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 | Third Quarter 2019 CEF Review |
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| Posted Under: CEFs |
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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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| | ETFs with the Potential for Capturing the "New Listing" Premium |
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| 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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| | Alternatives Update 2nd Quarter 2019 |
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| Posted Under: Alternatives |
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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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| | Second Quarter 2019 CEF Review |
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| Posted Under: CEFs |
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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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| | Should Equity Investors Use Yield Curve Inversions as a Trading Signal? |
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| Posted Under: ETFs |
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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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| | Will the 5G Transition be the next Disruptive Innovation? |
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| Posted Under: ETFs |
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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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| | Strong Demand for Municipal Bond ETFs and Mutual Funds in 2019 |
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| Posted Under: ETFs |
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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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| | Robotics, Artificial Intelligence, and the Fourth Industrial Revolution |
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| Posted Under: ETFs |
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Summary of Q1 2019 ETF Flows and Trends¹
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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.
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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%.
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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.
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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.
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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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| | First Quarter 2019 CEF Review |
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| Posted Under: CEFs |
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First Quarter 2019 Overview
After a very challenging fourth quarter of 2018 when the average closed-end fund (CEF) was lower by 8.7% and for the year was down 10.7%, CEFs staged a significant rally during the first quarter of 2019. The average fund was up 11.8% for the first quarter. It was a very broad-based rally with Equity CEFs up 14.8%, Taxable Fixed-Income CEFs positive by 11.2% and Municipal CEFs up 9.4%. As discussed in the fourth quarter 2018 CEF commentary ( https://www.ftportfolios.com/Commentary/Insights/2019/1/28/fourth-quarter-2018), as tax loss selling ends and the calendar switches to the new year, price discovery takes hold as investors look to take advantage of the meaningful value and discounts to net asset value (NAV) that was created during the fourth quarter sell-off. That is, indeed, what we have seen occur in the first quarter. (Source: Morningstar. All data is share price total return).
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| | Alternatives Update 1st Quarter 2019 |
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| Posted Under: Alternatives |
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When Jerome Powell assumed the position of Chair of the Federal Reserve (Fed) in February of 2018, several questions lingered as to how he would guide the venerable institution. Would he be more of a hawk than his predecessor? Would he increase the independence of the Federal Open Market Committee (FOMC)? Would his investment banking background lead him to reduce the FOMC's market interventions in favor of a more "free market" approach? Would he accelerate balance sheet normalization? Would he dispel the notion of the "FED put" in the face of market volatility? Initially, it seemed that the answer to all the above questions was pointing towards, "yes."
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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.
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The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial advisors are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
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