First
Trust Exchange-Traded Fund VI
Semi-Annual
Report
September
30, 2022
Robert
F. Carey, CFA
Senior
Vice President and Chief Market Strategist
First
Trust Advisors L.P.
Mr.
Carey is responsible for the overall management of research and analysis of the
First Trust product line. Mr. Carey has more than 30 years of experience as an
Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial
Analyst (“CFA”) designation. He is a graduate of the University of Illinois at
Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment
Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a
guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been
quoted by several publications, including The
Wall Street Journal, The Wall Street
Reporter, Bloomberg News Service,
and Registered Rep.
State
of the Global Economy
The
International Monetary Fund (“IMF”) reported in its October release that global
gross domestic product (“GDP”) growth is expected to come in at 3.2% in 2022 and
2.7% in 2023, down from 6.0% in 2021. The IMF sees the U.S. economy growing 1.6%
in 2022 and 1.0% in 2023, down from 5.7% in 2021. With respect to all Advanced
Economies, the IMF is projecting GDP growth of 2.4% in 2022 and 1.1% in 2023,
down from 5.2% in 2021. Lastly, it sees Emerging Markets and Developing
Economies growing 3.7% in 2022 and 3.7% again in 2023, down from 6.6% in 2021.
From 1970 to 2021, the average global GDP growth rate was 3.6%, according to the
IMF. Looking ahead, the IMF notes that the global economy must navigate three
key pressures: the war in Ukraine, world-wide inflation and continued economic
headwinds in the U.S., Europe and China.
Russia’s
war with Ukraine continues to destabilize the global economy, increasing the
cost of living and impeding economic growth. European natural gas prices have
spiked four-fold since 2021, according to the IMF. Russia has decreased natural
gas deliveries to Europe by over 80% of their 2021 total, greatly increasing the
likelihood of an energy shortage. Worldwide inflationary pressures continue to
fester, with global inflation forecast to surge to 8.8% in 2022, up from 4.7% in
2021. Central banks have rapidly tightened monetary policy in response, and will
likely have to continue to do so, in our opinion. These tighter financial
conditions have produced significant headwinds to growth among most major
economies and are likely to have at least some impact in 2023.
Performance
of Global Stocks and Bonds
U.S.
equities have turned negative over the past six-month period. The S&P
500®
(the “Index”), S&P MidCap 400® and
S&P SmallCap 600® Indices
posted total returns of -20.20%, -17.50% and -18.58%, respectively, for the
six-month period ended September 30, 2022, according to Bloomberg. Value stocks
outperformed growth stocks over the period. The S&P 500® Value
Index posted a total return of -16.43% versus -23.87% for the S&P 500® Growth
Index; an indication that investors may be anticipating slower growth over the
near-term and are opting for companies that are trading at more attractive
valuations. All eleven sectors that comprise the Index were down on a total
return basis. Energy was down least for the period, losing 2.94%, while the
worst showing came from Communication Services, down 30.79%.
A
Bloomberg survey of 23 equity strategists found that the average 2022 year-end
price target for the Index was 4,346 as of September 15, 2022, down from 4,376
on August 16, 2022, according to its own release. Heading into 2022 (December
16, 2021), strategists had an average target of 4,950. The highest and lowest
estimates on September 15, 2022, were 5,100 and 3,400, respectively. On
September 15, 2022, the Index closed at 3,901.35, which was 18.66% below its
all-time closing high of 4,796.56 on January 3, 2022. As of September 30, 2022,
Bloomberg’s 2022, 2023 and 2024 consensus earnings growth rate estimates for the
Index stood at 9.61%, 6.14% and 8.44%, respectively.
The
performance of foreign equities continues to lag that of major U.S. stock
indices. Over the past six months, the MSCI World ex USA and MSCI Emerging
Markets equity indices posted total returns of -22.50% (USD) and -21.70% (USD),
respectively, according to Bloomberg. Major foreign bond indices were also in
negative territory. The Bloomberg Global Aggregate Index of higher quality debt
posted a total return of -14.63% (USD), while the EM Hard Currency Aggregate
Index of emerging markets debt fell by 13.90% (USD), according to Bloomberg.
Over that same period, the U.S. dollar surged by 14.04% against a basket of
major currencies, as measured by the U.S. Dollar Index (DXY), pressuring the
returns on unhedged foreign securities held by U.S. investors.
U.S.
bond indices have not been immune to the aggressive tightening of monetary
policy by central banks, particularly the U.S. Federal Reserve. Over the past
six months, the best performing index we track was the U.S. Treasury:
Intermediate Index, which posted a total return of -4.69%. The worst performer
was the Municipal Long Bond: Long Bond (22+), which posted a total return of
-12.15%. The yield on the benchmark 10-Year Treasury Note (“T-Note”) rose by 149
basis points (a 63.70% increase over the period) to close at 3.83%, according to
Bloomberg. For comparative purposes, the average yield on the 10-Year T-Note was
2.10% for the 10-year period ended September 30, 2022.
