ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013

Takeaway: Bond fund outflows posted their 3rd worst week of '13 and an accelerating week-to-week redemption in the most recent ICI mutual fund survey

Investment Company Institute Mutual Fund Data and ETF Money Flow:


Equity Mutual Fund inflow slowed to $1.3 billion for the week ending August 21st, essentially flat from the $1.4 billion inflow the week prior but remained positive


Fixed Income Mutual Fund outflows picked up substantially with an out-sized $11.1 billion withdrawal by investors, a much larger draw-down than just the $3.9 billion outflow from last week


Both Equity and Fixed Income ETF money flow was negative for the week ending August 21st with a substantial $12.9 billion coming out of passive Equity ETFs and $2.3 billion coming out of passive Bond exchange traded funds 


ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 11

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 12


For the week ending August 21st, the Investment Company Institute reported softening equity mutual fund flow trends, albeit positive flow trends, and accelerating week-over-week declines in fixed income mutual funds. Total equity fund flow totaled a $1.3 billion inflow which broke out to a $1.7 billion inflow into international equity products and a $387 million outflow in domestic stock funds. These trends essentially matched the week prior's combined inflow for domestic and international equity flows of $1.4 billion. Despite this deceleration in stock fund flows, the year-to-date weekly average for 2013 now sits at a $2.7 billion inflow for total equity products, a substantial improvement from the $3.0 billion outflow averaged per week in 2012.


On the fixed income side, outflow trends worsened during the week with the aggregate of taxable and tax-free bond funds combining to lose $11.1 billion in fund flow, the third biggest weekly draw down in 2013 in what now has become the biggest bond withdrawal in the history of the ICI data. This week's outflow was 3rd worst of the year lagging behind only the redemption in week ending June 26th of $28.2 billion and the week of June 12th where $13.4 billion was pulled out of fixed income funds. The taxable bond category specifically shed $7.3 billion in the most recent period versus the $1.8 billion loss last week. Tax-free or municipal bonds continued their sharp outflow trends losing another $3.7 billion in the week ending August 21st, a drastic acceleration from the $2.0 billion lost last week. Franklin Resources (BEN) continues to have the most exposure in our coverage group to declining Municipal bond trends with over 10% of its assets-under-management in the tax-free category. The 2013 weekly average for fixed income fund flow has now drastically declined from 2012, now averaging just a $128 million inflow this year, a far cry from the $5.8 billion weekly inflow averaged last year.


Hybrid funds, or products that combine both fixed income and equity allocation, continue to be the most stable category bringing in another $1.1 billion in the most recent weekly period. The year-to-date weekly average inflow for hybrid products is now $1.7 billion for '13, almost a 100% increase from 2012's $911 million weekly average.



ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 2

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 3

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 4

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 5

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 6



Passive Products - Worst Equity ETF Outflow for 2013:



Both categories of exchange traded funds experienced redemptions by investors for the week ending August 21st. Equity ETFs lost a substantial $12.9 billion, the biggest equity ETF outflow since last summer and only the 9th negative week in the 34 weeks of 2013. Despite this week's outflow, 2013 weekly average equity ETF trends are averaging a $3.1 billion weekly inflow, an improvement from last year's $2.2 billion weekly average.


Bond ETFs also had tough trends in the most recent weekly period losing $2.3 billion in fund flow. This outflow was a vast acceleration from last week's small $209 million withdrawal and has now forced the 2013 weekly average to just a $320 million inflow for bond ETFs, much lower than the $1.0 billion average weekly inflow from 2012.


ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 7

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 8



HEDGEYE Asset Management Thought of the Week - Past is Prologue:


The setup for a rotation from bond funds into equity funds is following the same pattern as the last "Great Rotation" from stocks and into bonds in 2008 and 2009. In 2008, with the ongoing destruction of equity capital within the Credit Crisis and numerous financial concerns being forced to merge to avoid bankruptcy, stock funds experienced substantial outflows of over $59 billion in '08. These redemptions started the "parking" of funds in money market funds which experienced an abnormally high inflow level of $594 billion. This started the slow reallocation into bonds with 2008 spurring a $38 billion inflow into fixed income funds. In 2009 however, the rotation was completely on with another $3 billion leaking out of stock funds and a massive $504 billion being pulled out of money funds for a re-allocation of $323 billion into bonds. Thus history has told us that the first allocation move by investors will be into money funds and then into the new preferred asset class.


ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 9


The setup of this rotation is again playing out in 2013 with fund flow data from the week ending May 22nd (when the Fed first mention the possibility of reducing its quantitative easing program) through this week's recent data at the end of August, again showing preference for outflows in the most troubled asset class (in this cycle being bonds), the parking of funds into money funds, and then a slow rotation into the asset class with the highest return potential (stocks in this cycle). This 12 week stanza of information has shown a $99 billion outflow in fixed income (now the largest bond withdrawal in history), a $34 billion inflow into money funds, and an $21 billion infusion into all equity funds (both domestic and international categories). With the disproportionate risks we see in the bond market currently, we estimate that this fund flow action will be the boiler plate for the rest of '13 and into 2014.


ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 10 redo 



Jonathan Casteleyn, CFA, CMT



Joshua Steiner, CFA

Moody Markets

This note was originally published at 8am on August 15, 2013 for Hedgeye subscribers.

“How far is it wise to respond to a mood?”

-Frank Oppenheimer


Since yesterday’s Early Look focused on asking ourselves baseline risk management questions, I’ll roll with a good one that particle physicist Frank Oppenheimer asked his older brother in the 1930s. Here’s how Robert Oppenheimer answered it:


“… my own conviction is that one should use moods, but not be greatly deflected by them; thus one should try to use the gay times to do those things one wants to do that require gaiety, and the sober moods for the work one wants, and the low moods for giving oneself hell.” (American Prometheus, pg 95)


I’m a moody guy. So that answer spoke to me. Sober every morning, working. Giving myself hell about all my market mistakes come the afternoon. Sounds about right.


Back to the Global Macro Grind


Markets are moody too. They rarely cooperate with all of your positions. And they don’t care whatsoever about your views. Tough relationship we have with this Mr. Market, I know. That’s why I am lobbying the Fed to call her Mrs.


Early last week I polled you asking whether you thought the latest #EOW (end of the world) correction in US stocks would be on the order of 1, 2, or 5%. Since only one client answered 1%, I figured the probability of that being the correct answer was going up.


If you answered 5%, please don’t go all caps or moody on me. Take a breath. It’s just an opinion. And we all have one or we wouldn’t be playing this game. Currently the correction (from the all-time closing high of 1709 in the SP500) is -1.4%.


Now what? Well, let’s redo the poll with some forward looking information:

  1. Immediate-term TRADE support is 1680 = -1.7% from the all-time high
  2. Intermediate-term TREND support is 1637 = -4.2% from the all-time high
  3. Immediate-term risk range for US Equity Volatility (VIX) = 11.62-13.71

So, what do you think?


A)     1% correction (i.e. the market closes up today and yesterday was it)

B)      2% correction (somewhere between today and early next week, that’s it)

C)      4% correction (re-testing the TREND line, which we haven’t done since late June)


I’m going with B again.


If the market closes up on the day today, that will make me and everyone else (other than anonymous client Mr. X) who answered the poll last week wrong. If that happens, we can all just give ourselves hell.


What would have been really hellish in 2013 is missing this call on US employment #GrowthAccelerating. Again, we don’t care about the line-items in the BLS data; we only care about the slope of the line in the only leading indicator we can find for the bond market: NSA (non-seasonally adjusted) rolling US jobless claims. Most of the monthly payroll data is statistically useless.


We’ll get that weekly US Jobless Claims data point this morning – and if there’s one data point that matters to both the long-end of the US Treasury curve (and the US stock market), that is it. So let’s put this morning’s number in the context of recent history:

  1. Last week’s NSA claims number came in -10.5% year-over-year (slight improvement vs the previous week)
  2. The average for the last 12 weeks is claims falling -8.8% year-over-year
  3. Giving exception to a single anomalous data point 3 weeks ago, avg y/y improvement over 12 weeks = -9.7%

Yes, that’s a lot better than your parroting partisan pundit would lead you to believe. It’s also our definition of not only what matters to the employment vs Fed story, but what Mr. Market trades on – the 10yr US Treasury Yield fits NSA rolling claims like a glove.


Oh, and there’s seasonal headwinds in this jobless claims series that become tailwinds in September (that can run through February). Most (other than Mr. Bond and Stock Market) don’t expect to see the jobs picture improve, so it probably will.


One other way to measure the moodiness of it all is the weekly II Bull/Bear Spread:

  1. Last week, Bulls dropped from 51.6 to 47.4%
  2. Last week, Bears rose from 18.5 to 20.6%
  3. Last week, Bull/Bear Spread re-tested its most bearish level since Q2 at 2680 basis points wide

Yep – everyone says everyone is bullish. But they aren’t. Less than 50% are bullish. That’s really bearish. And the last time we saw a 2600bps handle on the Bull/Bear spread was in the 1st week of July. The SP500 proceeded to move from 1631 (our new TREND support) to 1709 within a month.


So, if you are all beared up (on stocks) this morning, just remember that bullish gaiety can quickly become a mid to late month-end move. The profitable bearish mood is in bonds. We’ll see if this morning’s jobless claims print reiterates that. September is coming.


UST 10yr 2.64-2.75%

SPX 1682-1712

VIX 11.62-13.71

USD 80.94-82.02

Yen 97.37-99.45

Brent 108.11-111.49


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Moody Markets - Claims 080813


Moody Markets - Virtual Portfolio

August 29, 2013

August 29, 2013 - dtr



August 29, 2013 - 10 yr

August 29, 2013 - spx

August 29, 2013 - dax

August 29, 2013 - dxy

August 29, 2013 - euro

 August 29, 2013 - oil



August 29, 2013 - eem

August 29, 2013 - vix

August 29, 2013 - yen

August 29, 2013 - nat gas
August 29, 2013 - gold

August 29, 2013 - copper

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Textbook Bounce

Client Talking Points


Witness the textbook bounce off our first line of support (immediate-term TRADE support is 2.69%) as the 10-year makes yet another higher-low. Both the US currency and growth side of the US stock market like that this morning. Gold? Not so much. We re-shorted Gold for the first time since July 12th on Tuesday. We also re-shorted TLT there too. The Queen Mary has turned.


One of the biggest risk management questions in my notebook was whether or not the US Dollar Index would hold its higher-lows versus the June lows. It did. And it’s having a good morning again here vs the Yen too (USD/YEN held 96.59 TREND support). If these FX levels hold, some of the recent counter TREND commodity reflation pressure should abate. That would be a good thing for growth.


Finally! A country does what a serial currency debaucher at the Federal Reserve wouldn’t dare – they actually raised rates to protect the purchasing power of their people. Surprise, surprise... both the foreign exchange and equity markets liked that move (as they should). Indonesia gains +1.6% on the news. Bravo to the Indonesian Hawks.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.


Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016.


Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road.

Three for the Road


GOLD: which we re-shorted for the 1st time since July 12, is in the $; hate mail pending @KeithMcCullough


"When you expect things to happen - strangely enough - they do happen." - J.P. Morgan


Fast food workers in 50 cities across the U.S. are walking off the job today to protest for higher wages. Currently, the median pay for the fast food workers is just over $9 an hour, or about $18,500 a year. (CNN)


TODAY’S S&P 500 SET-UP – August 29, 2013

As we look at today's setup for the S&P 500, the range is 37 points or 0.43% downside to 1628 and 1.84% upside to 1665.                                     










  • YIELD CURVE: 2.39 from 2.37
  • VIX  closed at 16.49 1 day percent change of -1.67%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: GDP Annlized Q/q, 2Q revised, est. 2.2% (prior 1.7%)
  • 8:30am: Init. Jobless Claims, Aug. 24, est. 331k (pr 336k)
  • 8:50am: Fed’s Bullard speaks in Memphis
  • 9:45am: Bloomberg Consumer Comfort, Aug. 25, prior -28.8
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: Fed to buy $1.25b-$1.75b in 2036-2043 sector
  • 1pm: U.S. to sell $29b 7Y notes
  • 2pm: Fed’s Lacker speaks in Newport News, Va.


    • 9am: Transportation Dept, Federal Railroad Administration hold mtg of Railroad Safety Advisory Cmte to discuss July derailment in Quebec
    • 10am: FDIC Chairman Gruenberg announces 2Q bank, thrift earns
    • Syria showdown widens rift as U.S., U.K. press for action


  • JPMorgan bribery probe said to expand as spreadsheet found
  • Vodafone, Verizon in talks over U.S. wireless stake sale
  • US Airways’ Washington Airport prize hobbles bid for AMR merger
  • Blackstone settles IPO disclosure lawsuit for $85m
  • Seaworld slumps after slashing prices as visitors drop
  • U.S. and Swiss said to agree in offshore tax evasion probe
  • Zurich Chairman Ackermann resigns after CFO’s suicide
  • Brazil raises rate to 9% as real undercuts inflation fight


    • Africa Oil (AOI CN) 5:30pm, $(0.02)
    • Campbell Soup (CPB) 7:30am, $0.42
    • Esterline Technologies (ESL) 4pm, $1.54
    • Golar LNG (GLNG) Bef-mkt, $0.20
    • Golar LNG Partners (GMLP) Bef-mkt, $0.53
    • K12 (LRN) 6am, $0.02
    • Krispy Kreme Doughnuts (KKD) 4:05pm, $0.16
    • Pall (PLL) 7am, $0.89
    • Royal Bank of Canada (RY CN) 6am, C$1.38 - Preview
    • (CRM) 4:05pm, $0.07
    • Signet Jewelers (SIG) 6:30am, $0.83
    • Splunk (SPLK) 4:02pm, $(0.03)
    • Toronto-Dominion (TD CN) 6:30am, C$1.53 - Preview


  • Gold Snaps Five-Day Rally as Data May Increase Case for Tapering
  • Cotton Glut Expands to Record as Hanes Profit Gains: Commodities
  • WTI Oil Falls From Two-Year High as Syria Intervention Debated
  • Robusta Coffee Falls to 2-Month Low on Bear Trend; Cocoa Slides
  • Copper Trades Near Two-Week Low on Concern About Syria Unrest
  • Noble Wins Order to Liquidate Ebullio Commodity Master Fund
  • Wheat Exports From India Seen Climbing on Record Plunge in Rupee
  • New Billionaire Profits From Vietnam-China Cotton Cost Gap
  • Soybeans, Corn Decline on Improving Outlook for Midwest Weather
  • China Galvanized Steel Slowdown May Cool Zinc Use After 1H Boost
  • Gas Price Jump Seen in Record Europe Stockpiling: Energy Markets
  • Capital One Hires JPMorgan, Barclays Bankers to Expand in Energy
  • South Africa Gold Companies Considering Locking Out Workers
  • Oil May Fall as Retaliation for Syria Strike Unlikely: Citigroup


























The Hedgeye Macro Team













Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.