[This article appears in our June 2019 issue of ETF Report.]
A top 10 ETF issuer by assets under management (AUM), VanEck is probably best known as the go-to issuer for specific asset classes, especially when it comes to commodities and emerging markets.
Its biggest fund by AUM is the VanEck Vectors Gold Miners ETF (GDX), a $9.2 billion ETF that continues to hold hefty assets even as gold and commodities themselves have had lackluster performances in the past several years. VanEck’s experience and history in those niche markets help guide the firm as it develops new products and sets itself apart in a crowded field. The firm has a total AUM of $45.6 billion.
That devotion to innovation is one of the reasons VanEck, together with SolidX, is pursuing a bitcoin ETF, which, as of April 28, 2019, has been delayed by the Securities and Exchange Commission. VanEck sees bitcoin as a natural addition to its lineup of ETFs, playing a role of a “digital gold” investment.
In the meantime, VanEck is adding to its stable of fixed income ETFs, and expanding overseas.
Accessing Untapped Spaces
Ed Lopez, head of ETF product at VanEck, says the firm’s focus when it comes to product development is offering exposure to untapped asset classes, banking off its history in commodities and emerging markets, and improving core investor experience.
“We’ve been able to be fairly flexible and more opportunistic about how we launched ETFs, say, versus the active mutual fund side of the house,” Lopez said.
Sometimes offering access to untapped asset classes and improving core investor experience come together in an ETF. Lopez offered as examples the VanEck Vectors Vietnam ETF (VNM), the VanEck Vectors Egypt Index ETF (EGPT) and the VanEck Vectors Morningstar Wide Moat ETF (MOAT).
MOAT’s index, Lopez says, was the basis for an exchange-traded note before VanEck launched the ETF. Not only did it make the strategy available as a ’40 Act fund, but MOAT offers “investors a better approach to large cap equity investing and Morningstar methodology,” he noted.
MOAT is one of the ETFs that’s really taken off for VanEck, Lopez says. The firm has focused on it since its launch, but especially in the past few years as performance has excelled. “It’s a top-quartile fund versus other large cap managers in both the ETF and active mutual fund space. It’s really impressed us in terms of performance, and it’s beginning to capture advisors’ attention in terms of the flows it’s gathering,” Lopez said.
The fund has $2.2 billion in AUM. Its one-year annualized performance is up 15.5% versus the 9.4% gain of the SPDR S&P 500 Trust ETF (SPY). It also beats SPY on the three- and five-year category.
Another fund Lopez highlights is its Vectors Video Gaming and eSports ETF (ESPO), launched in 2018. It has $23 million in AUM. Although VanEck was second to market on it—the ETFMG Video Game Tech ETF (GAMR) was first—Lopez says VanEck found an opportunity to improve access to the space.
“It’s working partly because of the way we’ve constructed the index with our index provider for a pure-play approach, but also because there’s broad awareness for video gaming and esports in general,” he said.
Jan van Eck, VanEck’s CEO, says investors come to the firm because they’re looking for what he calls “thoughtful exposure” to lesser known asset classes since VanEck doesn’t offer the typical market cap exposure.
“We want [potential investors] to call us or email us to ask why [our] fund is positioned the way it is, and why that might be an interesting exposure,” van Eck said. “We have a lot of different asset classes in our ETF lineup. Whether it’s U.S. equities, U.S. high yield or emerging markets, we think we can have a really interesting discussion with clients.”
VanEck is making inroads into fixed income, with 19 ETFs in the asset class, competing with behemoths BlackRock and Vanguard, which dominate the new-to-ETFs field.
Fixed income ETFs are diversifying VanEck’s lineup, and is one of its success stories, Lopez says. The ETF issuer has six different types of municipal bonds reflecting various yield curve aspects or by credit quality, in addition to emerging markets, master limited partnerships and high yield. The fixed income ETFs comprise 14% of its total AUM.
Lopez says VanEck’s fixed income product development approach is to “do what’s right for the asset class”; not necessarily approaching it from a cap-weighted or pure academic standpoint.
An example of that is the VanEck Vectors Investment Grade Floating Rate ETF (FLTR), he says. When it was launched in 2011, interest rates were at rock bottom, and VanEck created a custom index that’s biased to longer maturities. It improved the yield potential without dramatically increasing the interest rate duration.
“We considered how we could look at the individual market characteristics and how we could bring that to market for investors,” Lopez noted.
Given the dominance of BlackRock and Vanguard, not only in fixed income, but in the ETF industry itself, how does VanEck stand out? Van Eck says there are two ETF industries: core exposure at very low prices, and everything else.
He says that 80% of the industry by assets is made up of ETF issuers offering core exposure: “We’re in a second industry. I’d say we’re trying to offering interesting exposures for people’s portfolios. And we have to earn our place. Hopefully we’ll survive.”
VanEck is expanding internationally, with a family of UCITS ETFs and an ETF business in Australia, where it has about 5% of market share. It also has license to operate in China, an initiative van Eck says will take a few years to pay off.
Delving Into Bitcoin
With regard to the proposed bitcoin ETF, Jan van Eck says some of the SEC’s concerns center around market manipulation due to misleading statistics regarding market liquidity.
To assuage those concerns, van Eck says its index comprises prices sourced from three market makers used by hedge funds. Regarding bitcoin custody—another concern since digital wallets containing bitcoin have been stolen—the filing with SolidX also includes insurance for the losses of assets.
“We’re talking with the regulators and getting us all comfortable with the structure of this new market,” van Eck said.
Bitcoin is a natural fit in the issuer’s lineup, van Eck said, “which is why we almost had to launch it.”
The concept of bitcoin is similar to digital gold, in that it has no counterparty risk, van Eck says. If there were some financial system stress or a jump in inflation because of a debt crisis, investors might gravitate to bitcoin like they do gold. He notes that it probably appeals more to millennial investors than older investors.
Even though the late-2017 fervor around bitcoin has died down, van Eck says he sees some “rays of sunshine” in terms of commercial adoption, such as payment company Square allowing people to use bitcoin.
“This is something where a very mainstream company is using bitcoin,” he noted. “Bitcoin hasn’t gone away; it’s just taken a while for it to be integrated into other products.”