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Jeff Margolin
Closed-End Fund Analyst
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ETF Strategist
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  Closed-end Fund Review - Fourth Quarter 2021
Posted Under: CEFs
Fourth Quarter 2021 and 2021 Overview

Following the third quarter, when the average closed-end fund (CEF) returned -1.25%, CEFs rebounded during the fourth quarter with the average CEF returning +2.38%. This helped push the average CEF to return a very solid +16.32% for 2021. It was a broad rally in the fourth quarter with equity CEFs returning an average of +4.77%, fixed-income CEFs returning an average of +0.79%, municipal CEFs returning an average of +0.88% and taxable fixed-income CEFs returning an average of +0.67%.

The full year 2021 results are particularly impressive with the average CEF returning +16.32%. Equity CEFs returned an average of +27.28%, fixed-income CEFs returned an average of +10.01%, municipal CEFs returned an average of +8.10% and taxable fixed-income CEFs returned an average of +11.49%.

For 2021, CEF performance was boosted by a significant narrowing of discounts to net asset value (NAV), more on that below, and very strong performance across the equity markets and key credit sensitive fixed-income indices. Indeed, for the year, equity CEFs benefitted from a 28.68% gain in the S&P 500 Index as well as the 7.82% gain in the MSCI All-Country World Ex US Index (Source: Bloomberg). Many key fixed-income indices also posted strong performance in 2021 and helped the performance of several taxable fixed-income categories of the CEF marketplace. For example, for 2021 the ICE BofA High-Yield Bond Index returned +5.35% and the S&P/LSTA Leveraged Loan Index returned +5.20% (Source: Bloomberg). The solid underlying performance of the senior loan and high-yield markets helped two of our favored fixed-income CEF categories (senior loan and limited-duration) post very strong performance results for 2021. Indeed, for 2021 senior loan CEFs returned an average of +20.67% and limited-duration CEFs returned an average of +13.19%.

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Posted on Wednesday, January 19, 2022 @ 2:03 PM • Post Link Share: 
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  Asset Flows Monitor January 2022 Edition
Posted Under: ETFs

 
Asset Flows Monitor January 2022 Edition

  • Net inflows for US-listed ETFs totaled $105.5 billion in December, bringing total ETF assets under management to $7.14 trillion.
  • Equity ETFs had net inflows totaling $82.6 billion in December, bringing trailing 12-month (TTM) net inflows to $662.8 billion.
  • Fixed income ETFs had net inflows totaling $24.3 billion in December, bringing TTM net inflows to $207.6 billion.
  • Commodities ETFs had net outflows totaling $2.3 billion in December, bringing TTM net outflows to $5.2 billion.  Precious metals (-$1.7 billion), energy (-$0.3 billion), and broad commodity ETFs (-$0.2 billion) all had net outflows in December.

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Posted on Monday, January 10, 2022 @ 11:25 AM • Post Link Share: 
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  Long-Term Outlook for Cybersecurity Remains Compelling
Posted Under: ETFs
Cybercrime has been one of the most prominent storylines throughout 2021, with several highly publicized cyberattacks.  These were not limited to high-tech industries. They included targets such as a critical oil pipeline in the southeastern U.S., a meatpacking plant in Minnesota, a chain of grocery stores in the U.K., gas stations in Iran, and many others. As the world becomes more digital, and many hackers face few deterrents to stepping up their efforts, we believe cybercrime is poised for robust growth in the years ahead. Consequently, while cybersecurity stocks faced bouts of volatility in 2021, we believe this theme is also well positioned for long-term secular growth, as companies, individuals, and government agencies seek to boost their defenses against such threats.

Cybercrime Risks Remain Elevated
Ransomware attacks, in which hackers use software to lock down servers and networks until a ransom is paid, have been prolific in 2021. Through the third quarter of this year, researchers from SonicWall identified 495.1 million global ransomware attacks, a 148% increase compared to last year1. The windfall hackers have received from such attacks helps to explain this rise.  According to the Treasury Department, ransomware victims paid a record $590 million to cybercriminals during the first six months of 20212. Unfortunately, these lucrative payouts provide strong incentives for hackers—many of whom operate from antagonistic foreign jurisdictions—to conduct future attacks.

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Posted on Tuesday, December 28, 2021 @ 10:04 AM • Post Link Share: 
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  Asset Flows Monitor December 2021 Edition
Posted Under: ETFs

 
Asset Flows Monitor December 2021 Edition

  • Net inflows for US-listed ETFs totaled $73.5 billion in November, bringing total ETF assets under management to $6.94 trillion.
  • Equity ETFs had net inflows totaling $57.3 billion in November, bringing trailing 12-months (TTM) net inflows to $624.0 billion.
  • Fixed income ETFs had net inflows totaling $13.6 billion in November, bringing TTM net inflows to $201.8 billion.
  • Commodities ETFs had net inflows totaling $1.6 billion in November, bringing TTM net outflows to $3.7 billion.  Precious metals ( $0.9 billion), energy (+$0.4 billion), and broad commodity ETFs ( $0.2 billion) all had net inflows in November.

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Posted on Friday, December 3, 2021 @ 3:05 PM • Post Link Share: 
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  Can Adaptive Factor Rotation Add Value?
Posted Under: ETFs
Factor-based ETFs have flourished in recent years, supported by numerous academic studies showing that certain stock attributes—or factors—can be exploited in pursuit of better risk-adjusted returns than traditional equity benchmarks.  Some of these funds track single factors, such as momentum, low volatility, quality, and value, while others combine multiple factors.  While each of these approaches offers distinct benefits and drawbacks, we believe another intriguing strategy, which utilizes relative strength to rotate between multiple factors, including the "opposite" sides of traditional factors, is worth consideration.

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Posted on Monday, November 15, 2021 @ 3:29 PM • Post Link Share: 
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  Asset Flows Monitor November 2021 Edition
Posted Under: ETFs

 
Asset Flows Monitor October 2021 Edition
  • Net inflows for US-listed ETFs totaled $77.5 billion in October, bringing total ETF assets under management to $6.92 trillion.
  • Equity ETFs had net inflows totaling $61.9 billion in October, bringing trailing 12-month (TTM) net inflows to $647.4 billion.
  • Fixed income ETFs had net inflows totaling $14.0 billion in October, bringing TTM net inflows to $203.3 billion.
  • Commodities ETFs had net inflows totaling $0.7 billion in October, bringing TTM net outflows to $9.8 billion. Broad commodities ETFs were the largest positive contributor in October (+$1.1 billion) and over the TTM (+$8.7 billion), while precious metals ETFs were the largest negative contributor in October (-$0.7 billion) and over the TTM (-$16.2 billion).
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Posted on Monday, November 8, 2021 @ 9:35 AM • Post Link Share: 
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  Alternatives Update 3rd Quarter 2021
The U.S. economy continued to recover during the third quarter despite a surge in COVID-19 due to the Delta variant. Second quarter GDP (as reported in the 3rd quarter) came in at 6.7%, but the Atlanta Federal Reserve's "GDPNOW" model is pointing towards significantly lower growth for the 3rd quarter. What is not slowing is inflation. Persistently high inflation and slowing growth means a whole generation of investors might have to start googling the word "stagflation". The Federal Reserve (the "Fed") and other central banks continue their fervent defense of interest rate inaction because "inflation is transitory". A wealth of data seems to indicate otherwise, which leads one to ask why the Fed governors want to die on that hill. The Fed's balance sheet is now over $8.4 Trillion, and governmental deficits continue to remain historically massive. President Biden's two hallmark spending initiatives totaling roughly $1 Trillion and $3.5 Trillion respectively, are mired in both intra-party disagreements and inter-party rancor.

Year-over-year Consumer Price Index (CPI) came in at a 5.3% for August (as reported in September) which marked the 4th consecutive month at 5% or higher. This has not happened since early 1991. Shortages in everything from semiconductors to truck drivers continue to roll through the global economy. Energy prices skyrocketed in the 3rd quarter as did shipping costs, home prices, and food prices. The squeeze in natural gas prices and petroleum products evoked shades of the energy crisis in the 1970s. One might look at the year-over-year change in lumber prices (-1%) and see that as evidence that the Fed might have a case with their transitory inflation argument; though lumber prices have come off their highs, they are still nearly 50% higher than in December of 2019 (pre COVID-19 crash). More and more, we believe the only way inflation might be viewed as transitory is if one considers the Fed's intervention to stabilize the financial markets since 2008 as transitory.

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Posted on Thursday, November 4, 2021 @ 1:35 PM • Post Link Share: 
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  Closed-end Fund Review - Third Quarter 2021
Posted Under: CEFs
After two positive quarters to start the year, the total return for the average closed-end fund (CEF) was slightly lower during the third quarter but remains positive for 2021. Indeed, the average CEF returned -1.25% during the third quarter but is up 13.49% year-to-date (YTD) through 9/30/2021. Equity CEFs returned -2.22% during the quarter but remain up 21.36% YTD. The average fixed-income CEF declined -0.77% during the third quarter, with municipal CEFs returning -1.08% and taxable fixed-income CEFs declining -0.54%. Fixed-income CEFs are up 9.05% YTD, with municipal CEFs up an average of 7.06% YTD and taxable fixed-income CEFs up 10.64% YTD. (Source: Bloomberg)

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Posted on Thursday, October 14, 2021 @ 9:49 AM • Post Link Share: 
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  Asset Flows Monitor October 2021 Edition
Posted Under: ETFs

 
Asset Flows Monitor October 2021 Edition

  • Net inflows for US-listed ETFs totaled $55.4 billion in September, bringing total ETF assets under management to $6.58 trillion.
  • Equity ETFs had net inflows totaling $39.2 billion in September, bringing trailing 12-months (TTM) net inflows to $599.9 billion.
  • Fixed income ETFs had net inflows totaling $16.2 billion in September, bringing TTM net inflows to $211.9 billion.
  • Commodities ETFs had net outflows totaling $0.8 billion in September, bringing TTM net outflows to $10.5 billion.  Broad commodities ETFs were the largest negative contributor in September (-$0.4 billion), but the largest positive contributor over the trailing 12 months (+$7.4 billion).

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Posted on Tuesday, October 5, 2021 @ 3:21 PM • Post Link Share: 
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  Rising Demand for Electric Vehicles Highlights the Need for Investments in the Power Grid: Which ETFs May Benefit?
Posted Under: ETFs
The outlook for electric vehicles (EVs) has strengthened recently, supported by decreasing costs for advanced battery technology and increasing support from automakers, politicians, and consumers.  In our view, a shift to EVs over the next decade may boost electricity consumption and contribute to the need for massive investments in electrical infrastructure around the world.  This may benefit companies involved in both the build out and management of those assets.

What's Driving Growth for Electric Vehicles?
While a potential transition to electric vehicles is not without hurdles, public policy around the world has grown increasingly supportive.  In the US, President Joe Biden signed an executive order on August 5, 2021, calling for 50% of new passenger vehicles sold in the US to be zero-emission electric vehicles by 2030.1 For context, EVs represented just 2% of US auto sales in 2020.2 While this order is not legally binding, executives from several automakers joined the President in announcing their own goals of having EVs represent 40-50% of annual US sales volume by 2030.3

1 WhiteHouse.gov, Executive Order on Strengthening American Leadership in Clean Cars and Trucks, 8/5/21.
2 International Energy Agency, Global EV Outlook 2020.
3 Reuters, Biden seeks to make half of new U.S. auto fleet electric by 2030, 8/5/21.

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Posted on Friday, September 17, 2021 @ 3:42 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.
 PREVIOUS POSTS
Asset Flows Monitor September 2021 Edition
Near-term Catalysts May Provide Opportunity in Water
Alternatives Update 2nd Quarter 2021
Asset Flows Monitor August 2021 Edition
Closed-end Fund Review - Second Quarter 2021
FDN Reaches a New Milestone: Lessons Learned Over 15 Years
Asset Flows Monitor July 2021 Edition
Asset Flows Monitor June 2021 Edition
Diversifying Risk Management with Target Outcome ETFs®– Buffer Series
Asset Flows Monitor May 2021 Edition
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