Jan van Eck brings the historical perspective to cryptos, gold and more
Neither Jan van Eck, nor his father John van Eck, set out to launch investment businesses using their last name.
The eponymous status was wished upon his father when he brought his academic background, his PhD studies in economics and his concerns about inflation, to launching International Investors’ investment funds, investing post second world war in Europe and Japan.
His investment theories became well known enough that, after he added gold equities into the mix in 1968 and gold skyrocketed the following decade, he added ‘Van Eck’ to the International Investors Fund and launched a second fund under that brand.
When van Eck the younger launched a new range of funds globally - ETFs - they were christened the Market Vectors funds: “It proved to be a uniquely unmemorable name,” van Eck says. “And, in fact, in ETFs, no one cares about names, only ticker symbols, so everything has since been rebranded to VanEck.”
It’s rare to find a multi-generational eponymous investment firm, so hard to resist going over its origins. Van Eck says that his father’s investment style was neither value nor growth but more of what we would now recognise as a macro approach.
“He was thinking about the world and had this historian’s bias that the world is always changing, so what trends do you want to take advantage of,” van Eck says.
That approach to investment is of course proving bang up to date in a post pandemic world where identifying new successful trends and themes have dominated investment decisions.
“My father was best known for investing in gold through the gold mining shares idea,” van Eck says, and sees a link between his father’s success with gold and its allied equities, with the recent growth in digital currencies and their allied equities.
“My father was very much focused on the investor and good risk-adjusted returns and his gold mutual fund was the best performing fund in the 1970s, performing somewhat like bitcoin, up 100 per cent a year for many years.
“I think he would have been pleased with the firm’s assets under management, but it was not the top priority of the firm – the top priority was – and still is -- returns for the investors and having good funds.”
Van Eck believes that his firm still has that historian’s informed view of the present. “In the investment world we are trying to predict the future - with the historian’s sensibility. The world is changing a lot the whole time, so you look for new opportunities and are conscious of the change.”
He notes that lots of hedge funds or other alternative investment funds are based on applying trading strategies based on historical data in order to predict the future. “But the fundamental premise of that is that the world will stay the same,” he says. “Whereas historians are more conscious of discontinuities in the regimes.”
VanEck launched its first ETF offering, VanEck Vectors Gold Miners ETF, in 2006. VanEck Gold Miners ETF GDX currently has assets of USD12.74 billion. “We started out of fear of someone taking our biggest strategy at the time, the gold miners’ strategy, and capturing the market,” van Eck says. “We were driven by a fear of disruption, and we got first to market which gave us a leg up into this new business.”
The ETF tail, as is often the case, has grown to wag the dog, as VanEck’s ETF business has grown to some USD70 billion, with the active management offering standing at USD10 billion.
The active management part of the firm still takes up a great deal of van Eck’s time and it is here where he seeks to create funds based on sustainable business models, believing that it is easier to accomplish within actively managed funds.
“In the early days, a large number of our ETF ideas came out of our specialty in commodities and emerging market investments,” van Eck says.
He finds the breathtaking growth of ETFs unsurprising. “Firstly, ETFs are more price competitive than traditional offerings and consumer demand always shifts to something cheaper of similar quality,” he says. “And in terms of portfolio construction, the reliability and transparency of ETFs makes them very sympathetic to thinking about how investment portfolios should be constructed.”
He also notes the recent growth in Europe of the ETF industry. The firm had clients in Europe, firstly with hedge funds, and with an office in Frankfurt that offered an index business. 2010 saw the firm launching some of their UCITS products in Europe. 2018 saw the van Eck family return to its Dutch routes, buying the Amsterdam based Think ETF Asset Management.
“The Think acquisition was a big boost to get us up to scale as they had USD1.5 billion under management while we, at the time, had less than USD1 billion in Europe – they were a great team and looking to expand geographically, so it was a good fit for us.”
Currently, the European ETF and funds business has USD6.1 billion in assets, making it 17th in terms of ETF assets in Europe.
“ETFs will continue to grow,” van Eck says. “Because of the cost effectiveness and the fact that is how people want to have exposure in their portfolios. Also, the trend during Covid has been the increased involvement of individual investors and they are a significant part of the assets in the US, with about 10 per cent of people using the internet to find our funds and clicking in. In Europe, that has been cross-generational but that DIY trend is a change, particularly in Europe where large banks have dominated the financial horizon.”
VanEck has also been at the forefront of the march towards getting a bitcoin ETP regulated in the US.
“What led me to look at cryptocurrencies in 2016 was the concern at disruption,” he says. “I was concerned that bitcoin would disrupt gold as a store of value in people’s portfolios so I rolled my sleeves up and did as much research as I could and came to the conclusion that it would become part of investors’ store of value in their portfolios.”
He focuses specifically on bitcoin as the store of value and notes that most other tokens are growth businesses who have the advantage of using bitcoin’s open source blockchain technology which enables them to provide services at lower costs than other financial services companies.
“I liken the smart contract software, the core software that enables cryptocurrencies, to the MS-DOS operating system in a PC.”
The firm has two applications with the SEC at the moment for a bitcoin futures-based ETF, the latest as a result of comments from Chairman Gensler on what a regulated bitcoin ETF might look like. The VanEck bitcoin futures-based ETF is currently scheduled to go live at the end of October.
“The product we would prefer to have seen approved is more of a physical product, not investing in bitcoin derivatives but owning bitcoin directly, because there are always distortions in what investors can achieve through the futures route – we are used to it from the commodity markets,” he says.
A US bitcoin-based ETF may eventually launch – there have been close to 20 applications for a US cryptocurrency product – but van Eck doesn’t believe that the launch of a bitcoin futures ETF before then will be the home run that people are expecting.
“The fund will have the negative aspect of having to invest in futures and lots of people own bitcoin already – Coinbase has 60 million accounts with people owning all sorts of cryptocurrencies,” van Eck comments.
“I think it will be a step forward but not revolutionary. What investors in the US want is what exists in Europe and Canada with direct access to bitcoin so there will be slower adoption but it will be an attractive vehicle for people.”
Within Europe, and putting the UK to one side, van Eck notes that the jurisdictions have been very friendly for cryptocurrency products and the firm has five different ETPs listed in Frankfurt, one on bitcoin and four based on smart contract software protocols.
He is surprised that the UK, with its strong history of asset management, has not been more active in ETF issuance generally.
“We are in a negative interest rate environment in most of Europe, with a fixed income culture, but our businesses are relatively similar between Europe and the US and our growth in assets in Europe has generally been in funds that we offer in the US as well.”
The firm has remained privately owned through its long history, a fact that van Eck puts down to a couple of reasons. “Because of our commodities background, our assets under management have been volatile for most of my career,” he says. “It makes it less attractive as a business as we go from profit to loss to profit to loss.”
The firm looked closely at selling in 2000 before the ETF business launched. “It was very distracting to the business and it’s simpler not to have to worry about outside shareholders and focus on our clients and our investment strategies that we offer,” he says.
Launching the ETF business, which now represents 90 per cent of the firm’s assets, comes in as the best decision he has made. “It’s also partly because of the tone my father set which was to try to innovate,” he says. “Keeping that culture is the most important thing in the firm because you will inevitably fail, but who knows ahead of time, so keeping that innovative culture is the best thing.”
The worst decision would have required psychic powers to avoid, but he cites the firm’s range of global income funds with a heavy weighting in European fixed income in the early 1990s, which hit profound instability in exactly that moment when the world changes, in this case 1992’s Black Wednesday, when the UK government was forced to withdraw Sterling from the ERM.
Very few foresaw this or profited from it, but van Eck comments that it was here that he would have hoped that the VanEck’s historian’s view would have protected them.