• Net inflows for US-listed ETFs totaled $40.4 billion in August, bringing total ETF assets under management to $6.40 trillion.
• Equity ETFs had net inflows totaling $27.9 billion in August, bringing trailing 12-months (TTM) net inflows to $456.3 billion.
• Fixed income ETFs had net inflows totaling $14.9 billion in August, bringing TTM net inflows to $172.1 billion.
• Commodities ETFs had net outflows totaling $2.7 billion in August, bringing TTM net inflows to $4.5 billion.  Precious metals ETFs (-$2.6 billion) was the weakest sub-category in August.

After rallying for much of 2022, the energy sector plunged by over 20% from June 8th through July 14th as fears of a looming recession began to mount.  While volatility may continue in the near term, we believe selloffs may provide more attractive entry points for investors, particularly those that remain underweight energy stocks.  While we concede that a deep global recession could negatively impact demand for fossil fuels in the near term, we believe longer-term supply-demand dynamics, as well as geopolitical influences, will likely support relatively high prices for oil and natural gas, which may continue to fuel robust earnings for energy companies.  Moreover, despite relatively strong performance since the Fall of 2020, energy stock valuations remain historically cheap.

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• Net inflows for US-listed ETFs totaled $37.9 billion in July, bringing total ETF assets under management to $6.47 trillion.
• Equity ETFs had net inflows totaling $15.4 billion in July, bringing trailing 12-months (TTM) net inflows to $482.8 billion.
• Fixed income ETFs had net inflows totaling $28.6 billion in July, bringing TTM net inflows to $178.5 billion. 
• Commodities ETFs had net outflows totaling $6.7 billion in July, bringing TTM net inflows to $5.4 billion.  Precious metals ETFs (-$4.2 billion) and broad market commodities ETFs (-$1.2 billion) were the weakest sub-categories in July.

The second quarter of 2022 offered up a toxic brew for capital markets with steep losses in almost every traditional asset class. Alternatives on the other hand offered a brighter picture for investors. Most alternative categories did well on a relative basis and others even posting positive returns amidst the carnage. The economic situation grew dimmer with projected slowing and even potentially negative GDP growth and inflation levels so high they threaten to induce hypoxia or at least a 1970s flashback. There was some hope that peak inflation had been reached and more moderate levels would allow for a less aggressive rate path. Unfortunately, the Producer Price Index (“PPI”) remained above 10% and the Consumer Price Index (“CPI”) moved higher and the war in Ukraine continued with little hope for a near-term solution. 

In June, the Federal Reserve (the “Fed”) raised the Fed Funds Target Rate by 75 basis point (“bps”), the largest increase since 1994. Along with a stunning large hike, there was a reiteration that reigning in of inflation was the top priority no matter the economic costs. This of course is quite a turnaround from two years ago (August 2020) when at the annual Jackson Hole symposium, Fed Chair Jerome Powell announced a major shift in policy: the central bank would allow inflation to move above its 2% target as inflation was not a worry. In hindsight, the timing of that policy change looks just short of disastrous. Investors are understandably nervous that once again, the Fed may be implementing a significant policy shift with questionable timing. One indicator of how challenging the situation is, is the gap between the CPI and Fed Funds rate. While it has recently narrowed, it is still near record highs or the 99th percentile, which means there is a long way to go in the inflation battle.

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Second Quarter 2022 Overview

After a very difficult first quarter of 2022 for the equity and credit markets (click here for first quarter commentary) as well as for many closed-end funds (CEFs), the second quarter of 2022 was also a challenging one. Concerns about the potential for a recession in 2022, elevated inflation data as well as rising short- and long-term interest rates contributed to a tough quarter for many asset classes in the second quarter. The total return for the average CEF was -11.2% for the quarter and -17.4% for the year, as of 6/30/22. Every single CEF category tracked by Morningstar posted negative total returns for the quarter and only the master limited partnership (MLP) category was positive year-to-date (YTD), as of 6/30/22, with a return of 11.9%. For the second quarter, equity CEFs returned -14.0%, fixed-income CEFs returned -9.4%, municipal CEFs returned -7.2%, and taxable fixed-income CEFs returned -11.1%. 

Source for CEF performance: Morningstar. All performance is based on share price total return.

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Asset Flows Monitor July 2022 Edition

• Net inflows for US-listed ETFs totaled $38.4 billion in June, bringing total ETF assets under management to $6.14 trillion.
• Equity ETFs had net inflows totaling $36.6 billion in June, bringing trailing 12-months (TTM) net inflows to $501.0 billion.
• Fixed income ETFs had net inflows totaling $4.3 billion in June, bringing TTM net inflows to $164.7 billion.
• Commodities ETFs had net outflows totaling $2.7 billion in June, bringing TTM net inflows to $10.9 billion.  Precious metals ETFs (-$2.1 billion) was the weakest sub-category in June.

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• Net inflows for US-listed ETFs totaled $62.8 billion in May, bringing total ETF assets under management to $6.6 trillion.
• Equity ETFs had net inflows totaling $32.2 billion in May, bringing trailing 12-month (TTM) net inflows to $517.1 billion.
• Fixed income ETFs had net inflows totaling $33.7 billion in May, bringing TTM net inflows to $183.8 billion.
• Commodities ETFs had net outflows totaling $3.6 billion in May, bringing TTM net inflows to $12.9 billion.  Precious metals ETFs (-$2.5 billion) and Broad Commodities ETFs (-$1.0 billion) were the weakest sub-categories in May.

• Net inflows for US-listed ETFs totaled $9.3 billion in April, bringing total ETF assets under management to $6.6 trillion.
• Equity ETFs had net outflows totaling $5.9 billion in April, bringing trailing 12-months (TTM) net inflows to $533.7 billion.
• Fixed income ETFs had net inflows totaling $12.2 billion in April, bringing TTM net inflows to $169.2 billion.
• Commodities ETFs had net inflows totaling $2.4 billion in April, bringing TTM net inflows to $22.1 billion.  Precious metals ETFs (+$1.6 billion) and Broad Commodities ETFs (+$1.1 billion) were the strongest sub-categories in April.