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ICI Fund Flow Survey | Defense Wins Championships

Takeaway: Investors have been net defensive for 28 weeks, including the past 5 days, in which bond flows outpaced equity by $11.1 billion.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Investors have been net defensive for 28 consecutive weeks, including the most recent 5 day period, in which total fixed income mutual fund and ETF flows outpaced equity by $11.1 billion. In the 5 days ending August 17th, equity mutual funds lost -$7.6 billion to redemptions, offset by equity ETF subscriptions of +$4.7 billion, bringing total stock product losses last week to -$2.9 billion. Meanwhile, bond mutual funds collected +$6.3 billion on top of additional bond ETF flows of +$2.0 billion, bringing total bond product flows to +$8.2 billion. Our net asset allocation chart at the bottom of this piece shows the running defensiveness by investors over the past 7 months.

 

ICI Fund Flow Survey | Defense Wins Championships - ICI1

 

In the most recent 5-day period ending August 17th, total equity mutual funds put up net outflows of -$7.6 billion, trailing the year-to-date weekly average outflow of -$4.0 billion and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net inflows of +$6.3 billion, outpacing the year-to-date weekly average inflow of +$3.0 billion and the 2015 average outflow of -$475 million.

 

Equity ETFs had net subscriptions of +$4.7 billion, outpacing the year-to-date weekly average inflow of +$236 million and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$1.9 billion, outpacing the year-to-date weekly average inflow of +$1.8 billion and the 2015 average inflow of +$1.0 billion.

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.



Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2015 and the weekly year-to-date average for 2016:

 

ICI Fund Flow Survey | Defense Wins Championships - ICI2

 

ICI Fund Flow Survey | Defense Wins Championships - ICI3

 

ICI Fund Flow Survey | Defense Wins Championships - ICI4

 

ICI Fund Flow Survey | Defense Wins Championships - ICI5

 

ICI Fund Flow Survey | Defense Wins Championships - ICI6



Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

 

ICI Fund Flow Survey | Defense Wins Championships - ICI12

 

ICI Fund Flow Survey | Defense Wins Championships - ICI13

 

ICI Fund Flow Survey | Defense Wins Championships - ICI14

 

ICI Fund Flow Survey | Defense Wins Championships - ICI15

 

ICI Fund Flow Survey | Defense Wins Championships - ICI16



Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2015, and the weekly year-to-date average for 2016. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

ICI Fund Flow Survey | Defense Wins Championships - ICI7

 

ICI Fund Flow Survey | Defense Wins Championships - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In Sector SPDR callouts, investors redeemed -$645 million or -2% from the gold GLD ETF.

 

ICI Fund Flow Survey | Defense Wins Championships - ICI9



Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

 

ICI Fund Flow Survey | Defense Wins Championships - ICI17

 

ICI Fund Flow Survey | Defense Wins Championships - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$11.1 billion spread for the week (-$2.9 billion of total equity outflow net of the +$8.2 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is -$4.9 billion (negative numbers imply more positive money flow to bonds for the week) with a 52-week high of +$20.2 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)

  

ICI Fund Flow Survey | Defense Wins Championships - ICI10 1

 


Exposures:
The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

ICI Fund Flow Survey | Defense Wins Championships - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 

Patrick Staudt, CFA







MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM

Takeaway: Without much news out, markets broadly followed oil prices higher, as OPEC announced it will hold an informal meeting in September.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM11

 

Key Takeaway:

Without much news out last week, markets broadly followed oil prices higher, as OPEC announced it will hold an informal meeting in September. CDS tightened globally, the high yield YTM fell by -16 bps to 6.33%, and the price of Chinese steel rose 1.5%.

 

Our heatmap below is positive across all durations.

 

Current Ideas:

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Positive / 5 of 13 improved / 2 out of 13 worsened / 6 of 13 unchanged
• Intermediate-term(WoW): Positive / 5 of 13 improved / 2 out of 13 worsened / 6 of 13 unchanged
• Long-term(WoW): Positive / 4 of 13 improved / 1 out of 13 worsened / 8 of 13 unchanged

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM15


1. U.S. Financial CDS
– Swaps tightened for 11 out of 13 domestic financial institutions as investors defaulted to optimism without much news last week but with oil prices pushing higher.

Tightened the most WoW: BAC, C, AXP
Widened the most WoW: HIG, COF, UNM
Widened the least/ tightened the most WoW: LNC, COF, UNM
Widened the most MoM: AIG, JPM, GS

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM1

 

2. European Financial CDS – Financials swaps mostly tightened in Europe last week. Portugal, however, was an outlier. CDS for its Banco Espirito Santo widened by 98 bps to 1188.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM2

 

3. Asian Financial CDS – Financials swaps mostly tightened in Asia last week. Only Nomura Holdings CDS widened minimally, by 1 bps to 80.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM17

 

4. Sovereign CDS – Sovereign swaps mostly tightened over last week. However, Italian sovereign CDS widened by 6 bps to 132.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM18

 

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM3


5. Emerging Market Sovereign CDS – Emerging market swaps mostly tightened last week. Russian sovereign swaps, however, stood out with a move 13 bps wider to 231.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM16

6. High Yield (YTM) Monitor – High Yield rates fell 16 bps last week, ending the week at 6.33% versus 6.49% the prior week.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index rose 4.0 points last week, ending at 1938.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM6

8. TED Spread Monitor  – The TED spread rose 1 bps last week, ending the week at 54 bps this week versus last week’s print of 53 bps.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM7

9. CRB Commodity Price Index – The CRB index rose 1.6%, ending the week at 183 versus 180 the prior week. As compared with the prior month, commodity prices have decreased -3.3%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM8

10. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was unchanged at 5 bps.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index rose 2 basis points last week, ending the week at 2.02% versus last week’s print of 2.00%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM10

12. Chinese Steel – Steel prices in China rose 1.5% last week, or 39 yuan/ton, to 2617 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM12

13. Chinese Non-Performing Loans – Chinese non-performing loans amount to 1,437 billion Yuan as of June 30, 2016, which is up +31.6% year over year. Given the growing focus on China's debt growth and the potential fallout, we've decided to begin tracking loan quality. Note: this data is only updated quarterly.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM4

14. Chinese Credit Outstanding – Chinese credit outstanding amounts to 151.4 trillion RMB as of July 31, 2016 (data released 8/12/2016), which is up +15.0 trillion RMB or +11.0% year over year. Month-over-month, credit is up +374 billion RMB or +0.2%. Note: this data is only updated monthly.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM20

15. 2-10 Spread – Last week the 2-10 spread tightened to 81 bps, -6 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM13

16. CDOR-OIS Spread – The CDOR-OIS spread is the Canadian equivalent of the Euribor-OIS spread. It is the difference between the Canadian interbank lending rate and overnight indexed swaps, and it measures bank counterparty risk in Canada. The CDOR-OIS spread widened by 1 bps to 40 bps.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT



Patrick Staudt, CFA


ICI Fund Flow Survey | One-Two Punch

Takeaway: In the past two weeks, domestic equity mutual funds have experienced their two largest withdrawals so far in 2016.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Two weeks ago, domestic equity's -$10.3 billion withdrawal set a new low for the largest outflow year-to-date. Investors then followed that with a -$8.2 billion withdrawal last week, the second largest domestic equity withdrawal YTD. Additionally, all other active equity categories experienced withdrawals, contributing to the total equity mutual fund category losing -$11.2 billion. Meanwhile, the reallocation to passive products continued with equity ETFs winning +$3.5 billion. In fixed income, investors defensively contributed +$4.9 billion to total bond mutual funds. Bond ETF flows were also positive but fairly low at +$129 million.

 


ICI Fund Flow Survey | One-Two Punch - ICI1

 

In the most recent 5-day period ending July 27th, total equity mutual funds put up net outflows of -$11.2 billion, trailing the year-to-date weekly average outflow of -$3.6 billion and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net inflows of +$4.9 billion, outpacing the year-to-date weekly average inflow of +$2.6 billion and the 2015 average outflow of -$475 million.

 

Equity ETFs had net subscriptions of +$3.5 billion, outpacing the year-to-date weekly average outflow of -$170 million and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$129 million, trailing the year-to-date weekly average inflow of +$1.8 billion and the 2015 average inflow of +$1.0 billion.

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.



Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2015 and the weekly year-to-date average for 2016:

 

ICI Fund Flow Survey | One-Two Punch - ICI2

 

ICI Fund Flow Survey | One-Two Punch - ICI3

 

ICI Fund Flow Survey | One-Two Punch - ICI4

 

ICI Fund Flow Survey | One-Two Punch - ICI5

 

ICI Fund Flow Survey | One-Two Punch - ICI6



Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

 

ICI Fund Flow Survey | One-Two Punch - ICI12

 

ICI Fund Flow Survey | One-Two Punch - ICI13

 

ICI Fund Flow Survey | One-Two Punch - ICI14

 

ICI Fund Flow Survey | One-Two Punch - ICI15

 

ICI Fund Flow Survey | One-Two Punch - ICI16



Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2015, and the weekly year-to-date average for 2016. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

ICI Fund Flow Survey | One-Two Punch - ICI7

 

ICI Fund Flow Survey | One-Two Punch - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors pulled -$309 million or -4% from the industrials XLI ETF.

 

ICI Fund Flow Survey | One-Two Punch - ICI9



Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

 

ICI Fund Flow Survey | One-Two Punch - ICI17

 

ICI Fund Flow Survey | One-Two Punch - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$12.7 billion spread for the week (-$7.7 billion of total equity outflow net of the +$5.0 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is -$4.0 billion (negative numbers imply more positive money flow to bonds for the week) with a 52-week high of +$20.2 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)

  

ICI Fund Flow Survey | One-Two Punch - ICI10 2

 


Exposures:
The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

ICI Fund Flow Survey | One-Two Punch - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 

Patrick Staudt, CFA







MONDAY MORNING RISK MONITOR | TED SPREAD

Takeaway: Friday's disappointing U.S. GDP reading broke the streak of optimistic risk readings.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM11

 

Key Takeaway:

Friday's disappointing U.S. GDP reading broke the streak of optimistic risk readings; U.S. financials CDS widened by 5 bps to 81, the high yield YTM rose by 14 bps to 6.54%, and the usually stable TED spread (a measure of bank counterparty) spiked by 10 bps to 50. Interestingly, the TED Spread just hit a 4-year high - the last time it was north of 50 bps was January, 2012. Additionally, in Europe, financials CDS widened by 5 bps to 123 as mostly positive results from banking stress tests were not enough to ease investor worry.

 

Current Ideas:

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM19

 

Financial Risk Monitor Summary

 • Short-term(WoW): Negative / 3 of 13 improved / 5 out of 13 worsened / 5 of 13 unchanged

 • Intermediate-term(WoW): Positive / 9 of 13 improved / 1 out of 13 worsened / 3 of 13 unchanged

 • Long-term(WoW): Positive / 3 of 13 improved / 1 out of 13 worsened / 9 of 13 unchanged

 

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM15 2


1. U.S. Financial CDS
– Swaps widened for 12 out of 13 domestic financial institutions. With Friday's disappointing read on GDP, which grew only 1.2% in Q2, the median U.S. financials swaps widened by 5 bps to 81.

Widened the least/ tightened the most WoW: COF, GNW, ACE
Widened the most WoW: AIG, JPM, BAC
Tightened the most WoW: HIG, BAC, C
Widened the most MoM: MTG, AON, CB

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM1

 

2. European Financial CDS – Financials swaps were mixed in Europe last week. While the European Banking Authority cleared most banks after evaluating their stress tests, Italian UniCredit, British Barclays and German Deutsche Bank suffered hits to their capital buffers, pushing CDS for Barclays and Deutsche wider by 3 bps to 115 and by 8 bps to 212, respectively. Interestingly, UniCredit CDS actually tightened by -2 bps to 173.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM2

 

3. Asian Financial CDS – In Japan, the BOJ's modest easing announcement was not enough to significantly move the country's financials CDS, although Sumitomo Mitsui swaps did stand out, tightening by -2 bps to 84; the central bank stated it will buy ¥6 trillion of ETFs annually but leave its key interest rate unchanged. Meanwhile, Chinese and Indian bank CDS mostly widened.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM17

 

4. Sovereign CDS – Sovereign swaps mostly tightened over last week. Portuguese swaps tightened the most, by -13 bps to 270.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM18

 

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM3


5. Emerging Market Sovereign CDS – Emerging market swaps mostly widened last week. Mexican sovereign swaps widened the most, by 12 bps to 152, followed by Russian swaps, which widened by 11 bps to 239.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM16

6. High Yield (YTM) Monitor – High Yield rates rose 14 bps last week, ending the week at 6.54% versus 6.40% the prior week.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index was unchanged last week, ending at 1932.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM6

8. TED Spread Monitor  – The TED spread rose 10 bps last week, ending the week at 50 bps this week versus last week’s print of 40 bps.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM7

9. CRB Commodity Price Index – The CRB index fell -2.2%, ending the week at 181 versus 185 the prior week. As compared with the prior month, commodity prices have decreased -6.8%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM8

10. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was unchanged at 6 bps.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index was unchanged last week, ending at 2.02%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM10

12. Chinese Steel – Steel prices in China rose 1.2% last week, or 29 yuan/ton, to 2550 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM12

13. Chinese Non-Performing Loans – Chinese non-performing loans amount to 1,392 billion Yuan as of March 31, 2016, which is up +41.7% year over year. Given the growing focus on China's debt growth and the potential fallout, we've decided to begin tracking loan quality. Note: this data is only updated quarterly.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM4

14. Chinese Credit Outstanding – Chinese credit outstanding amounts to 151.0 trillion RMB as of June 30, 2016 (data released 7/14/2016), which is up +15.3 trillion RMB or +11.3% year over year. Month-over-month, credit is up +1,514 billion RMB or +1.0%. Note: this data is only updated monthly.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM20

15. 2-10 Spread – Last week the 2-10 spread tightened to 80 bps, -7 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM13

16. CDOR-OIS Spread – The CDOR-OIS spread is the Canadian equivalent of the Euribor-OIS spread. It is the difference between the Canadian interbank lending rate and overnight indexed swaps, and it measures bank counterparty risk in Canada. The CDOR-OIS spread widened by 2 bps to 40 bps.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT



Patrick Staudt, CFA


HEDGEYE Exchange Tracker | Summer Slump + Summer Loving

Takeaway: All exchange categories are now exhibiting negative Y/Y growth in 3Q however futures are showing the smallest contraction at just -2%.

Weekly Activity Wrap Up

For the second week in a row, the 3Q16TD average daily volume (ADV) fell for all exchange categories. Futures put up 16.9 million contracts per day this week, bringing the 3Q16TD ADV to 18.3 million contracts, a -2% Y/Y contraction. Options activity slumped to 14.5 million contracts per day in the past 5 days, lowering the 3Q16TD ADV to 15.4 million, -15% lower Y/Y. Cash equities came in at 6.5 billion shares per day, bringing the quarter's ADV to 6.6 billion, -10% lower than 3Q15. What is showing less seasonality is the trajectory of CME Group volumes. The exchange reported earnings this week and that year-over-year volume growth expanded +13% exchange wide with all categories growing except for FX. Metals, energy, and equity activity lead the way for CME up +41%, +33%, and +25% in 2Q and the exchange set a new high water mark for open interest at 106 million contracts. The stock remains on our Best Ideas list as a long position.

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - CME chart

 

The trading volume setup thus far in 3Q16:

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon16

  

U.S. Cash Equity Detail

U.S. cash equities trading came in at 6.5 billion shares per day this week, bringing the 3Q16TD ADV to 6.6 billion, -10% lower than the year-ago quarter. In the market share battle for volume, exchanges are losing share. The New York Stock Exchange/ICE is taking a 24% share of third-quarter volume, which -31 bps lower than the year-ago quarter. NASDAQ is taking a 17% share, -223 bps lower than one year ago. Finally, BATS' 20% share is -120 bps lower Y/Y.

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon2

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon3

 

U.S. Options Detail

U.S. options activity came in at a 14.5 million ADV this week, bringing the 3Q16TD ADV to 15.4 million, -15% lower than the year-ago quarter. In the market share battle amongst venues, NYSE/ICE's 15% share of 3Q16 volume is -280 bps lower than one year ago. Additionally, while BATS' share grew in the first half of 2016, growth has stalled somewhat in recent weeks, and the exchange's 11% share is -23 bps lower than the year-ago quarter. Meanwhile, NASDAQ's 22% share is +164 bps higher than in 3Q15, and CBOE's 29% market share of 3Q16 is up +162 bps Y/Y. Finally, ISE/Deutsche's 13% share is -155 bps lower than 3Q15.

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon4

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon5

 

U.S. Futures Detail

12.5 million futures contracts per day traded through CME Group this week. That puts the 3Q16TD ADV at 14.1 million, -2% lower Y/Y. Additionally, CME open interest, the most important beacon of forward activity, currently sits at 103.7 million CME contracts pending, good for +14% growth over the 91.3 million pending at the end of 4Q15, although a contraction from the previous week's +17%.

 

Contracts traded through ICE came in at 4.2 million per day this week, lowering the 3Q16TD ADV to 4.3 million, which is flat Y/Y. ICE open interest this week tallied 64.2 million contracts, +1% higher than the 63.7 million contracts open at the end of 4Q15, although a contraction from the previous week's +2%.

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon6

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon8

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon7

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon9 

 

Monthly Historical View

Monthly activity levels give a broader perspective of exchange based trends. As volatility levels, measured by the VIX, MOVE, and FX Vol should rise to normal levels after the drastic compression this cycle, we expect all marketplaces to experience higher activity levels.

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon10

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon11

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon12

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon13

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon14

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon15

 

 

Please let us know of any questions,

 

Jonathan Casteleyn, CFA, CMT 

  

  

 

 Joshua Steiner, CFA

 

 

 

Patrick Staudt, CFA


FINANCIALS SENTIMENT SCOREBOARD | BAC IS THE MOST OVERLY BULLISH BANK

Takeaway: Bank of America (BAC) has extremely bullish sentiment according to our quantitative screen of Financials.

Bank of America has overtaken J.P. Morgan as the most overly bullish moneycenter bank. All three of BAC, JPM, and C (Scores: 97, 92, and 90) continue to stand out as some of the most overly bullish stocks on our scoreboard. These bulge bracket/money center banks have high sell side ratings combined with low levels of short interest which historically have made them underperformers according to our score.

 

We are publishing our updated Hedgeye Financials Sentiment Scoreboard in conjunction with the latest short interest data release. Our Scoreboard now evaluates over 300 companies across the Financials complex.

 

The Scoreboard combines buyside and sell-side sentiment measures. It standardizes those measures to an index of 0-100, where 100 is the best possible sentiment ranking and 0 is the worst. Our analysis shows that a contrarian strategy can be employed successfully by taking the other side of stocks with extreme readings in sentiment, either bullish or bearish. Once sentiment reaches these extreme levels, it becomes a very asymmetric setup wherein expectations become too high or too low.  

 

We’ve quantified the tipping points for high and low sentiment. Specifically, we've found that scores of 20 or lower have a positive, average expected return while scores of 90 or greater are more likely to underperform.

 

Specifically, our backtest of 10,400 observations over a 10-year period found that stocks with scores of 0-10 went on to produce an average absolute return of +23.9% over the following 12-month period. Scores of 10-20 produced an average absolute return of +11.9%. At the other end of the spectrum, stocks with sentiment scores of 90-100 produced average negative absolute returns of -10.3% over the following 12-months.

 

The first table below breaks the 300 companies into a few major categories and ranks all the components on a relative basis. The second table breaks the group into smaller subsectors and again gives them relative rankings within those subsectors. 

 

FINANCIALS SENTIMENT SCOREBOARD | BAC IS THE MOST OVERLY BULLISH BANK - SI1

 

FINANCIALS SENTIMENT SCOREBOARD | BAC IS THE MOST OVERLY BULLISH BANK - SI2

 

FINANCIALS SENTIMENT SCOREBOARD | BAC IS THE MOST OVERLY BULLISH BANK - SI3

 

The following is an excerpt from our 90 page black book entitled “Betting Against the Herd: Generating Alpha From Sentiment Extremes Across Financials.”

 

Let us know if you would like to receive a copy of our black book, which explains this system and its applications.

 

BUYS / LONGS: Financials with extremely low sentiment readings of 20 and below on our index (0-100) show strong average outperformance in absolute and relative terms across 3, 6 and 12 month subsequent durations.  Stocks with sentiment ratings of 20 or lower rise an average of +15.1% over the next 12 months in absolute terms.   

 

SELLS / SHORTS: Financials with extremely high sentiment readings of 90 and above on our proprietary sentiment index (0-100) demonstrate a marked tendency to underperform in absolute and relative terms across 3, 6 and 12 month subsequent durations.  Stocks with sentiment ratings of 90 or greater fall in value an average of -10.3% over the next 12 months in absolute terms. 

 

 

FINANCIALS SENTIMENT SCOREBOARD | BAC IS THE MOST OVERLY BULLISH BANK - Absolute 12 mo

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

Patrick Staudt, CFA


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