ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks

Takeaway: The last week of '13 spelled continued solid money flow into equities at the expense of bonds; Net flow was $13 B, above the avg of $7.8 B.

Investment Company Institute Mutual Fund Data and ETF Money Flow:


Total equity mutual funds experienced solid inflows for the week ending December 31st with $6.0 billion flowing into stock funds. Within the total equity fund result, domestic equity mutual funds gained $3.3 billion, the most positive result in 7 weeks, with international equity funds posting a $2.6 billion inflow. Including these year ending trends, equity mutual funds averaged a solidly positive reversal in 2013 with an average weekly inflow of $3.0 billion for the year compared to 2012's weekly average outflow of $3.0 billion. 


Fixed income mutual funds continued persistent outflows during the most recent 5 day period and ended 2013 with another $2.8 billion withdrawal from bond funds. This week's draw down was a sequential improvement from the $3.4 billion lost the week prior but was still worse than the 2013 weekly average which finished at a $1.5 billion outflow for 2013. This year end average for 2013 compared to the strong weekly inflow of $5.8 billion for fixed income throughout 2012.


ETFs experienced broadly mixed trends in the most recent 5 day period, with equity products seeing heavy inflows and fixed income ETFs seeing slight outflows week-to-week. Passive equity products gained $4.5 billion for the 5 day period ending December 31st with bond ETFs experiencing a $224 million outflow. 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.


The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a $13.5 billion spread for the week ($10.5 billion of total equity inflows versus over $3.0 billion in fixed income outflows). This was almost double the 2013 weekly average of a $7.8 billion spread but was well off of the largest weekly spread of $30.9 billion and the smallest equity/debt weekly spread of -$9.2 billion (negative numbers imply a net inflow into bonds for the week).


ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 1



For the week ending December 31st, the Investment Company Institute reported solid equity inflows into mutual funds with $6.0 billion flowing into total stock funds. The breakout between domestic and world stock funds separated to a $3.3 billion inflow into domestic stock funds and a $2.6 billion inflow into international or world stock funds. These results for the most recent 5 day period compare to the year-to-date weekly averages of a $451 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 31st with outflows staying persistent within the asset class. The aggregate of taxable and tax-free bond funds booked a $2.8 billion outflow, a sequential improvement from the $3.4 billion lost in the prior 5 day period but worse than the year-to-date weekly average outflow of just $1.5 billion for bond funds. Both categories of fixed income contributed to outflows with taxable bonds having redemptions of $404 million (although this outflow was the best result in 13 weeks), which joined the $2.4 billion outflow in tax-free or municipal bonds. Taxable bonds have now had outflows in 27 of the past 32 weeks and municipal bonds having had 32 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 $1.5 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 $1.0 billion inflow in the most recent 5 day period, although the past 6 weeks have been below year-to-date averages. Hybrid funds have had inflow in 30 of the past 32 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 - Best Domestic Equity Flow in 7 Weeks - ICI chart 2

ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 3

ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 4

ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 5

ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 6



Passive Products:



Exchange traded funds had mixed trends within the same 5 day period ending December 31st with equity ETFs posting a strong $4.5 billion inflow, the seventh consecutive week of positive equity ETF flow. The 2013 weekly average for stock ETFs is now a $3.5 billion weekly inflow, nearly a 50% improvement from last year's $2.2 billion weekly average inflow.


Bond ETFs experienced moderate outflows for the 5 day period ending December 31st with a $224 million redemption, an improvement from the week prior which lost $1.0 billion but well below the year-to-date average of a slight weekly inflow. Taking in consideration this most recent data however, 2013 averages for bond ETFs are flagging with just a $234 million average weekly inflow for bond ETFs, much lower than the $1.0 billion average weekly inflow for 2012.



ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 7

ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 8



Net Results:


The net spread of all equity products including mutual fund and ETF flow tallied a $10.5 billion total inflow into all equity products in the most recent 5 day period which compared to a total fund and ETF result for fixed income of a negative $3.0 billion outflow for the week ending December 31st. Thus the net of equity minus fixed income production totaled a $13.5 billion spread in favor of equity products. This compared to the 2013 weekly average of a positive $7.8 billion spread to equities but was well off of the weekly high during last year of $30.9 billion and the weekly low of -$9.2 billion (negative numbers favor fixed income products).


With net weekly spreads continuing to favor equity products with a rising 52 week linear trend line and a favorable setup for stocks versus bonds into the beginning of this year, our favorite long asset management idea remains T Rowe Price (TROW), the manager with industry leading stock fund performance to potentially gather outsized net new assets. 



ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 9




Jonathan Casteleyn, CFA, CMT 




Joshua Steiner, CFA


January 9, 2014

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 TODAY’S S&P 500 SET-UP – January 9, 2014

As we look at today's setup for the S&P 500, the range is 25 points or 0.68% downside to 1825 and 0.68% upside to 1850.                                                         










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.57 from 2.56
  • VIX  closed at 12.87 1 day percent change of -0.39%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: BoE seen maintaining benchmark interest rate at 0.5%
  • 7:30am: Challenger Job Cuts y/y, Dec. (prior -20.6%)
  • 7:30am: RBC Consumer Outlook Index, Jan. (prior 49.7)
  • 7:45am: ECB seen maintaining benchmark rate at 0.25%
  • 8:30am: ECB’s Draghi holds news conference
  • 8:30am: Init. Jobless Claims, Jan. 4, est. 335k (pr 339k)
  • 9:45am: Bloomberg Consumer Comfort, Jan. 5 (prior -28.7)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: Fed to purchase $600m-$900m in 2024-2031 sector
  • 1pm: U.S. to sell $13b 30Y bonds in reopening
  • 1:30pm: Fed’s George speaks in Madison, Wis.
  • 8pm: Fed’s Kocherlakota speaks in Minneapolis


    • 10am: House Financial Services panel holds hearing on Federal Reserve’s quantitative easing program
    • 10am: House Natural Resources Cmte meets on administration’s coal policies
    • 11:30am: House Speaker John Boehner holds media briefing
    • 2pm: President Obama delivers remarks on anti-poverty proposals


  • U.S. regulators said to weigh Volcker exemption for TruPS CDOs
  • Dec. U.S. comp. sales hurt by weak holidays, traffic
  • McKesson said to offer raised Celesio bid of EU23.50/share
  • JPMorgan’s Madoff prosecution case deferred by U.S. judge
  • CFTC ready to push interest-rate swaps to trading platforms
  • Samsung plans Galaxy S5 by April w/possible eye-scan security
  • Murdoch’s 21st Century Fox abandons Australia stock listing
  • Apple agrees w/Samsung to mediator in attempt to settle suit
  • American Express to appeal $5.7b settlement on swipe fees
  • J&J to appeal China ruling to revoke diabetes-strip trademark
  • BlackRock traded using nonpublic data, investigation shows
  • Disney-Fox bid to end Aereo TV threat nears top court action
  • IBM carves out $1b new unit for ‘Jeopardy’ champ Watson
  • Euro-area economic confidence increases more than forecast
  • UBS weighing spinoff of investment banking unit: Mediobanca
  • China’s Pangang paid for stolen DuPont secrets: prosecutors
  • Novartis accused of paying kickbacks to boost Exjade sales
  • Currency chiefs tell N.Y. Fed probes may change practices
  • China vehicle sales surpass 20m as smog chokes cities
  • Kraft helps lead 6.4t calorie cut in Obama health pledge


    • Acuity Brands (AYI) 8:52am, $0.85 - Preview
    • Alcoa (AA) 4:03pm, $0.06 - Preview
    • Barracuda Networks (CUDA) Aft-Mkt, $0.00
    • Family Dollar (FDO) 7am, $0.69 - Preview
    • Jean Coutu (PJC/A CN) 7am, C$0.28
    • PriceSmart (PSMT) 4:10pm, $0.73
    • Progress Software (PRGS) 4:15pm, $0.41
    • Supervalu (SVU) 7am, $0.14 - Preview


  • WTI Crude Rebounds From Six-Week Low Before ECB Rate Decision
  • Copper Touches Two-Week Low on Speculation Fed to Cut Stimulus
  • Corn Pile Biggest Since 1994 as Crop Overwhelms Use: Commodities
  • Wheat Harvest in India Reaching 100 Million Tons Widens Surplus
  • Natural Gas Drops Third Day on Forecasts for Warmer U.S. Weather
  • Raw Sugar Spread Trades at Record Discount as Surplus Weighs
  • Corn Trades Near Three-Year Low as World Supplies Seen Building
  • Gold Holds After Biggest Drop in a Week as Traders Weigh Demand
  • Rebar Falls to Seven-Month Low as China Producer Prices Decline
  • World Food Prices Rose in December on Dairy Surge, UN Data Show
  • Oil-Tanker Recovery Trails Market With U.S. Export Ban: Freight
  • Colombia Bans Coal Loading by 2nd-Biggest Producer Drummond
  • Warm Weather Reduces Risk to Eastern Europe Winter Gas Supplies
  • Palm Imports by India Climbing as Farmers Retain Bean Supply



























The Hedgeye Macro Team














Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.52%
  • SHORT SIGNALS 78.67%

Opportunity Knocked

“There was certainly never a more inopportune time to launch a new business.”

-S.S. McClure


That’s what Irish born Samuel Sidney McClure said after the Panic of 1893 as he founded one of the most important investigative research companies in US history – McClure’s Magazine.


“He dreamed of creating a full time staff of writers who would be guaranteed salary and generous expense accounts. The job of staff writer was a new concept; in years to come, McClure would claim he himself almost invented it – a justifiable assertion…” (Doris Kearns Goodwin in The Bully Pulpit, pg 169)


Old School Research. That was what McClure’s Ida Tarbell, who exposed Standard Oil to America and helped force its breakup, did. Today’s stroking of government officials and storytelling execs in exchange for media access would be considered shameful back then. We started Hedgeye in 2008 to change that. Rather than fearing the system itself, opportunity knocked to change it.


Back to the Global Macro Grind


With change comes trial and error. The first thing we needed to change was the platform of delivery. Not having the conflicts of interests embedded in a broker-dealer, investment bank, or advertising business was an easy change to make.


Changing the process, language, and pace of research communication was tougher. Technology (Google, Twitter, @HedgeyeTV, etc.) is now making this less tough. When your principles are transparency, accountability, and trust – all tech tools can do is expedite your vision.


Given the circumstances (a raging bull stock market), I think our analysts have done a great job shining a flashlight on what’s really going on at big US corporations in the last year: Caterpillar (CAT), McDonald’s (MCD) and Kinder Morgan (KMI) – that something is not always good. On macro matters however, some of the best opportunities in the last year have been in revealing what’s actually improving.


Today we’ll be hosting our most popular Institutional Research event – our Q1 Global Macro Themes Conference Call. If you’re an institutional investor, please ping for access.


Our Macro Research Team does this call quarterly. There are 3 themes per call with anywhere from 45-75 slides of proprietary research and data. The idea of the call is to highlight the big themes in macro that are A) changing or B) trending.


In the case of A):

  1. Our models focus on rate of change (2nd derivative, slope of the line)
  2. The 3 Big Macs (macro factors) Growth, Inflation, and Policy (our GIP Model)
  3. Inflation is going to be the biggest change we focus on today (both locally and globally)

In the case of B):

  1. This happens most of the time in macro – that’s why we call them TRENDs (they trend)
  2. @Hedgeye TRENDs can either be cyclical or secular (sometimes both)
  3. On Twitter, I highjack the hash-tag on TRENDs we see developing before consensus does (#RatesRising, for example)

Today’s Hedgeye research hash-tags (Global Macro Themes for Q1) are going to be as follows:

  1. #InflationAccelerating
  2. #GrowthDivergences
  3. #FlowShows

#InflationAccelerating is a reversal from former Hedge Macro Themes #DeflatingTheInflation and #Bubble#3.


I know, too many hash-tags!


Bubble #3, of course, was Bernanke’s Commodity Bubble (2011-2012). You know, the one where you saw all time highs in Gold, Food, etc. – the one where the Fed would say they “see no inflation, because there is none in iPods.”


So that deflated (commodities crashed), and now The Economist has “The Perils of Deflation” on its cover as Ben Bernanke takes a “nailed it” victory lap around the weenie bins.


Inflation expectations are already rising. But you already know that – because we don’t do research on a lag. That and the #GrowthDivergences you are seeing manifest between Europe and Asia aren’t new either. With South Korea’s KOSPI -3.3% YTD versus Austria and Denmark’s stock market’s already +4.7% YTD, Mr. Macro Market gives you the research “call” every day.


From our un-conflicted and un-compromised financial media distribution platform, all we have to worry about is staying true to our principles. They will inevitably lead us to the truth. And, while there will never be an opportune time to be wrong about the truth, there will always be an opportunity to learn from our mistakes and improve our investigative research process.


Our immediate-term Risk Ranges are now:





VIX 11.91-14.45

USD 80.73-81.34

Gold 1191-1246


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Opportunity Knocked - Chart of the Day


Opportunity Knocked - Virtual Portfolio

Boxing Day

This note was originally published at 8am on December 26, 2013 for Hedgeye subscribers.

“If money is your hope for independence you will never have it.  The only real security that a man will have in this is a reserve of knowledge, experience, and ability.”

-Henry Ford


In Canada, today is more commonly known as Boxing Day.  The origin of Boxing Day is believed to be in medieval England when servants, and those of lesser means, were given Christmas Boxes, which were filled with money and other small gifts.  The boxes were given in appreciation for service throughout the year.


In much of the Commonwealth, Boxing Day is still a bank holiday even though the Commonwealth is largely independent of Great Britain.  Across the current and former Commonwealth, the day has morphed from a day to recognize servants into becoming one of the most prominent shopping days of the year.


In addition, Boxing Day is another day to spend with one’s family and community.  Personally, I am back in my small hometown of Bassano, Alberta, and have been enjoying every minute of it.  In the Chart of the Day today, I’ve shown a picture of me with a few friends from our annual town hockey game with the growth in Canadian oil production over the last two decades graphed in the background.


Speaking of independence, as you can see from the chart, Canada has seen massive growth in its oil production over the last couple of decades.  This growth has been primarily driven by accelerating production in non-conventional oil from Alberta’s oil sands.  When combined with the fact that the United States is, as of last month, producing more oil than it imports, one can envision a future in which oil from the Middle East plays a much less significant role in Western economies.


Will there be a future of complete energy independence in the Western world?  Certainly, the growing production in the U.S. and Canada is a hopeful sign.  The other hopeful sign of course is the increasing efficiency of fuel consumption in motor vehicles (no irony that Henry Ford is in the opening quote).   According to the Energy Information Administration in their most recent long term outlook:


“The decline in energy imports reflects increased domestic production of petroleum and natural gas, along with demand reductions resulting from rising energy prices and gradual improvement in vehicle efficiency. The net import share of total U.S. energy consumption is 4% in 2040, compared with 16% in 2012 and about 30% in 2005.”

Clearly, the path forward is one of increased energy independence in the United States and not less.


Back to the Global Macro Grind...


For those that measure annual performance, this year is all but in the bag with basically less than four trading days left in the U.S. stock markets.  Either you made your bogey this year and beat your respective benchmark, or you didn’t.  Regardless, the only move left this year is likely some tax loss selling.


In terms of global equity market performance, 2013 was certainly an interesting one.  The top five performing global equity markets for the year were as follows:

  • Venezuela +478%
  • Dubai +102%
  • Argentina +88%
  • Abu Dhabi +58%
  • Japan +56%

Now admittedly, playing some of the stock markets above are akin to going to our Gaming, Lodging and Leisure Sector Head Todd Jordan’s favorite American city, Las Vegas, and putting down your year-end bonus on the roulette table, but those are some juicy returns nonetheless.


On the flip side, of course, are the global equity market losers.  Based on the markets we actively monitor, the top five worst performing equity markets in 2013 were the following:

  • Peru -25%
  • Ukraine -18%
  • Brazil -16%
  • Chile -15%
  • Turkey -12%

The other story of haves versus have nots is the performance differential seen between hedge funds and traditional long only money managers.  According to Absolute Return Magazine, the top performing hedge fund strategies from January through November of 2013 were distressed (up +13%), U.S. equity (up +13%), and event driven (up +12%).  While positive, this performance certainly pales in comparison to the return of the SP500 500, which is already up 29% for the YTD and the MSCI world index up 23% for the YTD.


Domestically, sector allocation was likely one of the more significant drivers of outperformance. Of the nine major U.S. equity stock market sectors, the outperformance between the top performing sector of Consumer Staples and the worst performing Sector of Utilities was more than 2,000 basis points. Simply getting the allocation to those two sectors correctly weighted, would have made an equity manager’s year.


Speaking of style factors and hedge fund returns, one key reason for the relative underperformance of the hedge fund industry is the relative out performance of high short interest stocks.  According to our U.S. Style Factor Performance Monitor, a report published by my colleague Darius Dale, high short interest stocks (so the 10% of U.S. stock with the highest short interest) are up almost +42% in 2013.  Obviously, the short book going up more than long book is a tricky recipe for any long / short hedge fund.


We are going to continue to hammer on the importance of getting style factors and sector allocations correct in 2014.  As noted, simply avoiding the most underperforming sectors or style factors would have been a boon for anyone’s personal or professional portfolios in 2013. 


As rates continue their upward climb, fixed income and bond portfolios should be the focus for any asset allocators.  Historically, gentleman, and retirees have preferred bonds, but as the proverbial Queen Mary of global macro factors turns (interest rates), a factor to consider is underperformance in bond markets.  Specifically, as The Wall Street Journal today notes, the Barclay’s muni-bond index is down -2.6% on the year.  One thing I know for sure, bonds rarely trade independent of interest rates.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.90-2.99%

SPX 1802-1845

VIX 11.91-14.05

USD 80.48-80.91

Gold 1179-1218


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Boxing Day - Chart of the Day


Boxing Day - Virtual Portfolio


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.