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  Asset Flows Monitor September 2020 Edition
Posted Under: ETFs

 
  • US-listed ETFs had $31.0 billion in net inflows in August, bringing trailing 12-month net inflows to $429.7 billion.  Total ETF assets under management increased to $4.81 trillion.

  • Among US-listed ETFs, fixed income ETFs had the strongest net inflows in August (+$16.1 billion), bringing trailing 12-month net inflows to $196.0 billion.

  • Flows into equity ETFs totaled $10.9 billion in August, bringing trailing 12-month net inflows to $186.8 billion.

  • Commodities ETFs had net inflows in August (+$3.2 billion) for the eighth month in a row, bringing trailing 12-month net inflows to $45.8 billion.

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Posted on Thursday, September 10, 2020 @ 9:02 AM • Post Link Share: 
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  How Have Presidential Elections Impacted Biotechnology Stocks?
Posted Under: ETFs

 
Biotechnology stocks had a stellar start to 2020, showing great resilience as investors pinned their hopes on the industry to produce new COVID-19 vaccines and therapeutics.  As we discussed earlier this year, the pandemic may also bring about important long-term benefits for the industry, including more efficient regulation, increased mergers and acquisitions (M&A) activity, and an improved public image.

However, since peaking on July 20th, the NYSE Arca Biotechnology Index has declined by 12.7%, while the S&P 500 Index has advanced by 8.7% (through 9/1/20).  While there are many possible explanations for biotech's recent underperformance, I believe one important factor is the upcoming presidential election.  Rising health care costs in the U.S. have been a go-to wedge issue for Democratic party candidates in election campaigns, especially over the past two decades (Affordable Care Act passed in 2010).  But if history repeats, this pullback may represent an attractive buying opportunity.

During the last four presidential elections (2004, 2008, 2012, and 2016), biotechnology stocks performed poorly heading into election day. On average, the NYSE Arca Biotechnology Index had a -6.4% return during the prior 2 months (see chart above).  However, biotech stocks also rebounded nicely following these elections, regardless of which candidate was elected.  While Democratic and Republican presidential candidates split these four elections evenly, the average return 2 months after election day was 4.8%, and the average return 12 months after election day was 34.5%.

The link between biotech stocks and politics is nothing new, and recent weakness substantiates that point.  But investors that can look past election day—or take advantage of weakness leading up to it—may be rewarded.

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Posted on Friday, September 4, 2020 @ 8:24 AM • Post Link Share: 
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  Asset Flows Monitor August 2020 Edition
Posted Under: ETFs

 
  • US-listed ETFs had $49.3 billion in net inflows in July, bringing trailing 12-month net inflows to $392.0 billion.  Total ETF assets under management increased to $4.55 trillion.
  • Among US-listed ETFs, fixed income ETFs had the strongest net inflows in July (+$29.7 billion), bringing trailing 12-month net inflows to $191.9 billion.  Fixed income ETF assets surpassed the $1 trillion mark for the first time ever in July.
  • Flows into equity ETFs totaled $11.1 billion in July, bringing trailing 12-month net inflows to $153.3 billion.
  • Commodities ETFs had net inflows in July (+$7.8 billion) for the seventh month in a row, bringing trailing 12-month net inflows to $46.5 billion.

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Posted on Wednesday, August 5, 2020 @ 9:47 AM • Post Link Share: 
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  Factors Align For Post-Pandemic 5G Growth
Posted Under: ETFs
In 2020, digital networks have been a lifeline, facilitating numerous aspects of daily life. Many of the innovations that we have come to rely upon—including high quality video conferencing, telemedicine, meal delivery apps, and many others—have emerged within just the last few years. As we look forward to the next wave of innovation that may improve our quality of life and enhance productivity, we believe the transition to 5G mobile networks may play a pivotal role. In our view, this transition may also provide an attractive opportunity for investors over the next several years, as new devices utilizing 5G technology are introduced, and the build-out of 5G infrastructure is accelerated by fiscal stimulus spending and geopolitical tensions.

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Posted on Wednesday, August 5, 2020 @ 7:58 AM • Post Link Share: 
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  Alternatives Update 2nd Quarter 2020
Posted Under: Alternatives
After the fastest descent into a bear market ever in the first quarter of 2020, the capital markets posted a rebound of historic proportions in the second quarter of 2020. The S&P 500 Index had its best quarter since 1998 and the NASDAQ Composite Index had its best quarter since 1999. Despite S&P 500's first and second quarter earnings being estimated at down -48% and -30% from 2019 levels, fiscal and monetary stimulus programs continued unabated across the globe giving financial assets a mighty tailwind. Meanwhile, fallout from the pandemic shutdowns continued to wreak havoc on Main Street as government officials at all levels struggled with how to deal with the surge in cases that have accompanied re-openings. Amidst the many uncertainties/ points of contention being grappled with (mask or no mask, sports or no sports, in person school or online), the Federal Reserve and its Chairman have offered much more certainty. Along with the Treasury, they have unambiguously embraced the role of capital markets insurance provider. The Federal Reserve balance sheet surpassed $7 Trillion, a level nearly eight times its level prior to the financial crisis of 2008 and nearly 50% higher than its peak after 2008.

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Posted on Wednesday, July 22, 2020 @ 12:18 PM • Post Link Share: 
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  Navigating a Pandemic with Thematic ETFs
Posted Under: ETFs
During the first half of 2020, 13 thematic First Trust ETFs outperformed the S&P 500 index, which posted a total return of -3.1%. Ten of these ETFs had positive year-to-date returns (see chart 1). Many of these outperformers operate in industries less impacted—if not bolstered—by the COVID-19 pandemic and aggressive government response. For example, Internet (FDN and FDNI), Cloud Computing (SKYY), Biotechnology (FBT), and Cybersecurity (CIBR) have all been beneficiaries of the pandemic as their products and services have become integral in coping with the virus as well as helping companies and their employees remain productive while sheltering in place at home.

On the other hand, 15 thematic First Trust ETFs underperformed the S&P 500 during the first half of 2020. Many of the worst performing ETFs were focused on economically sensitive areas, such as Banks (FTXO and QABA), Energy (FCG and FTXN), and Transportation (FTXR).

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Posted on Friday, July 17, 2020 @ 8:37 AM • Post Link Share: 
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  Asset Flows Monitor July 2020 Edition
Posted Under: ETFs

 
  • US-listed ETFs had $56.4 billion in net inflows in June, bringing trailing 12-month net inflows to $368.6 billion. Total ETF assets under management increased to $4.28 trillion.

  • Fixed income ETFs had the strongest net inflows in June (+$33.4 billion), bringing trailing 12-month net inflows to $172.9 billion. Flows into equity ETFs rebounded in June (+$18.4 billion), bringing trailing 12-month net inflows to $155 billion. Commodities ETFs had net inflows in June (+$4.9 billion) for the sixth month in a row, bringing trailing 12-month net inflows to $40.6 billion.

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Posted on Wednesday, July 8, 2020 @ 8:24 AM • Post Link Share: 
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  High-Yield Bond Performance as Spreads Recover
Posted Under: Senior Loan
Since the option-adjusted spread (OAS) of high-yield bonds reached extreme levels in late March from COVID-19 fears, as represented by the ICE BofA US High-Yield Constrained Index (HUC0), high-yield bond spreads have experienced a dramatic recovery from a wide of 1,087 bps on March 23, 2020, to the current level of 631 bps, as of June 25, 2020. Naturally, the question investors must be asking is, "Have I missed it?". We believe the answer is, "No". 
While high-yield bond OAS has improved since the dramatic dislocation in March, spreads continue to remain above their long-term average of 552 bps. In addition, spreads remain 271 bps wider than the 360 bps at the beginning of the year. Empirically, we can evaluate how investors would have fared historically if entering the market under similar circumstances. There have been 10 similar occurrences prior to the COVID-19 pandemic when high-yield bond spreads ended the month above 600 bps AFTER a dislocation in spreads. Said differently, when high-yield bond spreads widened beyond 600 bps and subsequently recovered to 600 bps, the following 12-month holding period average return was 9.27% and the median return was 10.71%. Moreover, in none of those 10 instances would an investor have experienced a loss. Furthermore, HUC0 exhibited strong returns over a 24-month holding period with an annualized average return of 8.12% and a median annualized return of 9.36%. In only one instance out of the 10 periods would an investor have experienced a loss. That period was from November 1998 to November 2000 with a -2.64% average annualized return. 
In summary, we believe a rapid tightening in high-yield bond OAS should be interpreted as validation for a continued recovery. Conversely, when the high-yield bond OAS widened beyond 600 bps but didn't recover back to 600 bps, it tended to suggest a long period of volatility, as evidenced in the graph below over the period of 2000-2002, when the spreads remained well wide of 600 bps.

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Posted on Tuesday, June 30, 2020 @ 10:32 AM • Post Link Share: 
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  The Post-Pandemic Opportunity for Biotech
Posted Under: ETFs
As large swaths of the US economy were being shuttered earlier this year to help mitigate the fallout from the coronavirus (COVID-19) pandemic, the biotechnology industry unleashed its capacity for innovation, creating new methods for testing, therapeutic treatments, and vaccines for COVID-19. Progress in these areas has been achieved at an unprecedented pace, and numerous clinical trials are currently ongoing. As the economy reopens, many are depending on the success of newly created therapeutics and vaccines to save lives and avoid future lockdowns. Indeed, the last few months have demonstrated the critical importance of a robust biotechnology industry.

As an investment theme, biotechnology has also worked relatively well during the crisis; the NYSE Arca Biotechnology Index reached a new all-time high in June. Nonetheless, we believe the industry's best days may still lie ahead. In our view, the events of the past few months help to improve the long-term outlook for these stocks, which may benefit from more efficient regulation, industry consolidation, and a rehabilitated public image.

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Posted on Friday, June 12, 2020 @ 10:04 AM • Post Link Share: 
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  Asset Flows Monitor June 2020 Edition
Posted Under: ETFs

 
  • US-listed ETFs had $28.5 billion in net inflows in May, bringing trailing 12-month net inflows to $376.3 billion. Total ETF assets under management increased to $4.17 trillion.
  • Fixed income ETFs had the strongest net inflows in May (+$32.2 billion), bringing trailing 12-month inflows to $169.3 billion. On the other hand, equity ETFs had net outflows in May (-$10.1 billion), bringing trailing 12-month inflows to $168.0 billion. Commodities ETFs had net inflows in May (+$6.3 billion) for the fifth month in a row, bringing trailing 12-month net inflows to $38.6 billion.

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Posted on Wednesday, June 3, 2020 @ 3:11 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
As Dividends Become Scarcer, Will they Become More Valued?
Asset Flows Monitor May 2020 Edition
Alternatives Update 1st Quarter 2020
Closed-end Fund Review - First Quarter 2020
Asset Flows Monitor April 2020 Edition
Cybersecurity is More Essential Than Ever
Biotech Improves its Long-term Position by Providing Hope Today
Asset Flows Monitor March 2020 Edition
Cybersecurity Comes to the Forefront in 2020
Asset Flows Monitor
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