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  A Snapshot Of The Growth In ETF/ETP Assets
Posted Under: Conceptual Investing

 
View from the Observation Deck  
  1. As indicated by the data in the table, based on total assets under management, the U.S. is currently dominating the exchange-traded fund/exchange-traded product (ETF/ETP) landscape. 
  2. As of 3/31/20, total assets stood at $3.67 trillion, or 68.3% of the $5.37 trillion global market.   
  3. As of 3/31/20, there were 2,315 ETFs/ETPs listed in the U.S., compared to 7,996 ETFs/ETPs listed globally, according to ETFGI.
  4. Equities are the most popular asset class for investors by far. Data from the Investment Company Institute (ICI) indicated that 74.2% of the capital held by U.S. listed ETFs/ETPs on 3/31/20 was in equity funds. 
  5. One of the prognostications floated years ago was that a notable percentage of the future growth in the U.S. ETF/ETP market, particularly with respect to equity funds, might come at the expense of the mutual fund industry.
  6. From 12/31/08-3/31/20, total assets held by equity mutual funds increased from $3.65 trillion to $8.81 trillion, according to the ICI. Data from the ICI also shows that the number of equity mutual funds currently active has only declined slightly, from 4,785 on 12/31/08 to 4,629 on 3/31/20. While the mass migration from mutual funds to ETFs/ETPs has yet to occur, we'll continue to monitor the situation.
This chart is for illustrative purposes only and not indicative of any actual investment. 

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Posted on Thursday, May 28, 2020 @ 1:44 PM • Post Link Share: 
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  How Stocks Have Fared Since Donald J. Trump Was Elected President
Posted Under: Conceptual Investing

 
View from the Observation Deck  
  1. With respect to the stock market, perhaps three of the most defining dates for the Trump administration in its first term have been election day (11/8/16), the day the first round of tariffs on imported steel (25%) and aluminum (10%) were launched (3/8/18) and the day the S&P 500 Index peaked following an impressive 10-year, 11-month bull market run (2/19/20), in our opinion. 
  2. The negative toll on the global economy and securities markets from the escalation and spread of the coronavirus (COVID-19) has been substantial. The pandemic ended the bull market in stocks on 3/12/20, as measured by the S&P 500 Index. The silver lining in this story, however, is that we have experienced a significant rebound in the stock market since the sell-off stopped on 3/23/20. Compare the returns in point 3 below, to those in the last column in the table. 
  3. The following total returns reflect just how much the major indices in the table were punished during the coronavirus-induced sell-off (2/19/20-3/23/20): -27.84% (NASDAQ 100); -33.79% (S&P 500); -41.81% (S&P MidCap 400); -41.27% (S&P SmallCap 600); -33.61% (MSCI Emerging Markets Net TR); and -31.16% (MSCI Daily TR Net World (ex U.S.), according to Bloomberg. 
  4. The U.S. dollar, which can be a safe-haven destination for foreign investors, didn't strengthen under the Trump administration until the tariffs commenced on 3/8/18. From 11/8/16 through 03/8/18, the U.S. dollar declined by 7.85%, as measured by the U.S. Dollar Index (DXY), according to Bloomberg. From 3/8/18 through 5/22/20, however, the U.S. Dollar Index rose by 10.73%.
  5. The U.S. Dollar Index stood at a reading of 99.86 on 5/22/20, which is relatively strong on an historical basis, according to Bloomberg. Its 20- and 30-year averages were 90.55 and 91.05, respectively, as of 5/22/20. 
  6. In general, both the trade tariffs and COVID-19 have created some headwinds for stocks, as indicated by the total returns in the table.
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The NASDAQ 100 Index includes 100 of the largest domestic and non-financial companies listed on The NASDAQ Stock Market based on market capitalization. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P SmallCap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI World (ex U.S.) Index is a free-float weighted index designed to measure the equity market performance of developed markets. The U.S. Dollar Index (DXY) indicates the general international value of the dollar relative to a basket of major world currencies.         

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Posted on Tuesday, May 26, 2020 @ 1:16 PM • Post Link Share: 
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  US Stock Markets Ended May 22, 2020
Posted Under: Weekly Market Commentary

 
The S&P 500 Index returned 3.27% last week, gaining back the previous week's losses. The index is now down less than 7.8% year-to-date and is up over 32.5% since its closing low on March 23. Monday showed its best performance since early April, climbing 3.16% with strength seen in energy stocks as crude oil futures jumped 8.12%. Equity markets were boosted by reports of early positive results from Moderna's COVID-19 vaccine trial. Positive comments from both Federal Reserve Chairman Jerome Powell and European Central Bank President Christine Lagarde implying their ability and willingness to adjust and respond to the current economic conditions reinforced the optimism. Building permits, housing starts, and existing home sales all reported double-digit month-over-month declines for April. U.S. initial jobless claims remain historically high, though last week's 2.44 million is the lowest weekly claims number reported since mid-March. Crude oil closed at $33.25 per barrel on Friday, increasing 12.98% for the week. Specialty apparel store company L Brands Inc. was the best performer in the S&P 500 Index, returning 38.86%. Though the company reported large first quarter losses last week, the stock rallied on news that the company was intent on separating its Victoria's Secret line into a standalone business and several analysts upgraded their price targets for the stock. United Airlines Holdings Inc. returned 27.51% as vaccine optimism helped lift some of the hard-hit airline industry stocks. Air travel demand has been shuttered by the coronavirus pandemic. Other top performing airline stocks included Alaska Air Group Inc., Southwest Airlines Company, and Delta Air Lines Inc. Medical device manufacturer Becton, Dickinson & Company returned -7.36% last week, after announcing it will raise $3 billion in common and preferred stock offerings. The stock took the bottom spot in the worst performing health care sector. Earnings announcements expected this week include salesforce.com Inc., Costco Wholesale Corp, Dollar General Corp, Autodesk Inc., AutoZone Inc., HP Inc., Keysight Technologies Inc., Ulta Beauty Inc., and many more.
Posted on Tuesday, May 26, 2020 @ 9:03 AM • Post Link Share: 
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  US Economy and Credit Markets Ended May 22, 2020
Posted Under: Weekly Market Commentary

 
Treasury yields rose slightly over the course of the week on positive news on the development of a vaccine. On Monday, drug maker Moderna announced the completion of a phase-one clinical trial of their COVID-19 vaccine with positive results. This caused Treasury yields to have their largest daily surge in two months on Monday as investors took a risk-on approach. Also contributing to Monday's rally were comments by Federal Reserve Bank Chairman Jerome Powell. He said that the central bank still had ammunition and that there was no limit to what the Fed could do to lend money to the financial markets. However, yields dropped on Tuesday when Powell tempered his remarks in testimony to the Senate Banking committee and there were questions as to if there were sufficient data on the Moderna vaccine. Yields were flat on Wednesday and Thursday as the Treasury department held its first sale of 20-year bonds since 1986. Investors continued to seek the perceived safety of Treasurys on Friday as tensions between the U.S. and China picked up. The U.S. Congress introduced a bill that would prevent Chinese companies from listing on U.S. exchanges, requiring them to show they are not owned or controlled by a foreign government. Oil prices rose 13% over the week on ongoing output cuts and increased demand for fuel. Major economic reports (related consensus forecasts, prior data) for the upcoming holiday-shortened week include: Tuesday: May Conf. Board Consumer Confidence (87.3, 86.9), April New Home Sales (493k, 627k); Wednesday: May 22 MBA Mortgage Applications (n/a, -2.6%); Thursday: 1Q S Annualized GDP QoQ (-4.8%, -4.8%), April Prelim. Durable Goods Orders (-18.0%, -14.7%), May 23 Initial Jobless Claims (2000k, 2438k); Friday: April Prelim. Wholesale Inventories (-0.7%m -0.8%), April Personal Income (-6.5%, -2.0%), April Personal Spending (-12.8%, -7.5%), May MNI Chicago PMI (40.0, 35.4), May Final U. of Mich. Sentiment (74.0, 73.7).
Posted on Tuesday, May 26, 2020 @ 9:02 AM • Post Link Share: 
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  A Global Snapshot Of Government Bond Yields

 
View from the Observation Deck  

  1. Today's blog post shows the yields on a couple of benchmark government bond maturities from key countries/economies around the globe.
  2. Investors need to be cognizant of the fact that interest rates are still at extremely low levels, and in some instances, remain in negative territory.   
  3. The yield on the U.S. 10-year Treasury-note stood at 0.70% at 11:00am CST on 5/20/20, 537 basis points below its historical average yield of 6.07% since 1/5/62, according to Bloomberg.
  4. While not in the table above, yesterday marked the first time that the U.K. has ever auctioned off a government bond at a negative yield. It sold £3.8 billion ($4.66 billion) worth of three-year gilts at a yield of -0.003%, according to CNBC. 
  5. The volume of negative-yielding debt exceeded $11 trillion worldwide as of 5/18/20, according to Bloomberg. 
  6. Yields could trend lower due to economic damage from the spreading of the coronavirus (COVID-19). President Donald J. Trump has been an advocate for negative interest rates in the U.S., but Federal Reserve Chairman Jerome Powell rejects such a move at this time. 
  7. With volatility on the rise, particularly in the equities markets, a climate of low interest rates and relatively low inflation likely suits bond investors just fine.  

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Posted on Thursday, May 21, 2020 @ 1:18 PM • Post Link Share: 
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  A Snapshot of Growth vs. Value Investing

 
View from the Observation Deck  
  1. We update this post every few months so that investors can see which of the two styles (growth or value) are delivering the best results.
  2. The S&P 500 Index closed at 2,953.91 on 5/18/20. It stood 12.76% below its all-time closing high of 3,386.15 on 2/19/20, according to Bloomberg.
  3. Despite the fact that stocks have rebounded significantly from their March lows, 68% of the money managers that participated in the most recent Bank of America global fund manager survey believe that stocks are still in a bear market, according to MarketWatch. 
  4. As indicated in the chart, the S&P 500 Pure Growth Index outperformed its value counterpart in all six periods featured in the chart. Growth stocks have held up exceptionally well year-to-date, which has been shaped by the COVID-19 pandemic.  
  5. The total returns through 5/18/20 were as follows (Pure Growth vs. Pure Value): 15-year avg. annual (10.63% vs. 6.39%); 10-year avg. annual (14.45% vs. 8.05%); 5-year avg. annual (8.69% vs. -1.76%); 3-year avg. annual (10.91% vs. -5.26%); 1-year (5.69% vs. -26.85%); and year-to-date (-3.96% vs. -34.38%).
  6. As of 5/18/20, the largest sector weighting in the S&P 500 Pure Growth Index was Information Technology at 38.2%, according to S&P Dow Jones Indices. The largest sector weighting in the S&P 500 Pure Value Index was Financials at 33.5%. 
  7. The Large Growth and Large Value fund categories tracked by Morningstar, which include both open-end mutual funds and exchange-traded funds, reported estimated net outflows totaling $14.214 billion and $13.140 billion, respectively, in the first four months of 2020, according to its own release. 
  8. Large Blend funds and ETFs, however, reported estimated net inflows totaling $4.617 billion over the same period, an indication that investors are presently taking the guesswork out of style investing by owning both, in our opinion.
  9. Click here to see where these two equity styles stood at the close of 2019. 
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration 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. The S&P 500 Pure Growth Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest growth characteristics based on three factors: sales growth, the ratio of earnings-change to price, and momentum. It includes only those components of the parent index that exhibit strong growth characteristics, and weights them by growth score. Constituents are drawn from the S&P 500 Index. The S&P 500 Pure Value Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics based on three factors: the ratios of book value, earnings, and sales to price. It includes only those components of the parent index that exhibit strong value characteristics, and weights them by value score. 

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Posted on Tuesday, May 19, 2020 @ 1:43 PM • Post Link Share: 
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  US Stock Markets Ended May 15, 2020
Posted Under: Weekly Market Commentary

 
Equities moved lower for the week on negative economic reports and Federal Reserve Chairman Jerome Powell stating additional stimulus could be needed as the outlook is "highly uncertain and subject to significant downside risks". The cautionary tone from the Fed Chairman and weak retail sales, which fell 16.4%, led to a 2.20% drop for the S&P 500 Index and a 5.42% drop for the Russell 2000 Index. Real estate was the worst performing sector as many tenants have skipped payments, especially in strip centers and traditional malls. In addition, cyclical sectors fell by more than the market as continued lockdowns have a larger impact on profits. Southwest Airlines Co., Delta Air Lines Inc. and American Airlines Group Inc. all fell by over 10% for the week after IATI projected air traffic will not return to 2019 levels until 2023. By contrast, United Natural Foods, Inc. surged after pre-announced results were significantly above the street as consumers eat more meals at home. Net income grew by 54% versus last year's quarter. Cisco Systems Inc., one of the final technology firms to report, beat expectations as work-from-home equipment and security sales buoyed the tech giant. With more than 90% of firms reporting earnings, the S&P 500 is projected to see a 16.6% drop in EPS in the first quarter, led by a 64.2% drop from the consumer discretionary sector. S&P 500 EPS is projected to trough in 2Q with a 43% decline. Looking ahead to next week, Walmart Inc. and Home Depot Inc. are set to report results. Consumer discretionary stocks are the last sector to report results as many names have off-quarter period end dates. Traders will continue to monitor the path of the virus and reopening plans across the country as lockdowns ease.
Posted on Monday, May 18, 2020 @ 8:17 AM • Post Link Share: 
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  US Economy and Credit Markets Ended May 15, 2020
Posted Under: Weekly Market Commentary

 
In the middle of last week Federal Reserve Chairman Jerome Powell said the central bank was not considering employing negative interest rates to combat slowing economic conditions. And the data last week did indicate that COVID is wrecking havoc with US economic activity. Last Tuesday witnessed a decline in the Consumer Price Index of 0.8% for April. Energy prices declined 10.1% in April, while food prices rose 1.5%. The "core" CPI, which excludes food and energy, declined 0.4% in April, versus a consensus expected -0.2%. Core prices are up 1.4% versus a year ago. The April decline was the largest since March of 2008. The best news in the report was the rise of hourly earnings which were up 5.6% in April. However, this was largely the result of the lowest wage jobs experiencing layoffs. The Producer Price Index also registered a decline in April. The plunge in energy prices drove the index down 1.3%. The bad news continued through Friday of last week as April retail sales declined 16.4% and industrial production was down 11.2%. Retail sales were down nearly 22% from the year before. Sales at restaurants & bars fell 29.5% general merchandise stores were down 20.8%, sales at food & beverage stores fell 13.1%, Gas station sales dropped 28.8%, non-store retailers (internet and mail-order) were up 8.4% in April and up 21.6% from a year ago. These sales now account for 19.4% of overall retail sales, an all-time record. "Core" sales, which exclude the most volatile categories of autos, building materials, and gas station sales, declined 17.2% in April and are down 17.6% from a year ago. Overall sales are down 21.6% from a year ago. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Tuesday: April Housing Starts (950K, 1216K); Wednesday: May 15 MBA Mortgage Applications (N/A, 0.3%); Thursday: May 16 Initial Jobless Claims (2,425K, 2,981K), May preliminary Markit US Manufacturing PMI (38.0, 36.1), April Leading Index (-5.7%, -6.7%) and April Existing Home Sales (4.30M, 5.27M).
Posted on Monday, May 18, 2020 @ 8:14 AM • Post Link Share: 
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  Many Investors Could Be Underweight U.S. Mid- & Small-Cap Stocks
Posted Under: Conceptual Investing

 
View from the Observation Deck  
  1. Today's blog post focuses on equity asset allocation via market capitalization (cap). In other words, how much capital do investors commit to U.S. and foreign large-, mid- and small-cap stocks. We use mutual fund and exchange-traded fund (ETF) asset levels as a barometer.
  2. As indicated in the chart, as of 3/31/20, investors had positioned a combined $5.95 trillion in the three U.S. large-cap categories, while allocating just $0.80 trillion and $0.58 trillion, respectively, to the mid- and small-cap categories.
  3. Overall, of the $7.33 trillion allocated to these nine categories as of 3/31/20, 81% was in U.S. large-cap stock portfolios.
  4. As of 3/31/20, investors had positioned a combined $1.54 trillion in the three foreign large-cap categories featured in the chart, while allocating just $0.84 trillion to the three small/mid categories.
  5. Overall, of the $2.38 trillion allocated to these nine categories as of 3/31/20, 65% was in foreign large-cap stock portfolios.
  6. With one exception (Foreign Small/Mid Blend), investors have favored the blended portfolios, which have exposure to both growth and value stocks.
  7. There were only three style/market caps featured in the chart that had positive estimated net flows in Q1'20. They were as follows: $41.03 billion (Foreign Large Blend), $28.17 billion (Large Blend) and $218 million (Foreign Small/Mid Value), according to Morningstar. 
  8. While risk tolerance is always an important factor in determining where to allocate investment capital, the fact that mutual fund and ETF investors have just 19% of their capital earmarked for U.S. stocks in mid- and small-caps is a bit surprising, in our opinion. At a 65%/35% split, however, investors appear to be employing more of a balanced approach to allocating capital in the foreign mutual funds and ETFs. 
  9. From 12/31/94 through 12/31/19, a 25-year period that included the internet revolution and two severe bear markets, the S&P 500 Index posted an average annual total return of 10.21% (1,038.36% Cumulative TR), compared to 12.07% (1,630.94% Cumulative TR) and 11.20% (1,324.03% Cumulative TR), respectively, for the S&P MidCap 400 and S&P SmallCap 600 Indices, according to Bloomberg. Both mid- and small-caps notably outperformed their large-cap counterpart. 
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. There can be no assurance that any of the projections cited will occur. Past performance is no guarantee of future results. 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. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P Small Cap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. 

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Posted on Thursday, May 14, 2020 @ 11:09 AM • Post Link Share: 
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  Money Market Fund Assets Still Trending Higher

 
View from the Observation Deck  
  1. U.S. money market fund assets totaled a record $4.77 trillion for the week ended 5/6/20, up from $3.63 trillion at the start of 2020, according to data from the ICI.  
  2. We use the federal funds target rate (upper bound) in the chart as a proxy for short-term interest rates, such as those offered by taxable money market funds and other savings vehicles. 
  3. Since the mid-point of 2019, the Federal Reserve ("Fed") has slashed the federal funds target rate (upper bound) from 2.50% to 0.25%, or decline of 225 basis points, according to data from the Fed. That is exactly where the rate (0.25%) stood in December 2008. 
  4. The Fed's balance sheet assets stood at $6.72 trillion on 5/6/20, up from $4.17 trillion at the start of 2020, according to Bloomberg. The Fed has been aggressive in funneling stimulus into the economy via the purchase of various debt securities in the secondary market to help mitigate the fallout from the coronavirus (COVID-19). 
  5. Inflows to money market funds have been so robust that two large asset managers recently closed some funds to new investors, according to Bloomberg. It notes there is speculation that some companies may at some point move to waive management fees in order to "preserve some sort of positive return for clients." 
  6. We will continue to monitor cash flows to see how investors respond to the Fed's actions. 
This chart is for illustrative purposes only and not indicative of any actual investment. 

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Posted on Tuesday, May 12, 2020 @ 12:12 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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• US Stock Markets Ended May 8, 2020
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