ICI Fund Flow Survey - Weekly Taxable Bond Flow Rebounds but Year-to-Date Tally Spells Rotation

Takeaway: Taxable bond funds captured their first inflow in 7 weeks; Munis still booked outflows and Domestic Equities experienced redemptions

Investment Company Institute Mutual Fund Data and ETF Money Flow:


Equity mutual funds booked an outflow of $3.5 billion for the 5 day period ending September 25th, a reversal from the $3.3 billion inflow the week prior


Fixed income mutual funds flow improved sequentially W-o-W and resulted in a $1.2 billion inflow, a reversal from the $2.6 billion outflow last week


Within ETFs, passive equity products experienced another large inflow with $7.3 billion coming into the equity category. Bond ETFs also had positive trends, with a $1.3 billion inflow in the most recent weekly period


Within our Hedgeye Asset Management Thought of the Week below, we highlight that despite the short term weekly rebound in bond fund flows in the most recent 5 day period that 2013's year-to-date trends reflect a substantial asset allocation shift from bonds and into equities


ICI Fund Flow Survey - Weekly Taxable Bond Flow Rebounds but Year-to-Date Tally Spells Rotation - ICI chart 1



For the week ending September 25th, the Investment Company Institute reported the first weekly outflow in combined domestic and world stock funds in 4 weeks and the first inflow for combined taxable and tax free bond funds in 9 weeks. Total equity fund flow totaled a $3.5 billion outflow which broke out to a $196 million inflow into international equity products and a $3.7 billion outflow in domestic stock funds. These trends decelerated from the prior week's total equity fund inflow of $3.3 billion and the outflow in domestic stock funds was the largest since the first week in May. Despite this weak 5 day period for stock fund flows, the year-to-date weekly average for 2013 now sits at a $2.5 billion inflow for total equity mutual funds, a substantial improvement from the $3.0 billion outflow averaged per week in 2012.


On the fixed income side, bond funds showed some fighting spirit for the week ending September 25th with the aggregate of taxable and tax-free bond funds booking a $1.2 billion subscription, the first combined inflow in 9 weeks. The taxable bond category lead the charge with a $1.5 billion inflow, which washed over the $289 million outflow for tax-free or municipal bonds. While the slight inflow in the most recent period is encouraging for the bond market, the 2013 weekly average for fixed income fund flow has still drastically declined from 2012, now averaging a $474 million weekly outflow 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 $1.2 billion in the most recent weekly period, an slight decline from the $1.5 billion inflow the week prior. The year-to-date weekly average inflow for hybrid products is now $1.6 billion for '13, almost a 100% increase from 2012's $911 million weekly average.



ICI Fund Flow Survey - Weekly Taxable Bond Flow Rebounds but Year-to-Date Tally Spells Rotation - ICI chart 2

ICI Fund Flow Survey - Weekly Taxable Bond Flow Rebounds but Year-to-Date Tally Spells Rotation - ICI chart 3

ICI Fund Flow Survey - Weekly Taxable Bond Flow Rebounds but Year-to-Date Tally Spells Rotation - ICI chart 4

ICI Fund Flow Survey - Weekly Taxable Bond Flow Rebounds but Year-to-Date Tally Spells Rotation - ICI chart 5

ICI Fund Flow Survey - Weekly Taxable Bond Flow Rebounds but Year-to-Date Tally Spells Rotation - ICI chart 6



Passive Products:



Exchange traded funds experienced positive trends in both equities and fixed income for the week ending September 25th. Equity ETFs gathered up $7.3 billion in investor funds, another strong week off of the back of the $25 billion inflow last week. Including this week's production, 2013 weekly average equity ETF trends are averaging a $3.6 billion weekly inflow, an improvement from last year's $2.2 billion weekly inflow average.


Bond ETFs also had a positive week with a $1.3 billion inflow, which was an improvement from last week's $850 million subscription. Including this improved weekly flow within passive bond products, the 2013 weekly bond ETF average is flagging at just a $413 million inflow for bond ETFs, much lower than the $1.0 billion average weekly inflow from 2012.



ICI Fund Flow Survey - Weekly Taxable Bond Flow Rebounds but Year-to-Date Tally Spells Rotation - ICI chart 7

ICI Fund Flow Survey - Weekly Taxable Bond Flow Rebounds but Year-to-Date Tally Spells Rotation - ICI chart 8



HEDGEYE Asset Management Thought of the Week - Year-to-Date Trends Reflect Rotation from Bonds and into Stocks:


With the third quarter of 2013 essentially in the books (although the ICI fund flow data is only through September 25th of this year), a longer term perspective of mutual fund flow and also ETF subscriptions relays an investable shift from fixed income and into stocks. First looking at the ICI mutual fund data, shows the first combined total equity inflow (combining both domestic and world funds) since 2007 of $106 billion and the current running $11 billion inflow into domestic stock funds is the first positive year in U.S. stock fund flow since 2006. World equity fund flow of $95 billion thus far in 2013 is also the best year since '07 but it is unlikely with just 1 quarter left this year that the appetite for foreign stock funds will surpass the $139 billion record from '07. Hybrid mutual fund products however have already well surpassed last year's record production of $45 billion in inflow and thus 2013 has been a break out year for products with both stock and bond allocations. On the fixed income side, the combination of a slight $14 billion inflow in taxable products is being overwhelmed by the $37 billion outflow in tax-free or municipal products. Thus the combined net outflow of $23 billion is well off of the $303 billion net inflow from 2012 and a far cry from the all time record year of $379 billion in net inflow from 2009. This year's running bond outflow is the first annual withdrawal from the asset class since 2004 according to the ICI.


From a quarterly perspective, the net inflow for 3Q13 into equities is continuing the good start to the year experienced in 1Q for both domestic and world stock fund products. The net outflow of $56 billion in bonds (a combination of $28 billion in taxable funds and the $27 billion which came out of municipal bonds) was the worst quarterly outflow since the Financial Crisis in 4Q 2008. While the prospective outlook for bond fund flows will in large part be driven by the communication from the U.S. central bank on ongoing quantitative easing, we note that in our recent launch of the asset management sector we outlined a potential $1 trillion shift between the stock and bond asset classes if the outstanding capital stock percentages within equities and fixed income normalizes. Our research on this topic can be found here.  Within passive ETF products, the 2013 year-to-date perspective is showing another record year for equity ETFs with a $129 billion inflow brewing currently. This is on top of the prior record of $117 billion from last year in 2012. The weakness in fixed income is also being picked up in passive fixed income products with just a $15 billion inflow thus far in the first 3 quarters of '13, a substantial decline from the record bond ETF inflow last year which produced over $56 billion in net investor subscriptions. With the ongoing reallocation out of gold, commodity ETFs namely the GLD have produced sharp outflows for 2013. In the first 3 quarters of this year, commodity ETFs have seen over $20 billion withdrawn from the category, the only negative annual period within Bloomberg ETF data. With this asset allocation shift from fixed income and into equities we continue to relay our best ideas in the asset management sector as T Rowe Price (TROW) on the long side to capture nascent equity fund flow and that we would avoid or short shares of Franklin Resources (BEN) with a large exposure to declining bond fund trends.



ICI Fund Flow Survey - Weekly Taxable Bond Flow Rebounds but Year-to-Date Tally Spells Rotation - ICI chart 9

ICI Fund Flow Survey - Weekly Taxable Bond Flow Rebounds but Year-to-Date Tally Spells Rotation - ICI chart 10

ICI Fund Flow Survey - Weekly Taxable Bond Flow Rebounds but Year-to-Date Tally Spells Rotation - ICI chart 11

ICI Fund Flow Survey - Weekly Taxable Bond Flow Rebounds but Year-to-Date Tally Spells Rotation - ICI chart 12





Jonathan Casteleyn, CFA, CMT







Joshua Steiner, CFA



Obama/Bernanke Burning Bucks

Client Talking Points


Are Ben Bernanke and Barack Obama trying to burn the US Dollar’s credibility at the stake? Because if they are, they are doing a darn good job of it. In case you turned your head away, the US Dollar Index continues to implode. That, combined with #RatesFalling, is a bearish leading indicator for US growth. Period.


The only thing more dangerous than Syria to rising Oil prices is this aforementioned Bernanke/Obama combo. Take a look back over economic history: No US President or Fed Chief has overseen a lower US Dollar and higher Oil price over their respective tenures. Brent is back above our TAIL risk line of 108.57. As always, we are watching this closely.


Alas, it's not all doom and gloom this morning. On a cheerier note, take a look at China’s September Services PMI print. It was the best in the global macro data pack this morning coming in at 55.4 vs 53.9 in August. China’s stock market is closed, but the Hang Seng liked that and rose +1%. For the record, we’re long China now via FXI.

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.


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.


Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road


FX: Euro punching a fresh new high of 1.36 vs Bernanke and Obama's Burning Buck @KeithMcCullough


I try to do the right thing with money. Save a dollar here and there, clip some coupons. Buy ten gold chains instead of 20. Four summer homes instead of eight. -LL Cool J 


Shares of electric car maker Tesla (TSLA) slumped 6% on an Baird analyst downgrade yesterday. That said, Tesla is still up more than 450% in 2013.

October 3, 2013

October 3, 2013 - dtr



October 3, 2013 - 10yr

October 3, 2013 - nik

October 3, 2013 - SHCOMP

October 3, 2013 - euro


October 3, 2013 - oil


October 3, 2013 - VIX

October 3, 2013 - dxy

October 3, 2013 - natgas

October 3, 2013 - gold
October 3, 2013 - copper







Macau grossing gaming revenues rose 21.4% YoY in September to MOP 28.963 billion (HKD 28.12 billion, USD 3.63 billion).



Macau CEO Chui Sai On said that there will be no changes to the regulations concerning croupiers.  Chui’s words were corroborated by the Secretary for Economy and Finance, Francis Tam, who even said it was “awkward” that the issue was being raised.  The Secretary doubted the accuracy of predictions indicating the need for 10,000 more croupiers. “Do you think that so many will be needed?” he fired back at a journalist.



The government has yet to publish the names of casinos that failed a second round of checks on air quality in their designated smoking zones because some have disputed the findings.  Secretary for Social Affairs and Culture Cheong U said, "The reason for the delay is that we have received some appeals.”



Official data show 124,499 visitors arrived on October 1, down 6% YoY.  But the Macau Government Tourist Office data show 102,227 of the visitors were mainlanders, +16% YoY.  The mainland’s ban on cheap package tours – run by operators that recoup their costs by compelling tourists to shop in shops that pay commission – came into force on October 1.  Anecdotal evidence suggests the ban appears to have had some effect on visitor numbers.

Is It Over?

This note was originally published at 8am on September 19, 2013 for Hedgeye subscribers.

“Insanity: doing the same thing over and over again, and expecting different results.”

-Albert Einstein


Is it over?


Well, it depends on what you think it is.


Is it the US Constitution? Is it the US Dollar? Is it US Growth?


Back to the Global Macro Grind


I’ll keep it tight this morning, because if I rant about what I really think about what Ben Bernanke did yesterday, I might lose some clients and have the NSA parked outside of my house.


While it was a great day for those of us who have been US stock market bulls in 2013, it was a very sad day for America.


Basically, Bernanke eviscerated almost my entire bull case for US growth accelerating from here, so it's a good thing he cut his GDP forecast. The best way to slow real (inflation adjusted) economic growth is by burning your currency.


To review the 3 core components of our 2013 bullish thesis for US #GrowthAccelerating:

  1. American Purchasing Power (US Dollar) stabilizes and strengthens by arresting policies to devalue the Dollar
  2. As purchasing power rises, American confidence, hiring, and spending does – rates rise too (it’s called a cycle)
  3. Economic cycles are reflexive – they feed on themselves, so the Fed needs to get out of this one’s way

None of that happened yesterday, because an un-elected central planner decided so. #perfect


Exactly what Jefferson and Franklin had in mind.



  1. After snapping my intermediate-term TREND line of $81.34, Bernanke smoked the US Dollar to a 6 month low
  2. Everything slow-growth went ape (to the upside); Gold, Bonds, Utilities, etc, – everything we don’t want to see
  3. And Emerging Markets went haywire (Turkey +7.6%, Indonesia +4.7%, India +3.7%, etc)

I have no doubt that everyone who is in the business of being long every recipient of the US Dollar devaluation had a great day. But that doesn’t do jack for the hard working American who will be taking this one in the pump and/or the conservative American saver who was actually getting something more than 0% for the last few months.


Bernanke should have respected Mr. Market’s long-standing American pro-growth signal of #StrongDollar, #CommodityDeflation, and #RatesRising – and he did not. Period. For that, he should feel shame.


So you tell me, is it over? And over for whom? Who is going to hold Bernanke accountable for:

  1. Renewing the American Tax at the pump (Dollar Down, Oil up on Bernanke is as potent as Assad)
  2. Cutting risk-free income on savings accounts (2yr yield just dropped 36% to 0.33%)
  3. Causing US GDP growth to go from 2.5% real to 1.5-2% (the GDP Deflator goes up when the Dollar goes down)

Is this all part of the class warfare thing Obama likes to talk about? Other than the political class, who, precisely, Mr. President, got paid by Bernanke’s un-objective and un-elected decision yesterday? Or did all those “folks” you’ve been standing up for refi whatever they have left on their house and buy Gold futures with it yesterday?


I clearly don’t get what Bernanke is trying to achieve by banning things like gravity, consumption tax cuts, and the economic cycle. But my gut says no one in America who doesn’t get paid to say they get it gets it either.  


Unlike the US Federal Reserve who has been behind the curve using broken forecasting models, my research team will continue to respect both the data and markets as leading indicators. That part of what we do isn’t over this morning. Neither will changing our mind as circumstances do.


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.58-2.81

SPX 1709-1732

VIX 13.11-14.82

USD 80.12-81.34

Brent 109.04-111.76

Gold 1289-1404


Best of luck out there with your centrally planned day,



Keith R. McCullough
Chief Executive Officer


Is It Over? - chart


Is It Over? - z. vp 919


September GGR up 21% YoY but visitation softer to start October – cheap package tour ban?


  • September GGR finishes up 21% YoY.  Our October estimate remains at +20-25% growth but is subject to change until we see the detail behind September’s growth and how Golden Week finishes up this weekend.
  • One tiny note of caution:  September finished with a flurry (start of the Golden Week celebration) as seen by the visitation statistics in the chart below.  However, October total visitation is just flat through the first two days (Tue/Wed vs Mon/Tue).  A ban on cheap package tours (effective October 1) could be the culprit in which case low end Mass revenue would only be mildly impacted.
  • This coming weekend will round out Golden Week and give us a better feel for the overall success of the big holiday.


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