First Trust ROI Podcast
On the ROI podcast, we discuss some of the most important questions facing investment professionals today, ranging from macroeconomic views, to perspectives on the equity and fixed income markets, to insights on practice management. We aim to cut through the noise, examine the data, and provide fresh insights to investment professionals as they help their clients find better ways to invest…seeking to generate attractive returns on their investments.
First Trust ROI Podcast
ROI Podcast | Episode 25 | Key Insights from the First Half of 2024 | Ryan Issakainen | July 15, 2024
In this episode, Ryan looks back at the first half of 2024, highlighting some of the key insights provided by guests of the podcast—including Bob Stein, Brian Wesbury, Jim Murchie, and Richard Bernstein. He also reveals plans for the second half of the year.
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Hi, welcome to the First Trust ROI podcast. I'm Ryan Isakainen, etf strategist at First Trust. Well, this is our 25th episode of the podcast and we're coming up to the one-year anniversary, which happens later on this summer. It's been quite an enjoyable experience for me. When we decided to launch a podcast, we weren't sure if anyone would really be interested in watching it, and I figured the downside was I would still get to talk to really interesting people and ask them questions that I always wondered about and spend some time with some people that I liked. And, as it turns out, tens of thousands of people have chosen to download episodes of the podcast. It's growing and we're getting tremendous feedback from those of you who have decided to watch it, so we're very grateful for that.
Ryan:The format for today's podcast is going to be a bit different from what we've done in the past. You may remember, if you're a child of the 80s, like I was, when sitcoms were really popular and everyone would gather around the TV and you'd sit down and you'd watch a sitcom. Every so often you'd come across what was known as a clip show. A clip show looked back at some previous episodes just small 30, 40 second clips, and they wove it together Usually didn't advance the plot very much and, if I'm honest, I was never a big fan of clip shows when it came to sitcoms. Because of that, I felt like I was being a little bit ripped off. But this episode will not be like that.
Ryan:We're going to look back at some of the really interesting moments that have happened in the first half of this year.
Ryan:We'll make some comments on why we think they're interesting, and then we'll look forward to the second half of 2024 to consider what's coming down the road and maybe some of the things that we can look forward to on the podcast. And so, to start things off, one of the things that I wanted to look at is one of the early episodes that I really enjoyed filming in January of 2024 was with Bob Stein. Bob Stein is the deputy chief economist at First Trust, and I think it's really interesting because back in January we were talking about some of the things that are being discussed today, namely, when it comes to the presidential election, who is likely to be the candidate? Is it going to be a rematch of Joe Biden against Donald Trump? Is it going to be a rematch of Joe Biden against Donald Trump, or is there a chance that we're going to see a candidate from the Democrats who's different than Joe Biden, or from the Republicans? That's maybe not Donald Trump, and so listen to what Bob Stein had to say back in.
Speaker 2:January If Joe Biden had dropped out six months ago. I think there are multiple candidates who get in the race, and Vice President Harris has very little chance because she's not a particularly good candidate, and so then the nominee is Gavin Newsom or Amy Klobuchar, or maybe a Newsom-Klobuchar ticket or something like that. But here we are late January of the election year, and I think at this point it would be too difficult for the Democrats to give the nomination to anyone other than Vice President Harris. People mention Michelle Obama, and apparently there are fundraising calls on her behalf being made by her husband about would you be willing to donate it? In the end, I don't think she has the fire in the belly.
Ryan:So once again we see Bob Stein really insightful, looking forward to what would be an issue that's widely discussed now in the wake of the Democrat nomination whether or not it will ultimately fall to a rematch with Joe Biden against Donald Trump. And here is what Bob had to say about the likelihood that Republican candidate would be Donald Trump. Nikki Haley, donald Trump seem to be duking it out head to head. What do you think the odds are? I guess, starting with the Republicans, that Trump is the nominee.
Speaker 2:I think 95%. And if you held a gun to my head and said I had to go higher than 95% or lower, I'd say a little bit higher. I think there's almost no chance that anybody else would be the nominee at this point. Haley's not going to win any state. Maybe Puerto Rico, Not a state. So in the end she's not going to be the nominee unless lightning strikes. President Trump has some sort of health issue or something that forces him out of the race.
Ryan:So Bob had strong views on the likely Republican candidate, ultimately resulting in the nomination of Donald Trump. Here's what Bob had to say about the outcome of the Senate race, which he also believed would favor the Republicans, and we'll see if he's right, but this is what Bob had to say back in January For the.
Speaker 2:US Senate. Republicans are very likely to take the Senate, Not guaranteed. But they right now have 49 seats. They have not one incumbent member up for election this year, not one incumbent seat in a blue state and only one in a purple state, and that's Florida, which is not really a purple state. So Rick Scott's not going to lose there. So Republicans will not lose any of their 49, period. They will gain almost certainly West Virginia. So now they're at 50. Out of all the other races that the Democrats have to defend, all they have to do is gain one more. I think they'll probably gain Ohio. Then they have a chance in some other states, maybe Pennsylvania, maybe Arizona, a couple others as well. My best guess is that the Republicans will probably net gain three seats and get up to 52 seats in the US Senate. Narrow control of the Senate.
Ryan:Once again we see some insightful comments from Bob Stein, but what I'm looking forward to is having Bob back on the podcast for the second half of 2024, as the election draws near, to see if he's updated his thinking, updated the odds of either nomination, what he thinks will happen with the House or the Senate. Obviously, these are things that people are paying close attention to and I'm thankful that I get to have a conversation with Bob later on. This summer I also had a very interesting conversation with Jim Murchie of Energy Income Partners. Jim came on the podcast to talk all about energy. We got into some discussion about energy policy and maybe what was the best approach especially if you really your aim was to lower CO2 emissions and what the right approach should be from a public policy standpoint. Here's what Jim had to say regarding that topic.
Speaker 4:People that want carbon and methane emissions to go away because of their impact on the temperature of the planet. They simply want the fossil fuel industry to go away, and so they have taken sort of a war on drugs approach. Remember, the war on drugs has been going on for now like six decades. We've made no progress because we're not really addressing the demand side. We're addressing the supply side, right. So think about all the things that creates, and if you try to do that with a fossil, you're going to get the exact same result.
Ryan:So as Jim mentioned, the public policy approach that was not as successful as many had hoped with the war on drugs hasn't worked out very well when it comes to energy either, and this is particularly important as we think about what's coming down the road in terms of energy demand. I had a great conversation with Brian Westbury that touched on this topic. Take a listen. I mean not to mention electric vehicles, not to mention all these data centers for AI. There's going to be a tremendous amount of energy demand coming down the road, and there already has been, and so, to your point, how are you going to actually meet those needs? It's going to be a combination of things.
Speaker 5:Yeah, and if the wind's not blowing and the sun's not shining, you can't do it that way. I'm glad you added AI in there. These supercomputers that they're building are massive draws of electricity, and so if you believe that's the future, the system we're building is not reliable enough to power that. I mean. The government just promised billions and billions of dollars to build charging stations and they're just inefficient at getting it done because there's no competition.
Ryan:Well, as Brian noted, there is public policy that is helping to support renewable energy, and perhaps to the detriment of certain free market principles.
Ryan:One of the interesting parts about this whole discussion, though, is when it does come to those AI data centers, when it comes to cryptocurrency, when it comes to electric vehicles.
Ryan:We really think there's going to be a tremendous amount of demand growth for electricity in the next several years, and one of the things that that tells me is that our infrastructure needs massive investments. Infrastructure is not well suited for renewable production, but there's not nearly enough infrastructure in place if you're going to be able to supply electricity for all of these new innovations that are all happening at once, and so this is one of the themes that we think makes sense as we go forward, not just in the second half of 2024, but then over the next several years. One of the other comments that Brian made that received quite a bit of comments on our podcast page as well as YouTube, had to do with what the effect is when you raise too much debt, when you borrow too much, when the government borrows too much, what the effect is on the economy, and it was interesting the way that Brian linked that not just to the debt itself, but to taxes. So listen to what Brian had to say there.
Speaker 5:If a country has a lot of debt and then raises taxes to fix it, that's when we hurt economic growth and that's what kills the economy. It's not the debt itself, it's the reaction to it.
Ryan:Such an interesting take and I think it's a take that makes a lot of sense as we think about the debt itself, the level of debt being less relevant than actually paying for that debt, and, of course, we all experience that on a day-to-day basis. When you have a mortgage, how much you pay for the mortgage is really what impacts your standard of living, at least in the near term, and that certainly had an impact on the real estate market. Another guest in the podcast that we had on that received a tremendous amount of positive feedback was in June I had Rich Bernstein on from Richard Bernstein Advisors, and Rich is always such a great guest, so insightful. He's got decades of experience, well-known on Wall Street, former chief strategist at Merrill Lynch, and Rich and I. One of the things that we talked about was artificial intelligence attention so much demand, massive investments that companies are making to build out the infrastructure of their AI, but the question that Rich wanted to talk about is whether or not AI is a good investment at this point in time.
Speaker 3:Here's what he had to say 25 years ago the story was the internet would change the economy, and it did. It changed the economy in ways that we could never have envisioned 25 years ago. I mean fantastic, right. But if you bought NASDAQ at the peak of the bubble, it took you 14 years just to break even. Since the peak of the bubble I mentioned before, energy stocks have outperformed technology stocks 24, 25 years. You know it takes a long time to make up for you for over-enthusiasm on the investment side. So I don't dispute for a second that AI is going to change the economy. Of course it will. Does that mean it's a great investment opportunity today? Not so sure about that.
Ryan:Certainly not a mainstream take from Rich Bernstein when it comes to the investment opportunity, but the point that he's making, I think, is that valuations matter, and, even though there's a lot of enthusiasm and a lot of potential for artificial intelligence to boost productivity, to boost efficiency, to make businesses run better and to perhaps eventually become more profitable, it really does matter what you pay for some of those investments, and, just like the internet and the impact that it had on our lives, we may be in a similar spot with some of these investments in AI. So then I asked Rich well, if that's the case, where do you think some of the best opportunities may lie today? And here's what Rich had to say.
Speaker 3:Why does everybody understand the national security implications of the United States being dependent on the rest of the world for semiconductors, but they don't understand the national security implications of the United States being dependent on the rest of the world for everything, and that I think deglobalization, being dependent on the rest of the world for everything, is a horrific combination. The capital markets have to be smart enough to understand this and redirect capital to where it's needed. I think the big story is the re-industrialization of the American economy. I think that's going to be a massive story.
Ryan:So the re-industrialization of America such an interesting story. You know Rich has been talking about the renaissance in manufacturing that's due to take place in America for over a decade now, and this is something that, as it turns out, he's been quite right on. He's had a lot of foresight in making some of these points that deglobalization was taking place and if that's taking place, you have to build up the productive capacity of manufacturing, not just in semiconductors, which of course we've seen a surge in building of new factories related to semiconductors, supported by things like the CHIPS Act, but also just the investment being made by semiconductor companies. Whether or not that would have taken place in the absence of some of those government programs, well, that remains to be seen. But I think Rich has a really, really interesting point when it comes to thinking about this as a long-term secular theme that will likely play out over the decades ahead. So those are just a few of the guests that we had on the ROI podcast during the first half of 2024. What's coming up in the second half of 2024? Well, we've got, of course, another great lineup I'm looking forward to speaking with in the summer Coming up.
Ryan:As I mentioned earlier, bob Stein will make a return appearance on the podcast. Of course we'll ask Bob about the economy, the likelihood of a recession, whether or not the probability has declined, whether or not the presumptive candidates are likely to be the candidates when we go to the ballot box in November. We'll talk about the Senate, we'll talk about the House and see how that plays out. We're also looking forward to having Chris Jepson. Chris Jepson is the Chief of Advisor Practices at First Trust. He's been a wonderful resource for financial professionals for years and Chris has got some really fresh insights when it comes to leveraging things like artificial intelligence to manage a financial professional's business and try to make that more productive and more efficient. I'm really looking forward to that conversation as well and having Chris on for the first time on the ROI podcast.
Ryan:Of course we'll have more Brian Westbury. You may have noticed that Brian has increased the number of appearances that he's made on the podcast. Of course that is because of feedback from those of you who have watched the podcast. The consistent feedback I received is can you get more Westbury? The people want to hear what he's thinking and of course we love to have conversations with Brian. He's always very insightful. And then another first time guest that we'll have later on this summer is Brian Comiskey from the Consumer Technology Association. Very much looking forward to hearing his insights on technology, what's going on in the field of AI and robotics, and cloud computing and cybersecurity. He's always an interesting person to talk to. I've, over the years, had many conversations with Brian, so I'm looking forward to introducing him to you as well. So that is what we're looking forward to in the second half of the year. Now we also want to hear from you. As I think I mentioned, some of our best ideas comes from feedback from those that have begun to watch the podcast, and so maybe there are people that we should be talking to or topics that we should cover that we haven't covered thus far and love to hear from you. If you email us, we'd be happy to maybe include your thoughts in future podcast episodes. You can reach out to us at roipodcast at ftportfolioscom Our email address, again roipodcast at ftportfolioscom. Now I'd like to finish this episode as we think about what has happened so far this year and what's likely to happen going forward.
Ryan:One of the things that we pay attention to is where assets are flowing, and my team puts out a report every month. We call it our ETF Data Watch Asset Flows Monitor and what we do is we combine all the different individual tickers and say where is money going, where is money going away from, and you can use those insights as you please, but we think it's helpful in identifying some of the trends that are playing out, at least in the ETF industry. So, for example, if we pull up a image of the current ETF data watch, we can see how some of this is broken down. For example, when we look at overall asset flows, we can see that in the month of June, about $56 billion went into equity ETFs compared to about $25 billion for fixed income. Those were the two largest asset gatherers in broad categories and certainly over the last 12 months, which is represented by those green dots, we also had quite a bit go into both of those categories. But we break it down a bit more granularly as well when we look at active versus passive. So, for example, when we look at equities, about $45 billion of that, $56 billion went into passive equity ETFs.
Ryan:But one of the big stories this year has been how popular active equity ETFs have become, and that was true in the month of June as well. About $11 billion went into those actively managed equity ETFs, and this has surprised a lot of people as they consider, you know, why is that taking place, especially with the strength of some of the beta indices like the S&P 500? And I think there's some good reasons why that's taking place. Maybe we can cover that on a separate podcast, but active management in the equity ETF space has certainly had a new renaissance of its own. When we look at fixed income, $18 billion went into passive fixed income ETFs in the month of June, but almost $7 billion again went into those actively managed fixed income ETFs. This has been a really interesting trend that, when it comes to active versus passive, fixed income had already had a bit of a lead over equities. Investors had embraced those actively managed fixed income ETFs much sooner than they had with respect to equities. But what's interesting is those actively managed equity ETFs have actually now surpassed the level of assets under management in comparison to the fixed income category.
Ryan:We also look at other subcategories of fixed income and we make some observations that, for example, us Treasury and agency fixed income ETFs were the most popular category in our delineation of categories, with about $10 billion of net inflows in the month of June. Core and multi-sector behind that, about 4.6. Corporate bond even a bit more than core and multi-sector, with almost $6 billion. High yield with almost $2 billion. Muni bonds with about $1.1 billion. And so we can see the breakdown by category. We also break it down by maturity target or duration. Broad maturities, where there's no target, was the most popular in the month of June and also over the last year about $9.2 billion in the month of June, over $100 billion in the last year. Long term investors apparently are moving a bit out in the yield curve about $6 billion in the month of June, about $37 billion in the last 12 months. Intermediate was third behind that about $6 billion in the month of June, about $37 billion in the last 12 months. Intermediate was third behind that about $4 billion in the month of June and about $59 billion over the last 12 months. And then we kind of move on down from there.
Ryan:What about on the equity side of things? Well, $42 billion of that equity haul for the month of June and of course the overall, as I mentioned earlier, was about $56 billion. $42 billion of that went into US equity ETFs, about $10 billion went into developed market international and about $4 billion went into global equity, which that mixes both US and international, developed and perhaps emerging markets. It's not really constrained by country that had about $4 billion in debt inflows but, as we can see by this chart, the vast majority of net inflows over not just the last month but the last year went into US equity ETFs. Almost $470 billion went into those ETFs.
Ryan:When we look at sector funds, this is also kind of interesting because you go through these phases, these cycles, where sector funds are extremely popular and we see tens of billions of dollars sometimes going into sector funds. Well, that wasn't the case in the month of June. In fact, there were very few areas, very few sectors that had over a billion dollars in net inflows. Financials had about 1.1 billion, but information technology led the way once again with almost $4 billion in net inflows Over the last 12 months. Technology far and away led in terms of net inflows with about $21.7 billion in net inflows over the last 12 months.
Ryan:Now, when we look at factors, this is something else that tends to come in waves. There's popularity that kind of grows and comes in and leaves some of these factor funds, but far and away the most popular factor category in the month of June was growth. Maybe that's no surprise, as we've seen some of the dominance of growth versus value, but almost $13 billion went into growth ETFs in the month of June. That capped off a year which took in about $54 billion in net inflows. Value is right behind that in the month of June, as well as the last 12 months. Value is right behind that in the month of June, as well as the last 12 months about $5 billion in the month of June and $25 billion over the last 12 months. Multi-factor about 1.3 in the month of June, 24 over the last 12 months. And then quality about 1.7 billion in the month of June and 17 billion $1.7 billion in the month of June and $17 billion. On the other end of the spectrum, low volatility, once again, has been the least popular in the group of factor categories that we track. Low volatility lost about a half a billion dollars in net outflows, capping off an $11 billion year of net outflows once again.
Ryan:Now how do you take this information? How do you apply it? We're not saying that this is predictive of what will happen going forward, or maybe not even have anything to do with performance, but we do think it's instructive as we look at where flows are coming and where flows are going, as we think about maybe you're missing an opportunity. Maybe with all the net inflows in a specific category, maybe it's time to consider hedging some risk on that category. We put out the data so you can interpret it in whatever way you see fit.
Ryan:If you're interested in receiving that, you can sign up for that subscription on our website, ftportfolioscom. So once again, thank you for joining us for this, our 25th episode of the First Trust ROI podcast. I hope you like the new format Again. If you think it was not a successful format, if you look at this like I looked at the clip shows in the 1980s and you say you know I really wanted some more Brian Westbury, you know, feel free to reach out with that as well. Westbury will be coming on a little bit more later this summer. Again, any feedback you have, we'd love to receive it. Our website is ftportfolioscom, but our email address for the podcast is roipodcast at ftportfolioscom. Thanks again for joining us for this episode. We'll look forward to seeing you next time. Take care everyone.
