Jan van Eck, CEO of the eponymous investment firm founded in 1955 by his father John van Eck, tried his hand at a number of other endeavors—working for a think tank, a newspaper and getting a law degree from Stanford—before coming back to the family firm in 1992.
“I kept trying different things to make sure I didn’t want to do other things,” he says. Eventually, van Eck says, he fell in love with the business world after a stint in Silicon Valley working with entrepreneurs. Finance, he realized, could be “fascinating.”
When van Eck joined VanEck Associates, the firm was going through tough times. It had about $1 billion in assets under management but was unprofitable, given the focus on gold that had made the firm famous in the 1970s.
The senior van Eck had made his name predicting gold’s rise in the inflationary era of the 1970s. “It was a great insight, and it was a risky bet because for three years, gold was pegged,” his son recalls. “He said, ‘That’s going to break and I’m going to make a lot of money in gold shares.’ For three years he was wrong. And then he was right, and he was right in a big way.”
But after Fed chairman Paul Volcker raised interest rates in 1981, gold went into a 20-year bear market, and the firm suffered.
“It’s hard to grow an asset management firm when what you invest in goes down every year,” Jan van Eck says, somewhat wryly.
As gold waned, the firm began to branch out and now offers dozens of ETFs and mutual funds in just about every asset class and country. It now has about $50 billion under management, and gold is still part of the platform.
“It is a nice hedge now,” says van Eck.
Volcker and the elder van Eck, both of whom are now deceased, would later meet over a social lunch, and Jan van Eck got to tag along. “It was one of the most interesting moments of my life,” he says.
Van Eck thinks the investment world is broken up into two types of people: historians and statisticians. “There are people who just take everything and try to put it into a formula, and that’s how they think about the world. I focus more on all the change that’s happening, structural change. I look at the world as constantly changing.”
Worth sat down with van Eck to get his views on how the investment world is changing now, discussing everything from China, the Middle East and the presidential election to the debate between growth and value—and what investors want. One hint is the latest design of the neckties the firm has become famous for giving clients: This year the dominant feature is a (carbon) footprint.
Q: What’s your investment philosophy for 2020?
A: Don’t worry; be happy.
Can you explain that?
The last big hiccup in the stock market was in the fourth quarter of 2018 and I think that is only explicable through what happened in China. Their debt was really growing rapidly and they decided to stop it, and whenever you stop the flow of credit, that has a direct impact on the private sector. I think that’s why the Fed did a U-turn in January a year ago and said, “Whoa, we’re not raising interest rates. We’re not stopping QE.” That’s probably the first time, arguably, that something that was happening in China really started rippling across other asset classes.
China realized that they were risking this hard landing and they started a drip stimulus. So they didn’t throw a ton of money at the problem, but they started doing lots of different things—cutting taxes here and changing incentives there and slowly reducing the reserve requirements. That’s what kind of stabilized things, so when I say don’t worry, be happy, it’s that.
And you don’t see any reason for them to change that?
Not right now.
There are a lot of bad loans in China, there was a lot of overbuilding. A lot of people have been bearish on China because they think that it’s a Potemkin village. What do you say to that?
China is a huge domestic economy. I think the commentary is overly negative, and I also think there is a lot of confusion about statistics. So it’s really hard to understand what’s going on there, and I think the root of the problem is that the GDP number is not great.
What about the trade war between the U.S. and China? That doesn’t seem to have affected either economy that much. Is it going to at some point?
Not really. There are two types of economies in the world. There’s an island economy and there is a continental economy. What I mean by island economy is—take the UK, take the Netherlands, take Singapore, take Hong Kong—they are very reliant on trade. They’re very vulnerable to external fluctuations. Of course China got rich by exporting, but that’s not where it is anymore. Exports haven’t contributed to growth in five-plus years.
Switching to another international issue, we were just on the brink of war with Iran. The threat seems to have receded, but when the markets thought that was going to happen, they fell. How dangerous could that region be to world markets if we have more escalation there on either side?
It’s really a minor issue from a financial and markets perspective. Obviously if we get into a shooting war, that’s not what I’m talking about. But the U.S. is not dependent on oil from the Middle East anymore so that’s huge from a vulnerability perspective for the U.S. economy. If you look at the commodity markets, even when Iran attacked the Saudi facility last year, after two weeks oil prices were back where they were—and that’s shutting down a huge amount of the production in the world’s largest producer of energy.
We’re in a presidential election year. What kind of impact, if any, do you think the election could have on the markets?
The way I always try to talk about it is how will monetary and fiscal policies change, because ultimately that’s what affects financial markets. So I think there’s almost no chance that monetary policy changes this year. The Fed has basically said, “We’re going to stop raising rates. We’re going to stop cutting rates. We’re just going to kind of see how things are.” It would be viewed as being political if they started monkeying around with the economy, and they want to be viewed as apolitical. Ultimately the election will drive a lot of headlines, but I don’t think it’ll drive the markets much unless one of the more liberal Democrats gets elected president and the Senate is lost [by Republicans]. So if corporate taxes are going to go up, if all kinds of taxes are going to go up, then obviously the markets will price it in ahead of time.
In the meantime?
I say don’t worry, be happy, right? Because I think the economies are going to be fine. The one negative about the markets now is that PE ratios are very high, and so that’s a concern.
Are PE ratios high because of the low interest rates—and can they be sustained?
Yes they can, and that’s the difficulty. We all would like to buy things cheaper, right? Like in our daily life, we never want to pay more than we have to for something. You have to be conscious of it, but you just can’t let it drive your timing or you lose money if you start trading on that.
Do you think that value investing is dead or is it, like you say, a timing issue?
What do I think about growth versus value? So you’ve had the longest run of growth, 10 years consecutively, where growth beat value. That’s never happened before. But I don’t draw too many conclusions from that. I do think there are things about value that are broken. Price to book is not a way to judge a stock like Apple. It doesn’t matter how many manufacturing plants they have.
So you wouldn’t say, well these growth stocks have gone too far and we should pull back from them?
I look at it. You have to, especially you look at the way Apple went up last year. It’s a 25 PE now. You have to be super conscious about it. I liked it much more at 15 times earnings. Do you feel like we’re in a blow off like 1999 or online dog food delivery companies?
Some people do think so.
It does remind me of 1999. The question is how far are you at an extreme. You don’t want to be overweight. One of our most popular ETFs is the U.S. Equity Fund, and it’s really designed to avoid those types of issues because it uses its proprietary research from Morningstar. It’s also not driven by sector exposure. It happened to beat the S&P, so it’s been growing nicely for us, but I think it mitigates some of these risks that are out there.
What about the sector funds? Which ones were the most popular?
We launched an e-sports ETF. There are a lot of gaming and sports teams now that compete electronically. It’s a very high growth segment of the market. It’s very popular in Asia as well. We include both e-sports and more traditional gaming. It performed very well.
Do you have ESG ETFs?
Not in the U.S. I would call them environmentally oriented, like alternative energy and environmental services. We have a green bond on the income side, but we don’t have one that combines all of those factors.
What’s a green bond?
It’s a bond that is issued by anybody, but it gets certified for environmentally better uses. It could be a more efficient bottling plant, a water efficient plant. It could be any kind of environmental project from a government.
Are you seeing a lot of interest in those products?
Everyone in the developed markets is super conscious about the environment. Whether it’s food or goods, I think that filters through on the investment side. A lot of our clients are very conscious about that. We’ve always been conscious in the sense of we want to invest in companies that have the highest operating standards in their fields.
You’re known for your gold ETFs. It seems odd that gold would do well when the stock market’s doing well. Why has gold been taking off?
Our government deficit in the U.S. We’re 10 years into an expansion, it’s over $1 trillion and it’s a very high percent of GDP. That has gone on for long periods of time, so that to me is a big long-term risk. I would combine that with the negative interest rates in Europe. This is the time for investors to own some kind of hedge in their portfolio, whether it’s gold or commodities or bitcoin. I think any of those might do well if confidence gets lost with central banks.
When that was happening last summer, there was all this talk that recession was coming. Has that threat totally receded?
I thought that was a misplaced concern. Going into last year, our philosophy was, don’t fight the PBOC, which is the central bank of China. Yep the market had corrected a lot in 2018 but coming into 2019 Chinese policies are supporting the economy. And so when I saw the inverted yield curve, I’m like, yeah, I don’t know what that is, but I can tell you the U.S. is okay. The U.S. was slowing down a little bit, but the U.S. is okay, China’s okay.
And this year?
Maybe you don’t make a lot of money in the market this year. That could very well be true. Just make your dividends.
So don’t worry, be happy. But what do that you think is the biggest risk now?
I think the one that people should act on is long-term budget spending in Washington. People aren’t looking at it at all.