Talk Your Book: The Bull Market in Real Assets

to learn more about the Van Eyck real assets ETF.

Take a rax, R-A-X, that's Van Eyck.com to learn more. Welcome to Animal Spears, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect

the opinion of Redhall's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Redhall's wealth management may maintain positions in the security discussed in this podcast.

This interview reflects the speaker's views as of the recording date and may change without notice. It includes forward-looking statements about markets, economic conditions, and investment strategies that are not guarantees of future results.

References to past market performance, asset classes, including gold or commodities, or

prior cycles are for illustrative purposes only and do not represent any Van Eyck funds performance. The Van Eyck real assets ETF, R-A-A-X, is a diversified fund of funds and does not track or replicate any single asset class. Welcome to Animal Spears, with Michael and Ben.

“Michael, one of the things that I think has always lurked you in me a little bit about”

like the hard asset crowd is that it's usually like the bullcase for that stuff is like the bear case for everything else, right? This stuff is only going to work because everything else is going to fall apart or the dollar is going to collapse or whatever. We haven't heard many cases being made for, well, what if, like, actual, it's more growth

and the need for this stuff and things getting better innovation that is causing this stuff to go up. I love it. Maybe these things can go hand in hand. It's an optimistic take for owning an asset class that is otherwise, well, I don't

have real assets or an asset class, but like gold, for example, is otherwise held because things might not be going so great, which is certainly part of the story here, but it's more than just that. Yeah. So we talked to David Chessler.

He is the head of multi-asset solutions at Van Eyck and he runs a Van Eyck real assets ETF. And he made this case to us. He said, listen, what of the fact that we have all this innovation going on in AI, there's going to be a huge buildout, there's going to need to be all this energy and it's going

to improve growth because it improves productivity. But to get there, we need to spend a lot of money. And that's going to cause all these real assets to be in heavy demand, high demand. So we did kind of get the, and this is something you've been wondering about, like, why

“are gold and stocks both going up at high double digit rates for the entire 2020s?”

How is that possible?

It's never happened before.

He gives the explanation. So here's our talk with David from Van Eyck. David, welcome to the show. Thank you for having me. All right.

We're here today to talk about Van Eyck real assets ETF, the ticker is RWIX. I don't always say WI. It's R with two ways. In case there's any confusion followed by an X and I'm looking at a chart of the total assets on their management and, you know, nobody really used to care about this ETF assets were,

you know, going sideways, whatever. And then something happened in the middle of last year. So what is the story with real assets? What we can control from our side is as best as we possibly can that performance and the assets follows.

So I think the story started years before that.

“I think the reality is that the world flips upside down post COVID, right?”

We're in a different regime. And the current regime favors diversification. And I want to be clear. I'm not a anti-stock anti-bond guy. We invest in stocks and bonds and I run multi assets across the board.

So it's not that we're anti-the other assets. We're just bullish on diversification. And we believe structurally that this environment favors real assets. Let's just define real assets, people are not familiar with this asset class. What do you consider real assets?

Real assets, let's start high level resource assets, commodities, raw inputs. So if it's commodities, or if it's companies benefiting from the extraction distribution of commodities, companies that have offering leverage to commodities. So let's put that as bucket one. Let's put bucket two as assets with embedded scarcity.

All real assets have scarcity, none more than gold. Gold is the ultimate story value asset. Has out survived every monetary experiment in history? Not an accident that we're in a global market right now. So that's real asset number two.

Real assets number three income generating real assets, real assets that spit off a yield. So those are the three buckets that we're focused on. So the ETF itself is a fund of other ETFs. Which I thought was interesting, why is it on this way? It is a very efficient way to access the different segments.

So racks, the real asset ETF, if you think about it very simply, it's a one-stop shop

So if you want exposure real assets and you want to under one ticker, you can purchase

that and basically be done.

“You can allocate to one slice of this and have a complete and comprehensive allocation”

of real assets. I would agree with that. I'm not saying that just because vanic is paying to be on the show. But I'm looking under the hood. And 23% of the portfolio is in gold, 18%.

This is give or take and this is as of February 6th for compliance. Commodities, broadly speaking, 18% infrastructure, 11% energy income, 8% energy, 6% natural resources, 4% clean energy industrials, global industrials may I add. Materials, uranium, gold miners, utilities like this is you guys have a good job. Thank you.

Yeah, the idea, if you kind of maybe take a step back, the world's changing really quickly. So if you just start to think about the catalyst and what drives it and the composition of the funds assets, we're in the structural new regime and it's defined by extreme innovation.

“Obviously, we're talking about AI and what's the bottleneck need to clear to make the future”

reality. Older all that that's building out the new world. If you're bullish on AI and you believe that's going to happen, well, then you're bullish on infrastructure. You're bullish on infrastructure development and you're bullish on energy.

Because if you don't clear those bottlenecks, that doesn't happen. And then you're stuck with a very serious question, which is how are we going to pay for it? We're running into this innovation cycle after decades of persistent and perpetual egregious overspending. So we're folded the gills with debt and now we're in a situation where we're in a global

arms race as a relates to AI. So the U.S. is basically in a two-horse race here, we're trying to losing can't happen. If you don't have growth, what else matters? So if you want to be relevant in the new world, you need to be competitive in AI. If you need to be competitive in AI, you need to have the infrastructure to support that.

So all roads we think lead to real assets as a critical piece of a portfolio.

“And that doesn't mean you have to bullish on other segments, but we think it's an essential”

component. So how do you, how do you come up with the weights in this portfolio? Is this something that shifts around, do you try to sort of market cap weight it somehow? How do you determine what gets allocated to here? Yes, so it's a three-step process.

So if you start high level, what we do is we use our understanding of these assets, our understanding of history to identify what are the right key real asset segments. So that's step one. Step two, we've run an optimization process. That optimization process is designed to maximize diversification by minimizing volatility.

So we want a very stable framework to perform well independent across the economic regimes. And then step three, we're quantated by nature. So what we do is we look into the market to understand risks and opportunities. So what we're doing is we lean into momentum. So if something's working really well, that's the market's slapping you on the back and

say you're onto something. Alternatively, if you're excited about something and market perpetually punishes it, and there's a lot of volatility, the market's telling you everything. So what we do is we ride momentum, we let our winners get bigger. The conditions that aren't performing as well gets smaller.

And then we will also use mean reversion as well, meaning that if something sells off the work site about, we'll dip in a little bit, alternatively, if something like gold, we're bullish on gold. We've been sellers of gold now for years, because we entered this gold bull market and max allocation.

So we're constantly taking chips off, redeploying it without the rest of throughout the rest of the portfolio. You mentioned a couple of catalysts that COVID, I don't know if you said the dollar yet, but something is different. Something is clearly different, real assets, it's not just, it's not just like people are

getting interested in the ETF with assets going vertical. I mean, there's a response to the price, but the price is clearly responded to something. There are reasons why people want to own these things that have been left for debt for many years. Like, real assets was not really a part of the conversation.

It was all about mag seven, cloud computing, then it's AI, and then it's, oh, it's too much responding. Let's maybe own something that is real and you're the solution. So how do you see this story? We're five years into a bull market in real assets.

The world changed when we basically decided to increase the mice by 42% overnight, print

money, give it out to Americans as spent and we spent. So it kicked off one hell of an inflation cycle.

going to last a long period of time as, as happens during global periods of inflation.

Then that started to continue and continue and continue where you got into the situation where AI came to the fold and we started building out data centers and we started thinking about how much more energy we're going to need. You had the big, beautiful bill. The dollar was weaponized against Russia in support of Ukraine and all these little things

continue to happen and happen and happen, which continues to push the world more towards real asset investing. You, so with what's going on with, say, silver and gold in the last month or so and especially silver and you see it like go parabolic and then it gets crushed and it's seemingly is overtaken by the meme traders or the Reddit people or whatever you want to say, does

that, does that concern you at all when like you see the momentum chairs hop on this or does that just noise to you and the grand scheme of things?

I think we start the conversation on gold and then we morph it over to silver.

So gold is doing what we'd expect in gold. We've been very bullish on gold. We've been very vocal on gold and I think a largely what we've said has turned out to be the case. So silver typically, so silver has the same embedded scarcity as gold.

It's a smaller market, it's easier to move around and it also has industrial utility and then industrial utility, which really favors the electrification of the world and everything else where we're going to, right? So we get the silver story, but if you take a step back, gold follows silver, not vice

“versa and I think you have to kind of go back to the original root cause here, which”

is the embedded scarcity and start to think about the debt problem and start to think about the world needing a new true reserve asset. And once you get there, you could start to think about where are we in the gold bull market. And if you look at other previous gold bull markets, the 1970s gold was up around 500%. We had a very long, healthy, consistent gold bull market in the early 2000s, gold was up

around 600%. And if I look at this gold bull market and I define it, when it really started to take off in 2022, you know, we're up around 200%. We think that there's a lot more room to go here. And I want to really emphasize one thing that I think it's missed the size of the gold bull gold market, relative to the size of just the global equity market.

It's a lot smaller. The financial markets have expanded rapidly relative to the stock of gold. So what we're saying is that this gold bull market will probably be more intense than the ones of the previous times, more and more volatile, you're going to see lots of corrections. And I think prices that go a lot higher than people expect.

Even though prices have already gone higher than a lot of people expected. We're not that far into this gold bull market.

“You have to think to yourself, what are the catalysts that are driving it?”

Why is this happening? So we're not that deep into it. I think that I don't love how fast prices right up. I don't think that that's great. I think that that makes people nervous.

So if you're an allocator sitting on the side, you see a move that quick. You're going to be a little bit hesitant.

But the reality is a lot of people talk about gold, but not a lot of people on it.

People are missing out on this trade and the structural catalysts are still in place. So we think this is going to continue. Is it going to pull us for a little bit, contract a little bit more probably? You're going to see a lot of corrections. If you look at the previous corrections and if you look at the previous global markets,

you'll see in the 1970s and 2000s, there was five corrections of 10% or more. We've had now 2% two corrections of 10% or more in the current global market. What we're saying is gold's acting like gold in a global market. Yeah, it is.

“You mentioned the weaponizing the dollar on the Ukraine war and that was I think a big thing”

that set this off is all these other countries saying, hey, we need to hold something some hard assets that can't be taken away from us with the push of a button. So we're trying to wrap our heads around how much of the gold bull market so far has just been central banks buying it up and like what is there a risk of them hitting the pause button and that being a problem like how much would you and I know it's hard to attribute

something like that completely, but how much is it just central banks buying up as much gold as they can? I think you've got to go back to the root cause of this originally. The underlying thesis originally was that debt matters and depths is better that you can't structure you overspend forever and and I think what's unfortunate is that people become

grounded in their own reality and people have known a world where the US can print and spend as much it wants without consequences and the and the long-term history of civilizations points otherwise. So it was really just a matter of how long we can we can do this until we can't. Once that cycle kicks off, there's a lot of unfortunate things that happen along with it,

political discourse, which is clearly what we're getting, distrust and media, which is cool what we're getting, rising interest rates, right, clearly what we're getting. This is all related to the same cycle. So when we look at this, I think you pointed out to some different catalysts tied to the original thesis, but I think that they're all interrelated as well as as well as independence

They need a neutral reserve asset.

“How much of the infrastructure story is part of this versus just the bill.for the AI stuff?”

The first phase of this was the Scarce disease.

The Scarce disease weren't compute. The Scarce disease weren't energy. So you've seen, Nvidia to the moon, nuclear stocks to the moon. But then it's going to broaden, right? So we've seen huge catbacks, which is contributed meaningfully to GDP growth from the bill

out of the data centers. But now how are we going to power it and how are we going to move that energy? Our view is really simple. The big beautiful bill was an appetizer for the spending bills that will come up in the future to keep us competitive in this global AI arm race.

And energy is a key part of that story. And then you want to layer on top of that arm story, right, or reshorring, excuse me, reshorring is effectively what we're doing is we're dismantling global trade where we're going to build now, right? We're going to build in the future what are it exists now for more expensive.

So what we're talking about here is a decade plus long catback cycle that's going to

drive the need for critical minerals, metals, infrastructure development, a lot more energy.

And I just want to push a little bit more in this energy thread. We're not just talking about the energy that the technology uses. If AI does what a lot of people believe it will do, including us, it's going to drive productivity. That productivity is going to drive global growth that is going to materially increase

the quality of life from millions and millions of people.

“When it does that, people are going to require a lot more energy, right?”

Rich people consume more energy than poor people. And we're talking about rising living standards here. We're talking about a world that needs a lot more energy, not just for the technology, but for the outcome of the technology. It's interesting because when I think about a gold boom, I don't generally think of prosperity.

But the story that you just painted sounds pretty positive for humanity. I view this as a positive story. I really do. I don't like to get into the term inflation because it's kind of like a, it's, it's a, it's a trigger word for a lot of people.

People have a lot of strong views on it. Yeah, Ben, Ben, cover your ears, Ben's very sensitive to the eye word. No, you're right. It's true. It gets people angry.

It gets people upset. It really does. In 2020, we came out early and we told people that we're going to get a lot of inflation. I was going to last a long time and it was going to change. It was going to change asset allocation assets within bed scarcity.

We're going to perform and we were going to be in this different regime. And people got upset. And the reason why they got upset was really simple. We came in and told people they were going to get something that they historically haven't gotten.

Right? We were telling them that they're going to get something very, very different. The easiest story to tell people is telling that tomorrow is going to look like today. But if I tell you that tomorrow is going to look nothing like today, you're going to get a lot of resistance with that.

Well, you're right because I've looked at this in Michael and I have looked at the data on this. If you look at the decades, stocks in gold usually going to opposite direction. Like the 70s was really good for gold and bad for stocks. 80s and 90s, great for stocks.

Not great for gold. 2000s, great for gold, bad for stocks.

And then this is the first decade in the 2020s where gold and stocks are both doing well.

Right? They're both doing really good. So, I guess my question is, is the, because you're looking at it from a government perspective for spending. And that makes sense to me for being like this longer-term macro issue.

But like, I guess is the risk to your thesis on the AI front, just that these companies have just, they keep pushing out more and more capex and eventually the stock market is going to slap the risk and say, no, we're not going to take this anymore until you show quicker ROI. If ROI doesn't come to fruition and then they pull their capex back, is that a risk for

you that the technology companies, all say, all right, we've overextended here. We have to pull back our investors aren't liking this anymore. Is that a risk? Yeah, maybe I could explain it this way. So the way that we describe AI is in three phases.

The first and the build, and we're still, obviously, in that section, phase two is a dock, phase three is automate. Phase two is clearly what you're seeing now. We're companies that come out and they talk about big spending and potentially getting paid back five years from now, they get punished, but companies that are actually incorporating

“this technology to immediately drive productivity, right?”

And giving you a direction on global growth, get rewarded, we think that that's where we clearly get to really quickly, but we do think the adoption is going to be fast some people expect. We think that this AI cycle will be quicker than people expect, right? AI is a general purpose technology is going to change the world.

It's very different from other general purpose technologies, though. Other general purpose technologies were designed to drive to improve human being productivity. If you think about what AI is, it's designed to mimic and approve upon the human effectively replace. Once you combine that with automation, you're talking about mass scale disruption that's

It's going to happen fast and people expect and it's going to be more profound than people

expect. But at the end of the day, all roads are leading to more productivity, more global growth. It definitely, you're not going to get hiccups, though.

“I think what you're laying out is I think so many people for the last, called 18 to 24”

months have been preparing for what does it look like when AI bubble bursts, right? And it does seem like in the last three months that has shifted a little bit to like when we see Claude come out and all this stuff and the software socks get hammered. And I think people are now starting to price in the scenario of what if the AI bubble isn't bursting?

What if it really is just this immaculate handoff from Capax and spend into actual productivity? And so I think that's probably, you're right, the scenario you're painting is one not a lot of people have considered actually. I think everyone assumed, okay, we've seen the history of the dot com bubble and the railroad bubble and all those other Capax and it's going to burst just like they all did.

That's, everyone is ready to history book and see that, but you're saying, well, what if

it doesn't? I am saying that's probably not going to go in the straight line. That's going to get bumpier than people. It's going to get bumpier. And that's fine, right?

That's the path of markets. There's going to be winners who's going to be losers and guess what, the winners have not yet been crowned and the winners may not actually be in existence right now. So it's going to be different than people expect, but what we are saying is that we do believe that technology is going to work, we don't believe that it's overhyped and we do

think it's going to happen faster than a lot of people expect. If you think about just, just think about the internet and go back, you know, go back

“20 years and think about how different your life is now.”

It would be hard to fall in 20 years to go how different your life would be now. But because it happens slowly over time, it dripped on you dripped on you, we accepted it, we accepted it, we accepted it, we're saying that happens a lot faster this time. And when it happens a lot faster, it's time to make way more disruptive. That's the difference, technology compounds on top of each other.

Let's bring it back to real assets. If you want to make money in this regime, you've got to clear the bottlenecks.

The most obvious bottleneck right now is the critical infrastructure needed to facilitate and

build this and energize it, full stop. That's why real assets are largely running and you've got to realize when we go back to this fund, think about it this way. Two thirds of our real assets or growth oriented real assets, old world building the new world. One third of them are how we're going to pay for it and what we're saying is that if you run

into a scenario like this and you're full to the gills on debt, well, it's got to come from somewhere. We do think we're going to grow faster, yes, I get that, but off the back of a lot of capex and regardless of what Scott Beston saying and love him, he's a brilliant person. We don't think, you know, this is a 1824 month cycle here.

We think that this is going to be an extended, extended duration cycle as we're always at capex investment, need to build this out. We don't build things fast in this country. That's not going to change overnight. It's not going to happen.

“And guess what, the bill always comes in a lot higher than we expect, right?”

You get the bill and then you get the bill at the end. The work orders, you know, the work change orders kind of pile up. Don't, don't ask about the plumber in my house last week. Unbelievable. All right.

In terms of portfolio construction, what does that look like? Is this actively managed, like, where does the 4% and natural resources come from? Not that specifically, you know what I mean? Yes. So this is what we're trying to do.

We are trying to create the most stable mix of assets, of real assets possible. We believe that we can borrow from each discipline of investing, right, to create the best to be pre-product. I said originally, we're quantitatively driven investors, but we've been talking about macro now for the last 15 minutes.

So we're taking macro, dramatic drivers. We're taking fundamental understandings of the assets. We're taking quantitative portfolio construction discipline, quantitative risk management discipline, putting all that together into one unified approach. That's the idea here.

So when we think about what are the right real assets that's quantitatively driven, what responds to inflation, what are what assets actually pay you to be there? So that's one of the process. Step two is quantitatively driven, maximized to personalization by minimizing, to by targeting the lowest fall portfolio, which merely just means we're going to learn a lot of gold.

Real assets are that have a strong correlation to each other. We're going to take that into account, and we're going to build the most stable mix of assets possible. So we're 20-something minutes into this conversation about real assets. We haven't even spoken about the dollar.

What do you all fall on the de-dollarization story that's out there? Because yeah, the dollar's weakening, but it's like, I don't know, it's like crash or anything. How do you parse that out? I think about that differently. I don't think about, I think about purchasing power.

How do you know money's broken? Money's broken because every time you reach into your pocket to spend, you buy less and less and less. I'm not thinking about how much the dollar buys me versus the euro, etc. This is a fiat currency issue.

We're going to period of fiat abundance that benefits assets with embedded scarcity.

If I take any individual asset class, and I start to measure it in units of scarcity, IE units of gold, the performance of stocks, clearly not as attractive, bond you've really made any money regardless, now you're down a lot. So think about the world in units of excess, fiat excess versus units of scarcity, which is units of gold, and that's the way we think about asset allocation right now.

But if I'm going to push back on the inflation piece, we got the huge spike in early 2021. And now we've been sub 3% for the past 18 months or so. So inflation has kind of gone back to historical norms. I know what's higher than it was in the 2010s, but that was low because of the great financial crisis.

This is not anywhere near inflation, like we saw in the 70s, and it seems to have kind of Peter out across the globe as well. So if inflation is not as high as people think, just because gold's going up, that doesn't mean that inflation is crazy out of control right now. We had the one time bump, but now it's kind of settled back into the long term inflation

rate.

I didn't say that inflation was driving it.

I guess, how do you run that back a little bit? So last year, we did not have a spike in inflation, but you had the best performance of gold. I'm not saying that we need in runaway inflation for these assets perform. Not saying that at all.

What we are saying is that during periods of financial access, assets with...

“Do you talking more about government spending than inflation?”

Correct. Okay, correct. I make sense. Because when inflation spiked on the goldhead a great year in 2021 or 2022, either, right, it didn't go crazy.

It's not historically, it hasn't necessarily been just an inflation hedge. So there's an narrative I used to explain this to people with. So I'll say it now, I haven't said it in a while.

So this is what, if you would have met me in 2020, this is what I would have said.

And you could fact check everything that I'm saying. So in 2020, this was the narrative. Gold will do well in the beginning of inflation boom. It will do well, but not great. I'm saying to her about five years in, but commodities will respond immediately.

So oil prices don't sit around waiting for asking, isn't inflation going to be a problem? It responds to me like to supply demand and balances. Gold sells a problem. Now, if you don't realize you are a problem, then you're not going to seek it out as a store value asset.

So how do we end up in this regime where the hardest selling item at Costco was gold boy? How do that happen? Over time, people denied that inflation was going to happen to be right. Then once it happened, they were told, don't worry about it's going to be mild.

And then once it became extreme, they were told, don't worry about Uncle Sam's got your back. We're going to fix this problem for you. Now people are sitting around dealing with these consequences. And now, people want to protect themselves, they want to protect their families, they want

to protect their clients. You don't necessarily need to run away inflation, but you do look at the debt. You worry about how we're going to facilitate and actually pay for these deaths that's going forward. And you want to protect yourself and then globally, right, globally, if you just think about

what's happening overseas, countries want to protect themselves from a dollar. So if you saw it, if you're a China and you saw what we did to Russia, you're going to be hesitant to hold US assets as reserve assets. If you're an ally, it was fine because you're like, all right, well, if we're on the same side of the United States, that's cool because they're not going to do it to us.

And then we got to this trade war. And then maybe take Greenland, right, and then we goes on and on, the US became the source of volatility. We lost our, we lost the ability to be trusted as the news reserve asset, as that neutral, neutral custodian.

And with that, people have to protect themselves. The rate, you think about it's the old added job for me once shame on me, or for me once shame on you, for me twice shame on me, that's a situation.

“If you hold the US dollar as reserve asset as a foreign country, you have to stay yourself,”

I need to protect myself. And that's what you're staying. So you're staying global, central banks globally, continue to eat dollars. And as former president Bush said, full me twice, can't get full again. Well, that was an all-time or what a banger.

All right, David, let's question for me. Did you all consider crypto as a real asset, or is that like hard, like, that's not a real asset? We put it in originally, it was a revolt against us. We took it out.

I, that's the right choice. Wait, so like you're in, your investors are bolted or what? What was the pushback? I'm curious. Not even price wise.

It is, in my opinion, there is a distinction between these real assets and crypto, or big coin or whatever. I'm an asset allocator. So if you give me an asset, that's historically top-performing asset with a differentiator risk or return profile.

I like that. That gets me excited. That's why I get excited about gold.

“That's why I get excited about real assets because I look for assets with unique return”

drivers that are highly differentiated.

You can tell it a story, and I think that the story makes sense how big coin, specifically

“big coin, when I tell my other digital assets, how big coin is an alternative to gold”

because of the embed scarcity. And if it fits very cleanly into the world, which we're going to, which is a digital world that favors transparency and favors efficiency. So I get that.

The problem is that not a lot of people see the world the same way.

And you don't want to force your views on other people. It's so our thinking is really simple. If you buy racks, there's no digital assets there.

If you want digital assets, pair it.

But we're not going to force that view on anybody else.

“And I think that that's a right decision.”

I agree with you. All right, David, for people that want to learn more about racks and vanac and all your offerings, what do we send them? Vanac.com. Okay.

Well done. Thank you for coming on. Thank you, sir. Closure. Okay.

Thank you to Vanac.

“Remember, check out vanac.com to learn more about the vanac realize it's ETF and an email”

us, annual spirits at thecompoundnews.com.