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Jeff Margolin
Closed-End Fund Analyst
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ETF Strategist
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  Superior Tax-Efficiency Supports Continued Migration to ETFs
Posted Under: ETFs
Summary of Q3 2019 ETF Flows and Trends¹ 

  • Total US-listed ETF assets reached $4.06 trillion at the end of Q3 2019, an 8.5% year-over-year increase.  Estimated net asset flows in Q3 2019 totaled $67.1 billion, compared to $79.7 billion Q2 2019.
  • US Equity ETFs received the strongest estimated net inflows in Q3 2019, with a total of $34.8 billion.  However, the narrower Sector Equity ETFs category had estimated net outflows of $2.2 billion.  International Equity ETFs also had estimated net outflows in Q3 2019, totaling $14.3 billion, the category's largest quarterly outflows on record.
  • Taxable Bond ETFs had the second highest estimated net inflows in Q3 2019 with $34.7 billion.  Municipal Bond ETFs received $3.0 billion in estimated net inflows in Q3 2019, increasing year-over-year assets by 35.2%.
  • Commodities ETFs received estimated net inflows of $8.8 billion in Q3 2019, the most quarterly inflows since Q1 2016.
  • Alternative and Allocation ETFs had estimated net inflows of $1.7 billion and $0.6 billion, respectively, in Q3 2019, each rebounding from net outflows in the previous quarter. 

¹Source: Morningstar, as of 9/30/19. Includes all US-listed exchange-traded funds, exchange-traded notes and other exchange-traded products. All net inflow and outflow numbers are estimates based on information provided by Morningstar. 

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Posted on Monday, October 28, 2019 @ 10:46 AM • Post Link Share: 
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  Alternatives Update 3rd Quarter 2019
Posted Under: Alternatives
Farewell quantitative tightening, we hardly knew thee. It seems that the financial experiment by the Federal Reserve of raising rates and reducing its balance sheet is over. With negative interest rates being so ubiquitous globally (see Figure 1), perhaps it was just too radical an idea. The Federal Reserve's balance sheet increased during the third quarter and ended at over $3.8 trillion, well above the projected ending point of $3.5 trillion (see Figure 2). It's back to joining the European Central Bank, the Bank of Japan and their liquidity pumping monetary policies, often dubbed "QE Infinity." For capital market purists, such a move might be characterized as a step closer to a centrally planned economy versus a free-flowing capitalist one. 

Given the repeated stance by the Federal Reserve that it is "data dependent," proactive rate cutting and an aggressive balance sheet pivot is a bit incongruous. Such actions give the impression that perhaps the Federal Reserve is overly focused on the senescence of the equity bull market, or worse, that their brief dalliance with trying to normalize financial conditions revealed fragility they were not expecting. Has all the easy money since the Great Financial Crisis created a snowflake global economy? Economic data in the U.S. seems to indicate the domestic economy is still moving along nicely. Perhaps the mountain of debt accumulated by consumers, corporations and the federal government is looming a bit larger for the Federal Reserve as it hashes out its next policy moves.

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Posted on Thursday, October 24, 2019 @ 10:11 AM • Post Link Share: 
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  Third Quarter 2019 CEF Review
Posted Under: CEFs
THIRD QUARTER 2019 OVERVIEW 
Following a positive first and second quarter, the average closed-end fund (CEF) was again positive in the third quarter. The average CEF was up 2.2% for the quarter and is now up 20.1% year-to-date (YTD). It was another broad-based rally with both equity and fixed-income CEFs posting positive returns. For the second quarter in a row, fixed-income CEFs posted the strongest returns. The average fixed-income CEF gained 2.8% for the quarter and is now up 18.9% YTD. Municipal CEFs led the way with a gain of 3.5%, bringing their YTD return to a positive 18.3%. Taxable fixedincome CEFs were up 2.2% and are now up 19.4% for the year. The average equity CEF managed to just barely post a positive return, gaining 0.12% but remains up 19.9% in 2019 (Source: Morningstar. All data is share price total return).

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Posted on Friday, October 18, 2019 @ 12:28 PM • Post Link Share: 
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  ETFs with the Potential for Capturing the "New Listing" Premium
Posted Under: ETFs
Summary of Q2 2019 ETF Flows and Trends1

  • Total US-listed ETF assets reached $3.99 trillion at the end of Q2 2019, a 12.8% year-over-year increase. Estimated net asset flows in Q2 2019 totaled $80 billion, slightly above the prior four quarter average of $74 billion.
  • Taxable Bond ETFs received the strongest estimated net inflows in Q2 2019, totaling $39 billion, the strongest quarterly estimated net inflows for the category on record. Municipal Bond ETFs received $2.3 billion in estimated net inflows in Q2 2019, increasing year-over-year assets by 27%.
  • US Equity ETFs received the second highest estimated net inflows with $37 billion, bringing the category's year-over-year increase in total assets to 16%. The narrower Sector Equity ETFs category saw estimated net inflows of $510 million, reversing the estimated net outflows of the two previous quarters.
  • International Equity ETFs received $1.6 billion in estimated net inflows, increasing year-over-year assets by 5%.
  • Alternative and Allocation ETFs had estimated net outflows of $0.5 billion and $0.2 billion, respectively, in Q2 2019.

1Source: Morningstar, as of 6/30/19. Includes all US-listed exchange-traded funds, exchange-traded notes and other exchange-traded products. All net inflow and outflow numbers are estimates based on information provided by Morningstar.

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Posted on Wednesday, August 14, 2019 @ 12:31 PM • Post Link Share: 
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  Alternatives Update 2nd Quarter 2019
Posted Under: Alternatives
After the great financial crisis, the "New Normal" became a fixture in the capital markets financial lexicon. Use of that phrase has slowly faded, though it could easily be resurrected in a modified form - the "New FED". One might say that the "New FED" is all about easy monetary conditions all the time, despite what inflation, unemployment or GDP might be indicating. The "New FED" is on board with Modern Monetary Theory (MMT) and its mantra of printing money and issuing debt with few or no constraints. As evidence, look at the near trillion-dollar U.S. spending deficit that is now a fixture of the U.S. economy, the $3.8 trillion-dollar Federal Reserve balance sheet, and the desire to cut interest rates to support these. A call for easier monetary policy despite ultra-low unemployment, wage growth, inflation trending higher, record financial asset prices, and a reasonably strong economy, is puzzling. Does anything say "advocate of MMT" more than suppressing the cost of debt, obfuscating price discovery and telegraphing even more interference in the capital markets when there doesn't seem to be a need? Weren't all the extraordinary measures taken by the Federal Reserve these past 10 years supposed to make the financial markets more resilient, not more fragile?

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Posted on Tuesday, July 23, 2019 @ 8:51 AM • Post Link Share: 
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  Second Quarter 2019 CEF Review
Posted Under: CEFs
Second Quarter 2019 Overview

After a very solid first quarter of 2019 when the average Closed-End Fund (CEF) was up 11.8%, the momentum continued in the second quarter with the average CEF gaining 2.8%. Through the first half of the year, the average CEF is now up 15.1%. It continues to be a broad-based rally across most categories of the CEF marketplace. While Equity CEFs were up on average 0.6% during the second quarter (and are now up 15.9% for the first half of the year), it was the fixed-income funds that on average provided the biggest gains. Taxable Fixed-Income CEFs were up on average 4.0% for the second quarter (and are now up 15.7% for the first half of the year), while the average Municipal CEF gained 4.3% (now up 14.2% for the first half of the year). (Source: Morningstar. All data is share price total return).

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Posted on Monday, July 22, 2019 @ 1:37 PM • Post Link Share: 
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  Should Equity Investors Use Yield Curve Inversions as a Trading Signal?
Posted Under: ETFs
On March 22, 2019, the 10-year US Treasury yield dipped below the 3-month US Treasury yield, marking the first inversion between these key rates since 2007.  Concerns about yield curve inversions and their implication for economic growth have been widespread as the yield curve has flattened over the past several months.  While nobody knows for certain what the future holds, it may be helpful to consider what an inverted yield curve has typically meant for equity investors over the past few decades.

Prior to the inversion on March 22nd, the spread between 10-year and 3-month US Treasury yields has gone negative (marking an inversion) on 8 separate occasions since 1978 (defining "new" inversions as those that have begun at least 3 months after the end of a prior inversion). 

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Posted on Tuesday, June 11, 2019 @ 8:34 AM • Post Link Share: 
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  Will the 5G Transition be the next Disruptive Innovation?
Posted Under: ETFs

It's easy to take for granted many of the technological developments that have reshaped our world in recent decades.  Major disruptive innovations, such as the internet and the smartphone, have proven to be catalysts for further innovation, improving living standards and reshaping entire industries.  In our opinion, we may be at the edge of another inflection point in technological advancement with the transition to the fifth-generation of cellular networking technology, referred to as 5G, over the next decade. While winners and losers will undoubtedly emerge, we believe this transition may offer significant opportunity for investors.

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Posted on Monday, June 10, 2019 @ 8:15 AM • Post Link Share: 
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  Strong Demand for Municipal Bond ETFs and Mutual Funds in 2019
Posted Under: ETFs
Demand for municipal bond exchange-traded funds (ETFs) and mutual funds reached record levels during the first four months of 2019.  In fact, all four months individually ranked in the top 10 for monthly net inflows over the past 25 years (see Table 1 below).  At first glance, strong demand for tax-free funds may seem counterintuitive following President Trump's tax reform legislation enacted in December 2017.  However, we believe the specifics of tax reform, especially for high-tax states, combined with municipal bond supply dynamics and relatively strong fundamentals may continue to drive demand—and returns—for municipal bond ETFs and mutual funds.

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Posted on Monday, May 20, 2019 @ 3:12 PM • Post Link Share: 
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  Robotics, Artificial Intelligence, and the Fourth Industrial Revolution
Posted Under: ETFs
Summary of Q1 2019 ETF Flows and Trends¹
  • Total US-listed ETF assets reached $3.81 trillion at the end of Q1 2019, a 10.3% year-over-year increase. Estimated net asset flows in Q1 2019 totaled $54 billion, a 31% drop from the prior four quarter average.
  • Taxable Bond ETFs received the strongest estimated net inflows in Q1 2019, totaling $34 billion, bringing the category's year-over-year increase in total assets to over 20%. Municipal Bond ETFs received $1.1 billion in estimated net inflows in Q1 2019, increasing year-over-year assets by 26%.
  • US Equity ETFs received the second highest estimated net inflows with $17 billion, bringing the category's year-over-year increase in total assets to 16%. The narrower Sector Equity ETFs category saw estimated net outflows of $5 billion, and was the only category with estimated net outflows in both Q4 2018 and Q1 2019.
  • International Equity ETFs received $8 billion in estimated net inflows, although year-over-year assets in the category declined 3%, in light of negative performance.
  • Commodities and Allocation ETFs had estimated net outflows of $0.7 billion and $1.0 billion, respectively, in Q1 2019.
¹ Source: Morningstar, as of 3/31/19. Includes all US-listed exchange-traded funds, exchange-traded notes and other exchange-traded products. All net inflow and outflow numbers are estimates based on information provided by Morningstar.

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Posted on Thursday, May 2, 2019 @ 9:01 AM • Post Link Share: 
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These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
 PREVIOUS POSTS
First Quarter 2019 CEF Review
Alternatives Update 1st Quarter 2019
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Consider the Less Expensive Defensive Trade
Alternatives Update 4th Quarter 2018
Fourth Quarter 2018 CEF Review
Did ETFs Cause the Q418 Sell-Off?
Senior Loan & High Yield Review - 4th Quarter 2018
Emerging Market Local Currency Review - 3rd Quarter 2018
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