Digging deeper into resources
In 2017 resources stocks are performing well, following commodity prices higher. VanEck Vectors Australian Resources ETF (ASX code: MVR) is a well-diversified portfolio which caps individual companies at 8% giving investors one ASX trade access to 25 resource stocks.
MVR’s one year absolute and relative performance has been very strong and in a rising interest rate environment resource equities have historically performed well.
VanEck Vectors Australian Resources ETF (ASX code: MVR) has outperformed the S&P/ASX Resources Index significantly over one, two and three years. MVR investors are enjoying its strong run, benefitting from the ETF’s broad exposure to 25 liquid resources companies, well beyond the behemoths of BHP Billiton and Rio Tinto which weigh down the benchmark index. MVR enables investors to avoid the danger of concentration risk.
MVR offers investors broad exposure to the resources sector, tracking the performance of the largest and most liquid ASX-listed resources companies. The ETF outperformed the S&P/ASX 200 Resources Index by 0.85% in September and 3.21% over the year to 30 September, 2017. Over two and three years to 30 September, that outperformance is 5.45% and 6.38%, respectively.
A balanced approach
The reasons for MVR’s outperformance include the following factors:
Capped exposure ensuring a well-diversified resources portfolio; and
Strong rebound in commodity prices.
In September, the factors that contributed the most to MVR’s outperformance were its underweight positions in BHP Billiton (-4.0%) and an overweight position in Galaxy Resources (+38.4%) compared to the S&P/ASX 200 Resources Index. Being underweight BHP Billiton added 0.65% to MVR’s relative outperformance in September. Being overweight Galaxy Resources added 0.30%.
Over the year to September 30, 2017, overweight positions in Iluka Resources (+52.5%) and Mineral Resources (+52.8%) contributed significantly to MVR’s outperformance. Mineral Resources added 0.57% to MVR’s relative outperformance, while being overweight Iluka Resources added 0.46%.
Performance of MVR to 30 September 2017
MVR’s outperformance has been sustained over the short and medium term.
Source: Morningstar Direct, as at 30 September 2017, accessed on 5 October 2017. Results are per annum, calculated daily to the last business day of the month and assume immediate reinvestment of all dividends. MVR results are net of management fees and other costs but do not include brokerage costs of investing in MVR. Past performance is not a reliable indicator of future performance.
Commodity prices may rise with rates
The charts below displays the relationship between inflation and equities as well as the Bloomberg Commodity Index and the US Federal Funds Rate. Commodities prices tend to rise with official interest rates, which are responding to greater inflationary pressures. We see potential commodity prices to continue to rise, with inflationary pressures building in the US economy.
IMPORTANT NOTICE: This information is issued by VanEck Investments Limited ABN 22 146 596 116 AFSL 416755 (‘VanEck’) as responsible entity and issuer of the VanEck Vectors Australian Resources ETF (‘Fund’). This is general information only and not financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Before making an investment decision in relation to the Fund, you should read the PDS and with the assistance of a financial adviser consider if it is appropriate for your circumstances. The PDS is available at www.vaneck.com.au or by calling 1300 68 38 37. The Fund is subject to investment risk, including possible loss of capital invested. Past performance is not a reliable indicator of future performance. No member of the VanEck group of companies gives any guarantee or assurance as to the repayment of capital, the payment of income, the performance, or any particular rate of return from the Fund.