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Jeff Margolin
Closed-End Fund Analyst
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ETF Strategist
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  Cybersecurity Comes to the Forefront in 2020
Posted Under: ETFs

 
Cybersecurity has been garnering more attention of late, as escalating geopolitical tensions have renewed concerns about cyberattacks from foreign nation-states.  Yet the threat of cyberattacks is nothing new, and many organizations have made significant investments in cybersecurity in recent years.  According to Gartner, cybersecurity spending stood at an estimated $124 billion in 2019.1 Regardless of how geopolitical events unfold, we expect several important catalysts to remain drivers of growth for the cybersecurity industry throughout 2020 and beyond.

¹Source: Gartner, Inc. Gartner Forecasts Worldwide Information Security Spending to Exceed $124 Billion in 2019.

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Posted on Thursday, February 13, 2020 @ 11:24 PM • Post Link Share: 
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  Asset Flows Monitor
Posted Under: ETFs

 
Asset Flows Monitor
February 2020 Edition
  • US-listed ETFs gained $371 billion in net inflows during the 12 months ending on 1/31/20, bringing total assets under management to $4.45 trillion.
  • Equity ETFs had the strongest net asset flows over the past 1- and 3-month periods, while fixed income ETFs garnered the largest net inflows during the prior 9-month period.
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Posted on Friday, February 7, 2020 @ 8:43 AM • Post Link Share: 
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  New Highs Beget New Highs
Posted Under: ETFs
The S&P 500 Index recorded another new record high closing price yesterday (for the fifth time in 2020!), yet many investors are sitting in cash waiting for a pullback. According to the Investment Company Institute, money market fund assets have surged over the past year, reaching over $3.6 trillion this month, a level not seen since 2009.

While it's understandable that investors may want to buy at lower prices, this begs the question: is it a good idea to wait for a pullback after the stock market reaches new highs?  As counterintuitive as it may seem, the opposite has been true historically.

Since 1970, the S&P 500 Index has hit a new high closing price 794 times (including yesterday).  The table below breaks down how frequently the index reached higher levels over subsequent periods of time. 

Percentage of time the S&P 500 Index was higher following a new high closing price after:

1 Day:
52.6%     2 Weeks: 59.2%     
1 Month: 58.8%     6 Months: 77.7%     
1 Year: 74.1%     18 Months: 80.4%

Source: Bloomberg. Data from 1/2/1970 – 12/31/19. Past performance is no guarantee of future results.

More often than not, new highs have led to more new highs.  That's not to say the equity market won't pullback at some point.  It will.  But when that happens, there's no guarantee it will reach lower levels than it is today, or that investors will have the fortitude to take advantage of lower prices.  Market timing is a fool's errand, and the opportunity cost of waiting for pullbacks is much higher than most investors realize.

Index data is for illustrative purposes only and not indicative of any actual investment. The performance shown excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index.
The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance.


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Posted on Friday, January 17, 2020 @ 3:21 PM • Post Link Share: 
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  ETF Data Watch: Asset Flows Monitor January 2020 Edition
Posted Under: ETFs

 
  • US-listed ETFs gained just under $330 billion in net inflows in 2019, the second-best year on record.
  • Total ETF assets under management rose to $4.37 trillion.
  • Fixed income ETFs were the largest asset gatherer for much of the year. However, a surge in net inflows for equity ETFs in Q4 resulted in a change of leadership by year-end.

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Posted on Monday, January 13, 2020 @ 1:22 PM • Post Link Share: 
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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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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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First Quarter 2019 CEF Review
Alternatives Update 1st Quarter 2019
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Fourth Quarter 2018 CEF Review
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