First
Trust Exchange-Traded Fund VI
Semi-Annual
Report
March
31, 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
latest global growth forecast from the International Monetary Fund (“IMF”)
released in April 2022 sees real gross domestic product growth rising by 3.6%
worldwide in 2022, down from its 4.4% projection in January 2022. The IMF is
calling for a 3.7% growth rate for the U.S., down from its January estimate of
4.0%. Emerging Market and Developing Economies are expected to grow by 3.8% this
year, down markedly from the IMF’s 4.8% estimate in January. While global growth
is expected to slow some in 2022, there does not appear to be a significant
threat of recession in the near-term. The IMF notes that the reduction in its
economic growth targets is largely a byproduct of Russia’s decision to invade
Ukraine back on February 24, 2022.
Robust
inflation and the war between Russia and Ukraine have been the dominant stories
of late, in our opinion. Inflation, as measured by the Consumer Price Index,
stood at 8.5% on a trailing 12-month basis at the end of March 2022, according
to the U.S. Bureau of Labor Statistics. The last time inflation in the U.S. was
this high was in 1982. Consumer prices are up significantly across the board,
including groceries, gasoline, automobiles, homes, and apartment rents. It has
been reported that the war between Russia and Ukraine could lead to global food
shortages. It has already helped drive energy prices higher. These two events
are worth monitoring closely. If one or both end up being protracted, then we
would anticipate higher levels of volatility in the markets moving forward.
Perhaps the biggest beneficiary of the spike in inflation is commodity prices,
which surged 27.03% in the first quarter of 2022, as measured by the
Refinitiv/CC CRB Excess Return Index.
Performance
of Global Stocks and Bonds
The
major U.S. stock indices delivered mixed results over the past six months. The
S&P 500®,
S&P MidCap 400® and
S&P SmallCap 600® Indices
posted total returns of 5.92%, 2.73% and -0.30%, respectively, for the six-month
period ended March 31, 2022. Due to the ongoing economic headwinds stemming from
the coronavirus pandemic, rising inflation, and, more recently, the war between
Russia and Ukraine, large-capitalization (“cap”) stocks outperformed their mid-
and small-cap counterparts over the period, an indication that investors were
somewhat concerned about the level of risk they were willing to assume, in our
opinion. Ten of the 11 major sectors that comprise the S&P 500® Index
(the “Index”) were up on a total return basis. The top performer was Energy, up
50.11%, while the worst showing came from Communication Services, down
11.93%.
A
Bloomberg survey of 24 equity strategists found that their average 2022 year-end
price target for the Index was 4,868 as of April 2022, according to its own
release. The highest and lowest estimates were 5,330 and 4,400, respectively.
Brian Wesbury, Chief Economist at First Trust, announced in May 2022 that he is
looking for a year-end price target of 4,900, a downward revision from his 5,250
projection at the close of 2021. The Index closed trading on March 31, 2022, at
4,530.41. The outlook for corporate earnings remains optimistic. Bloomberg’s
consensus year-over-year earnings growth rate estimates for the Index for 2022
and 2023 were 10.25% and 9.44%, respectively, as of April 1, 2022.
The
broader foreign stock indices lagged the performance of the major U.S. stock
indices. Over the past six months, the MSCI World ex USA and MSCI Emerging
Markets indices posted total returns of -1.82% (USD) and -8.20% (USD),
respectively, according to Bloomberg. The major foreign bond indices were also
down over the same period. The Bloomberg Global Aggregate Index of higher
quality debt posted a total return of -6.79% (USD), while the Bloomberg EM Hard
Currency Aggregate Index of emerging markets debt declined by 10.58% (USD),
according to Bloomberg. The U.S. dollar rose by 4.33% over the past six months
against a basket of major currencies, as measured by the U.S. Dollar Index
(DXY). The sizable jump in the dollar provided a drag on the performance of both
foreign stock and bond indices, in our opinion.
In
the U.S. bond market, the results were also disappointing. The top performing
major debt group we track was speculative-grade corporate bonds. The Bloomberg
U.S. Corporate High Yield Index posted a total return of -4.16% for the
six-month period ended March 31, 2022. The worst-performing U.S. debt group that
we track was long-term municipal bonds. The Bloomberg Municipal Bond: Long Bond
(22+ years) posted a total return of -7.21%. The yield on the benchmark 10-Year
Treasury Note (“T-Note”) rose by 85 basis points in the period to close at 2.34%
on March 31, 2022, according to Bloomberg. For comparative purposes, the average
yield on the 10-Year T-Note was 2.03% for the 10-year period ended March 31,
2022.
