In the world of exchange-traded funds, the big keep getting bigger, not just drawing more of the investing pie but also making a mark on how the industry defines itself. Meanwhile, several funds with exposure to commodities have spent the past several weeks blowing up.
For all that, Jan van Eck, CEO of a small family firm founded several decades ago to offer investors access to commodities in a mutual-fund package, says he’s “quite happy” with the way things stand right now.
Van Eck likes the advantages of ETFs, he says, but “isn’t religious” about which types of funds may work best for investors. He’s deeply involved in product development within the company, but also focused on bigger issues, including serving on the board of directors of the National Committee on United States–China Relations. The company first had a presence in China since the 1990s.
MarketWatch spoke with van Eck about the ETF ecosphere, what investors need to know about China, and how the Federal Reserve has managed the market shocks created by the coronavirus crisis. The interview that follows has been lightly edited for clarity.
MarketWatch: VanEck, the company, got its start offering investors access to gold in a mutual fund, but now you’ve got only a handful of mutual funds and a few dozen ETFs. What is it about ETFs that’s good for end investors?
Jan van Eck: We always think about the purpose of the fund in people’s portfolios. I actually sit with our active-portfolio managers, when we’re sitting in the office, and it takes up a bunch of my time. But I think the solution to active these days is you really have to have a concentrated, high-conviction portfolio that’s not just an “index plus.” I still believe in active, and I think for some areas, like probably sustainable investing, I think active actually has an advantage because you really need to get involved with the companies. I’m not religious one way or the other; it’s just that that’s really where our business has grown.
MarketWatch: What’s your take on the new active nontransparent funds?
Van Eck: Ah … you know, I don’t think that’s going to be a big thing. I think if you like an active strategy, as a U.S. investor, then for a taxable account, you’re happy to have that in an ETF because you get greater after-tax returns because of the tax advantages of the ETF wrapper. But I think the ETF ecosystem is in no way waiting for actively managed funds that they can’t see the underlying holdings of.
MarketWatch: The other thing I’m really curious to get your take on is last week’s proposal by a bunch of industry heavyweights about sharpening up naming conventions. It was interpreted by a lot of folks as being heavy-handed, carving out as “normal” the more traditional approaches to investing that they are best known for and segregating off alternatives as “other.” What’s your take?
Van Eck: I really like what I understand to be the objective of it, which is to correctly communicate to investors the essence of the fund and the risks and rewards. In fact, that’s kind of one of our internal philosophical principles, that, when you’re talking to investors, don’t just give them the upside, also communicate what the downside is.
It’s really hard to know the future, and it’s really hard to know what’s going to blow up. The rules and the labeling doesn’t really get you there. Let me give you one example. People largely got access to commodities through commodities futures contracts like the United States Oil Fund /zigman2/quotes/203483736/composite USO -2.38% . We knew that the shape of the futures curve is not something that any investor could see. But a lot of people brought these products to market saying, actually the curve gives you this advantage. When they first started, they basically said, you get an extra 4% annualized return basically because of the shape of the futures curve, and I’m like, yeah [laughing] until you don’t and it goes the other way.
So it cost us a bit because we couldn’t figure out a good way to come up with a commodity fund — which is silly because we had this gold background. In the last year of the commodities bull market, we finally came up with a mutual fund [the Constant Maturity Commodity Fund /zigman2/quotes/203739753/realtime CMCAX +0.51% ] that does a constant rolling of the contracts. That made sense, but it’s better not to do something that has that much of an embedded risk.