ICI Fund Flow Survey - Worst Week for U.S. Stock Funds and Tax Loss Selling in Bonds

Takeaway: Worst outflow in domestic stock funds in all of 2013 and tax-loss selling across the board in fixed income

Investment Company Institute Mutual Fund Data and ETF Money Flow:


Total equity mutual funds experienced outflows for the week ending December 11th with $1.0 billion leaving the category, the first withdrawal in 9 weeks. Within the total equity outflow result, domestic equity mutual funds lost $5.6 billion, the biggest weekly outflow in U.S. stock funds year-to-date against International equity funds which posted a $4.5 billion inflow, a sequential improvement from the week prior. Total equity mutual fund trends in 2013 however now tally a $3.0 billion weekly average inflow, a complete reversal from 2012's $3.0 billion weekly outflow 


Fixed income mutual funds continued persistent outflows during the most recent 5 day period with another $6.7 billion withdrawn from bond funds. This week's draw down worsened sequentially from the $4.4 billion outflow the week prior but ongoing redemptions have now forced the 2013 weekly average for all fixed income funds to a $1.3 billion outflow, which compares to the strong weekly inflow of $5.8 billion throughout 2012


ETFs experienced positive trends in the most recent 5 day period, with equity products seeing heavy inflows with fixed income ETFs also seeing moderate subscriptions week-to-week. Passive equity products gained $6.2 billion for the 5 day period ending December 11th with bond ETFs experiencing a $986 million inflow, an improvement from the $331 million redemption the 5 days prior. ETF products also reflect the 2013 asset allocation shift, with the weekly averages for equity products up year-over-year versus bond ETFs which are seeing weaker year-over-year results


ICI Fund Flow Survey - Worst Week for U.S. Stock Funds and Tax Loss Selling in Bonds - ICI chart 1



For the week ending December 11th, the Investment Company Institute reported slight equity outflows from mutual funds with over $1.0 billion flowing out of total stock funds. The breakout between domestic and world stock funds separated to a $5.6 billion outflow into domestic stock funds, the biggest weekly outflow for U.S. stock funds in 2013, and a $4.5 billion inflow into international or world stock funds, the biggest inflow since February for international funds. These results for the most recent 5 day period compared to the year-to-date weekly averages of a $424 million inflow for U.S. funds and a running $2.6 billion weekly inflow for international funds. The aggregate inflow for all stock funds this year now sits at a $3.0 billion inflow, an average which has been getting progressively bigger each week and a complete reversal from the $3.0 billion outflow averaged per week in 2012.


On the fixed income side, bond funds continued their weak trends for the 5 day period ended December 11th with outflows staying persistent within the asset class. The aggregate of taxable and tax-free bond funds booked a $6.7 billion outflow, a sequential deceleration from the $4.4 billion lost in the 5 day period prior. Both categories of fixed income contributed to outflows with taxable bonds having redemptions of $4.2 billion, which joined the $2.5 billion outflow in tax-free or municipal bonds, the worst 5 day period in muni bonds in 13 weeks. Taxable bonds have now had outflows in 24 of the past 28 weeks and municipal bonds having had 28 consecutive weeks of outflow. These redemptions late in the year are likely tax loss selling related with the Barclay's Aggregate Bond index down nearly 2% in 2013, the first annual loss in 14 years. The 2013 weekly average for fixed income fund flows is now a $1.3 billion weekly outflow, a sharp reversal from the $5.8 billion weekly inflow averaged last year.


Hybrid mutual funds, products which combine both equity and fixed income allocations, continue to be the most stable category within the ICI survey with another $877 million inflow in the most recent 5 day period, although the past 3 weeks have been below year-to-date averages. Hybrid funds have had inflow in 26 of the past 28 weeks with the 2013 weekly average inflow now at $1.5 billion, a strong advance versus the 2012 weekly average inflow of $911 million.



ICI Fund Flow Survey - Worst Week for U.S. Stock Funds and Tax Loss Selling in Bonds - ICI chart 2

ICI Fund Flow Survey - Worst Week for U.S. Stock Funds and Tax Loss Selling in Bonds - ICI chart 3

ICI Fund Flow Survey - Worst Week for U.S. Stock Funds and Tax Loss Selling in Bonds - ICI chart 4

ICI Fund Flow Survey - Worst Week for U.S. Stock Funds and Tax Loss Selling in Bonds - ICI chart 5

ICI Fund Flow Survey - Worst Week for U.S. Stock Funds and Tax Loss Selling in Bonds - ICI chart 6



Passive Products:



Exchange traded funds had positive trends within the same 5 day period ending December 11th with equity ETFs posting a strong $6.2 billion inflow, the fourth consecutive week of positive equity ETF flow. The 2013 weekly average for stock ETFs is now a $3.3 billion weekly inflow, nearly a 50% improvement from last year's $2.2 billion weekly average inflow.


Bond ETFs experienced moderate inflow for the 5 day period ending December 11th, with a $986 million subscription, a reversal from the week prior which produced a $331 million outflow for passive bond products. Taking in consideration this most recent data however, 2013 averages for bond ETFs are flagging with just a $268 million average weekly inflow for bond ETFs, much lower than the $1.0 billion average weekly inflow for 2012.



ICI Fund Flow Survey - Worst Week for U.S. Stock Funds and Tax Loss Selling in Bonds - ICI chart 7 revised

ICI Fund Flow Survey - Worst Week for U.S. Stock Funds and Tax Loss Selling in Bonds - ICI chart 8 revised 



Jonathan Casteleyn, CFA, CMT 




Joshua Steiner, CFA

I Was Wrong

Client Talking Points


I was dead wrong on the no-taper call, so I covered the US Dollar short position and sold my Pound long on strength. Being net long equities yesterday (as we were) was effectively pure luck. Bernanke did the right thing, protecting the Dollar (that was in a 6 week free fall). The question now is did he do it too late? Tapering into US #GrowthSlowing (sequentially) in Q1 won’t be for the faint of heart. But if the US Dollar can breakout above our TREND line of $81.14, that gives US growth a shot. Stay tuned.


Got #RatesRising? The bond market had this right. Don't forget: the 10-year yield is up +17 basis points month-over-month and up +108 basis points year-over-year. Ex the no-taper decision in September (which evidently Bernanke now has the growth data, on a lag, to have tapered in SEP), this flow call out of bonds and into growth equities is very straightforward, and very well may continue.


Thank God my signals said stay out of gold into yesterday’s Fed decision. Gold hates #RatesRising and is being tapered (hard) this morning back down to its June lows. If it doesn’t hold the June 27th closing low of $1200, and the USD breaks out above $81.14, I’ll have no problem going back to the bear side of Gold. We get the bear case.

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.


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


Being wrong in macro happens; you have to move quickly so that your mistakes don't run against you @KeithMcCullough


More than anything else, what differentiates people who live up to their potential from those who don't is a willingness to look at themselves and others objectively. -Ray Dalio


Mark Zuckerberg, the CEO of Facebook (FB), is selling shares to help pay taxes, joining the company and some other shareholders in an offering worth about $3.9 billion. About 27 million shares will be offered by Facebook, and almost 43 million shares are being sold by certain stockholders, including 41,350,000 shares by Zuckerberg, the company said in a statement today. Facebook fell as much as 5.3% in pre-market trading.

December 19, 2013

December 19, 2013 - 1



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TODAY’S S&P 500 SET-UP – December 19, 2013

As we look at today's setup for the S&P 500, the range is 29 points or 1.09% downside to 1791 and 0.52% upside to 1820.                         










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.56 from 2.56
  • VIX  closed at 13.8 1 day percent change of -14.87%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Init. Jobless Claims, Dec. 14, est. 335k (pr 368k)
  • 8:30am: Continuing Claims, Dec. 7, est. 2.77m (prior 2.79m)
  • 8:30am: Fed’s Fisher speaks on economy in Dallas
  • 9:45am: Bloomberg Consumer Comfort, Dec. 15 (prior -30.9)
  • 10am: Philly Fed Business Outlook, Dec., est. 10 (pr 6.5)
  • 10am: Existing Home Sales, Nov., est. 5.02m (prior 5.12m)
  • 10am: Leading Index, Nov., est. 0.7% (prior 0.2%)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change


    • Senate in session, expected to vote on defense authorization; House meets in pro forma session
    • Agriculture Sec. Tom Vilsack, Commerce Sec. Penny Pritzker, US Trade Representative Michael Froman travel to U.S. Joint Commission on Commerce and Trade
    • 10:30am: Senate Homeland Security panel holds hearing on alleged misconduct by office of DHS IG


  • AstraZeneca to buy Bristol-Myers stake in diabetes JV
  • Bayer to buy cancer-drug partner Algeta for $2.9b
  • Tesla charger may have caused fire in garage, Reuters says
  • Co. denies that car, charger, battery at fault
  • NYSE passed as biggest market owner by merging upstarts
  • Secret Service investigating data theft from Target
  • Facebook, bookrunners must face class action, judge says
  • NSA panel recommends meeting Yahoo, Facebook demands
  • Some U.S. cities considering bans on e-cigarettes: WSJ
  • Microsoft pulls Surface Pro 2 update on problems: Engadget
  • Citi chooses AIA to sell insurance in Asia-Pacific branches
  • Small shipping cos. expanding in threat to FedEx, UPS: WSJ
  • Obama may sign first budget by split Congress since 1986
  • CFTC glitch leads to misreporting size of swaps market: WSJ
  • McDonald’s has chicken wing surplus after weak sales: WSJ
  • Washington Post servers broken into by hackers: Wash. Post


    • Actuant (ATU) 8am, $0.46
    • Bio-Reference Labs (BRLI) 8:31am, $0.40
    • Carnival (CCL) 9:15am, $0.00
    • ConAgra Foods (CAG) 7:30am, $0.55
    • Darden Restaurants (DRI) 7am, $0.20 - Preview
    • KB Home (KBH) 8:32am, $0.48 - Preview
    • Neogen (NEOG) 8:45am, $0.21
    • Pier 1 Imports (PIR) 6am, $0.28
    • Rite Aid (RAD) 7am, $0.05
    • Scholastic (SCHL) 7am, $2.20
    • Winnebago Industries (WGO) 7am, $0.37
    • Worthington Industries (WOR) 8:30am, $0.55


    • AAR (AIR) 4:05pm, $0.48
    • Accenture (ACN) 4:01pm, $1.09
    • Cintas (CTAS) 4:15pm, $0.68
    • Nike (NKE) 4:15pm, $0.58
    • Red Hat (RHT) 4:04pm, $0.35
    • Tibco Software (TIBX) 4:05pm, $0.39


  • Gold Falls Below $1,200 First Time Since June on Fed Tapering
  • WTI Trades Near One-Week High as Stockpiles Decline, Fed Tapers
  • Brazil Crushing Sugar to Ethanol With Gasoline Caps: Commodities
  • Copper Falls for Third Day on Dollar Rally, China Funding Costs
  • Robusta Coffee Falls as Vietnam Sales May Advance; Cocoa Rises
  • Indonesia Studying Rule for Miners With Smelters, Rajasa Says
  • Rebar Falls to 3-Week Low After China’s Money Market Rate Jump
  • EU Emission Slump Tests Broker Survival Skills: Carbon & Climate
  • Rubber Nears 3-Month High as Yen Drops After Fed Tapers Stimulus
  • Wheat Rebounds as Price Slump Seen Excessive Amid Import Demand
  • Mars Blend Climbs to Six-Month High After Gulf Coast Stocks Drop
  • Cocoa’s Cup & Handle Signals Extended Rally: Technical Analysis
  • Vale Seeks Two U.S. Pellets Supply Contracts as Shale Gas Booms
  • Billionaire Fredriksen’s Marine Harvest Seen Driving Fish Deals
  • Ethanol’s Discount to Gasoline Widens on Increase in Stockpiles


























The Hedgeye Macro Team














Playing Lucky

“The way I feel about music is that there is no right and wrong. Only true and false.”

-Fiona Apple


I was dead wrong on the no-taper call yesterday, and (after covering my US Dollar short position within minutes of the decision) was somehow positioned right (8 LONGS, 0 SHORTS). Where I was brought up, being right for the wrong reasons is called luck.


True or False: Ben Bernanke did the right thing in tapering yesterday? True. Whether or not his obeying the US 2013 #GrowthAccelerating data on a lag (he’s 3 months late in making a decision he should have made in September) proves to be right is up to history.


I think that if most people were intellectually honest about it, they wouldn’t have told you that A) Bernanke was going to taper yesterday AND B) US stocks would rip to all-time highs on that. But they did. That is the only truth that matters this morning.


Back to the Global Macro Grind


So what do we do now? Sticking with the process, that’s actually the easiest call to make. We simply go right back to where we were positioned from December 2012-September 2013:

  1. Long Growth (Equities)
  2. Short Gold, Bonds (and Equities that look like Bonds, like MLPs)


  1. #RatesRising + a USD that isn’t going down in a ball of flames = bad for Gold Bond positions
  2. #Flows (out of Gold Bonds into US Growth Stocks) should dominate well into the new year

That’s why my 1st three moves in #RealTimeAlerts after the taper decision yesterday were:

  1. COVER US Dollar Short
  2. SHORT Pimco’s Total Return Fund (BOND)
  3. SHORT Kinder Morgan (KMI)

It’s one thing to make mistakes in this game. It’s entirely another to make mistake-upon-mistake after making that first mistake. In hockey terms, give away the puck once – feel shame. Give it away again – feel sitting on cold Canadian bench for rest of game.


I could have easily given away the puck post taper yesterday buying something like Gold because it was down. It’s down a lot more this morning (Silver -3.9%, Gold -1.1%) and testing its June 27th YTD closing low of $1200/oz.


True or false: Gold hates #RatesRising?

  1. US Treasury 10yr Yield 2.88% = +17 bps month-over-month and +112 bps YTD
  2. Gold (started the yr at $1675) = still crashing, -28.3% YTD

Another puck I could have given away would have been trying the long Yen “because everyone is short the Yen.”  


True or false: Nikkei loves Burning Yen?

  1. Japanese Yen (vs USD) = crashing, -17% YTD
  2. Nikkei = +1.7% overnight to +54.97% YTD

In other words, as soon as you saw the word “taper” yesterday, you got the Dollar right (up) and that helped you get a lot of other things Global Macro right.


True or false: Dollar Up = Emerging Markets Down?

  1. US Dollar (despite being UP now for 1st wk in 6) = +1.1% YTD
  2. MSCI Emerging Markets Index = down -5.9% YTD

Oh, and despite the epic US Equity market rip to all-time highs (SP = +26.9% YTD), Emerging Equity markets in Asia were down overnight (India -0.72%, Philippines -0.64%). Turkeys’ stock market is -0.7% this morning too.


On the taper news yesterday, Argentina, Chile, and Peru all saw their stock markets close down on the day. “Emerging” commodity countries = #EmergingOutflows.


So is it the marketing messages of asset management firms that are perma long Gold, Bonds, and Emerging Markets that are right or wrong in a Dollar Up + #RatesRising environment? Or are the perceptions of their investors simply false?


The truth is always in the balance of your account. It’s there, each and every market day, whether you played lucky or not.


Our immediate-term Global Macro Risk Ranges are now:



USD 80.15-81.14

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Playing Lucky - Chart of the Day


Playing Lucky - Virtual Portfolio

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