among others, GHA, the Van Eck VIP Global Hard Assets Fund, the Merrill Lynch Investment Solutions - Van Eck Commodities Long-Short Equity UCITS Fund, as well as six institutional mandates based on Van Eck’s global hard assets long-only strategy. What is the total amount of assets you manage currently?

Shawn Reynolds: As of December 31, 2013, I manage (as portfolio manager or co-portfolio manager) approximately USD 6.7 billion in the global hard assets long-only strategy, approximately USD 130 million in the hard assets hedge strategy, and approximately USD 16.6 million in the Merrill Lynch Investment Solutions - Van Eck Commodities Long-Short Equity UCITS Fund. How long have you been in the business as a fund manager?

Shawn Reynolds: I have over 25 years of experience in the energy sector as both a geologist and analyst. 

I joined Van Eck in 2005 as a senior analyst focusing on energy and currently serve as Co-Portfolio Manager of all actively managed hard assets funds. Prior to joining Van Eck, I was employed at Petrie Parkman & Co. as an energy analyst covering U.S. oil and gas exploration and production companies.  From 1991 to 2001, I covered North American, European, and global energy companies out of New York, Australia, and London at Goldman Sachs, Lehman Brothers, and Credit Suisse First Boston.  Prior to my career in finance, I worked at Tenneco Oil Company from 1987 to 1989 as an exploration geologist. What are the main steps in your investment process and in which area is your competitive edge to add value to investors?

Shawn Reynolds: The global hard assets strategy (the “Strategy”) focuses on seeking to provide top quartile, risk-adjusted returns from investments in hard asset sectors including, but not limited to, energy, precious metals, base metals, forest and paper products, and agriculture. The Strategy seeks to take advantage of global growth trends, the worldwide demand for raw materials and the supply constraints that many commodities face. The Strategy also seeks to offer diversification benefits in the form of modest correlation to general domestic financial markets. The Hard Assets Investment Team of 13 analysts and portfolio managers (the “Team” or the “Investment Team”), one of the largest in the sector, differentiates itself not only through its breadth and depth, but also its very strong/long-standing industry and investment experience, together with very low turnover. The Team has been constructed to combine technical skills (including geologists and engineers, all with industry experience) and financial backgrounds (for both equity and commodity modeling). The nature of the sectors and companies that the Strategy follows demand this diversity of skills.

We use a fundamental approach to analyze both resource companies and commodities. Bottom-up research, asset, and traditional valuation of resource companies, coupled with supply and demand analysis of commodities build the foundation of the investment philosophy.  

Open communication within a large and experienced portfolio team has been, and will remain, an important differentiating characteristic of the Van Eck hard assets investment approach.

Global Hard Assets Strategy: Investment Process Overview:

  • The Strategy seeks long-term capital appreciation by investing primarily in hard asset securities; income is a secondary consideration
  • Process managed by Charles Cameron and Shawn Reynolds with input from the Investment Team
  • The process involves continual re-evaluation of investment themes, sector positioning, key risks, and individual securities
  • Diversified, actively managed strategy includes energy, precious and base metals, agriculture, and alternative energy 
  • Fundamental research drives search for alpha; finds investment opportunities independent of commodity price development

Zum Vergrößern bitte auf das Bild klicken!
Zum Vergrößern bitte auf das Bild klicken!
Research Overview:

  • External Research (Approximately 40%) 

1. Company Visits 
2. Resource Property Visits 

  • Internal Research (Approximately 60%) 

1. Proprietary Valuation Models 
2. Commodity Analyses 

Overall portfolio strategy and implementation is the responsibility of the portfolio manager(s). Generally, when constructing portfolio strategy, the portfolio manager(s) work(s) in conjunction with sector-specific analysts, other Van Eck portfolio managers (particularly those focused on emerging markets), and outside research sources. Investment meetings are held twice-weekly which include portfolio managers, analysts, and traders. Investment strategy and tactics are discussed at monthly meetings. 

Generally, the Investment Team believes there are three core rationales for an allocation to the hard assets sector.  First, basic supply and demand fundamentals are very supportive of a buoyant commodity price outlook over the medium- to long-term.  The momentum behind non-OECD consumption growth seems irreversible and will continue to offset any OECD demand softness.  The supply outlook for most commodities should continue to struggle to meet global consumption as resources become increasingly more difficult to access and more expensive to produce.  Second, hard assets can serve as an effective hedge against inflation.  And finally, many aspects of the hard assets sector may serve as an insurance policy against geopolitical, weather, and other difficult-to-quantify risks.

Generally speaking, the Strategy’s exposure to mega-cap energy companies is normally limited.  In particular, its weightings towards the super major integrated oil companies are typically extremely low.  First, the Team believes that the mega-cap resource companies typically have the lowest growth profiles in their respective industries, which is generally insufficient to generate enough alpha to offset the intrinsic volatility of most commodity prices.  Second, the Team typically expects that many multi-strategy, multi-cap funds will likely contain these mega-cap resource companies in their portfolios. Therefore, most investors have plenty of exposure to these names and eventually could become overweight if they were also included in more sector-specific and tactically oriented strategies, such as the Strategy. Which benchmark is most relevant and how should investors compare the fund vs. benchmarks or peer groups?

Shawn Reynolds: The Strategy is benchmarked to the S&P® North American Natural Resources Sector Index (SPGINRTR). The Strategy uses this index because it is widely accepted in the U.S. as a measurement for performance of the natural resource equity sector. The main difference of the SPGINRTR to an alternate index such as the MSCI AC/World Energy & Metals Mining Index is that the SPGINRTR’s constituents are restricted to North America only, whereas the MSCI AC/World Energy & Metals Mining Index is global in scope. Both indices have the same 10-year correlation to the strategy and over five years the SPGINRTR has a higher correlation than the MSCI Index—probably due to the fact that the majority of the Strategy’s holdings are domiciled in North America. 

We believe SPGINRTR remains the best fit to the Strategy as a majority of its exposures are in North American domiciled equities (although it is not a requirement that this be the case). Generally, 65% to 70% of the portfolio is U.S. domiciled. Clearly, the Strategy’s economic exposures are substantially more global (with a focus on emerging markets).

Although the strategy compares itself to the SPGINRTR index, Van Eck does not manage to it. The goal is to seek to generate/deliver outstanding risk-adjusted returns to the investors.

The Strategy’s benchmark tends to have a bias to large-cap stocks, whereas Van Eck’s stock selection uses fundamental analysis that often identifies opportunities outside the benchmark’s universe. As a result, the Strategy may have higher weightings in mid-tier to small-cap stocks than the benchmark. Non-benchmark stocks have a similar risk impact and higher expected return. There is no maximum deviation limit against the benchmark with regards to stocks, sectors, or countries. Which performance did you achieve for the fund YTD and over the past five calendar years in absolute terms and relative to relevant benchmark or other reference indices?

Shawn Reynolds: Annualized returns for the funds utilizing the Global Hard Assets Strategy, as well as comparable benchmark performance, are shown below (as of January 31, 2014):

Calendar year returns (as of December 31, 2013):

The tables present past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect applicable fee waivers and/or expense reimburse. Had the Fund incurred all expenses and fees investment returns would have been reduced. Investment returns and Fund share values will fluctuate so that investor’s shares, when redeemed, may be worth more or less than their original cost. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Index returns assume that dividends of the Index constituents in the Index have been reinvested.

S&P® North American Natural Resources Sector (SPGSSINR) Index is a modified capitalization-weighted index which includes companies involved in the following categories: extractive industries, energy companies, owners and operators of timber tracts, forestry services, producers of pulp and paper, and owners of plantations. What motivates you in your job?

Shawn Reynolds: Constant learning of human culture and behavior – from macro perspectives of geopolitics, global economic trends, and market performance, to micro views of corporate executive strategic planning, execution, and communication, to nano observations of individual management and worker actions at local levels. Which other profession would you have considered apart from becoming a fund manager?

Shawn Reynolds: National Geographic explorer focusing on Society and Culture. Thank you!

Van Eck - Global Hard Assets UCITS - Factsheet

Van Eck - Global Hard Assets UCITS - Manager Commentary

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