Investing in your own backyard may be easy enough, but what about investing in backyards around the globe? One way to do this is with ETFs focused on commodity sectors and global equity markets.
To that end, Van Eck Global has grown its ETF and ETN menu over the past few years to help investors obtain global asset coverage. The company offers exchange-traded products that cover individual countries like Russia (RSX) along with key investment themes like alternative energy (GEX).
Despite choppy waters and the worst economic recession of our generation, the New York-based firm is steadily growing. On a year-over-year basis, Van Eck has increased its ETF assets from $7 billion to $8 billion.
Research spoke with Glenn Smith, director of ETF sales at Van Eck, about today’s investment opportunities and the firm’s products.
Investing in hard assets is an investment theme used by several ETFs in Van Eck’s lineup. Why?
Van Eck has been investing in hard assets and international-themed investments since 1955. Hard assets investments are typically characterized by long-term cyclical bull and bear markets, caused by fundamental supply/demand imbalances. This decade has seen increased demand for natural resources spurred by the industrialization, population growth and the emergence of a middle class in many “emerging economies.” Furthermore, investors have become more aware of the opportunities and diversification benefits afforded by investments in hard assets.
Our ETFs are marketed under the Market Vectors brand. The lineup seeks to provide investors with the tools they need to access the broad hard assets market, as well as individual sub-sectors within the commodities-related investment arena. The RVE Hard Assets Producers ETF (HAP) provides broad exposure to global hard assets producers. Based on the Rogers-Van Eck Hard Assets Producers Index, which was developed in concert with international investor Jim Rogers, HAP provides global exposure to hard assets markets. The consumption-weighted methodology of the index lends itself to enhanced diversification among six key sub-sectors: energy, agriculture, precious metals, base metals, paper and forest products and alternatives (including water and alternative energy).
For investors seeking more targeted investments, we offer ETFs focused on: agribusiness (MOO), coal (KOL), gold mining (GDX), global alternative energy (GEX), solar energy (KWT), nuclear energy (NLR) and steel (SLX).
There’s been a lot of fiscal chaos with state and local government, and it’s impacting municipal bond investors. What are you seeing in the muni bond market right now?
Over the last year, municipal bond investors have faced many challenges. Monoline insurers have been downgraded, auction rate securities markets have dried up and credit markets began to seize after the collapse of Lehman Brothers. Such events caused bond valuations to retreat sharply.
Today, concerns remain over the financial condition of certain states and local governments. It’s important to remember, however, that municipal debt has typically had a lower rate of default than corporate debt of comparable quality. In fact, The Bond Buyer recently reported that during the first quarter of 2009, the number of credit upgrades assigned by Standard & Poor’s outweighed the number of credit downgrades which they assigned by a ratio of 4:1.
Furthermore, since June 30 of last year, municipal bond investors who have stayed the course have realized positive total returns (as measured by the Barclays Capital Total Return Municipal Bond Index). Additionally, those who have invested after the pullback have realized opportunities for additional capital appreciation as well.
From a fundamental standpoint, the municipal bond market continues to appear technically sound. Demand for municipal issues remains strong, while supply has been diminished by issuers’ lack of access to debt markets in the beginning of the year and the issuance of non-traditional muni debt (such as Build America Bonds) over the last quarter. We believe there are still attractive opportunities in municipal fixed income markets. However, diversification by issuer, credit quality and geography is important.
What are some ways muni bond investors can diversify their risk away from individual bonds or bonds concentrated in geographically depressed areas?