Sick (Stock) Flow Bro!

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.

This note was originally published January 09, 2014 at 08:34 in Financials

Sick (Stock) Flow Bro! - wayne

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).


Sick (Stock) Flow Bro! - 78


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.



Sick (Stock) Flow Bro! - ICI chart 2

Sick (Stock) Flow Bro! - ICI chart 3

Sick (Stock) Flow Bro! - ICI chart 4

Sick (Stock) Flow Bro! - ICI chart 5

Sick (Stock) Flow Bro! - 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.



Sick (Stock) Flow Bro! - ICI chart 7

Sick (Stock) Flow Bro! - 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. 



Sick (Stock) Flow Bro! - ICI chart 9




Jonathan Casteleyn, CFA, CMT 



Joshua Steiner, CFA



[video] Keith's Macro Notebook 1/13: YEN UST 10YR #EUROBULLS

McGough Nails $LULU Short

Takeaway: Lululemon shares are tanking. Hedgeye's Brian McGough nailed it.

Got process? Brian McGough does.


Hedgeye’s Retail Guru-In-Chief held a jam-packed conference call this past Friday outlining his concerns and bearish thesis for Lululemon.  Here’s one key chart among three or four dozen from his deck.


(Ping for more information.)


McGough Nails $LULU Short - lulu0


Fast forward to this morning.


Lululemon is getting crushed down 18%. Cutting your forecast, lingering effects of an embarrassing recall and controversial comments by its founder will do that to you.


According to McGough, this is a top line issue for LULU. To be fair, it’s in line with what myriad retailers have said over the past week. On the flip side however, he says LULU has always been immune to any kind of Macro fluctuations.


The point here? The competitive landscape has gotten so fierce, and its sales productivity has gotten so high, that Lululemon needs to fundamentally change how it operates the business.


Finally, McGough mentions that the company is set to present tomorrow down in Orlando at ICR. But their new CEO won’t be there – at least that’s the plan.




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Before we get to the projections, we would like to point out one strange anomaly:  the first 13 days of last year January produced exactly the same table revenue as the first 12 days as this year – HK$11,625 million.  We’ve seen the Macau government use placeholders before so we would caution investors that this week’s numbers may not be reliable.  Typically, placeholder weeks are followed by the volatility one would expect from a catch up month.


Assuming the numbers are real, average daily table revenues grew 1% above the comparable period last year and are up over 8% YTD.  We are reducing our full month estimate from 22-28% YoY growth to 19-25% as a result of the softer week and expectation that virtually all of the incremental gaming revenue from the Chinese New Year celebration will occur in February.  Our estimates for January and February growth remain above the Street consensus.


Anecdotally, we’re hearing that VIP volumes remain high, VIP hold may be a little low, and Mass traffic has slowed from week one to week two.


In terms of market shares, SJM is the big loser while LVS the winner this past week.  Month to date, MGM has moderated but still remains above trend as does LVS and Galaxy.





Bullish on Growth Divergences Yet?

Takeaway: We expect this outperformance to continue, provided that the US Dollar doesn’t breakout versus the Euro.

Any idea what the Top-3 stock markets in the world are year-to-date?


They are all European. Greece, Portugal, and Austria. Incidentally, European Stocks handily beat US and Asian Stocks last week with Spain +5.0% and Austria +4.9% leading #GrowthDivergences.


Bullish on Growth Divergences Yet? - darke44


We expect this outperformance to continue, provided that the US Dollar doesn’t breakout versus the Euro.


Take a look at our #GrowthDivergences Macro Theme for Q1. (Ping for access.)  


Join the Hedgeye Revolution. 


BLMN continues to be on the Hedgeye Best Ideas list as a SHORT.



The likelihood that BLMN reports 5.7% revenue growth and 35% EPS growth in 4Q13 is slim.  The company only reported 1.5% revenue growth and 25% EPS growth, after missing same-restaurant sales, in 3Q13.  The current 4Q consensus EPS estimate for BLMN is $0.27.  We see this number coming in closer to $0.24-$0.25, which will largely depend upon the company's ability to manage the labor line (manager bonuses) in order to mitigate the sales shortfall.


Additionally we see BLMN missing sales estimates by 2-3%.  As it stands, the street is looking for 4Q same-restaurant sales of 2.1%.  We believe this is too aggressive, evidenced by the chart below. 


BLMN: A BLOOMIN' MESS - 1 13 2014 8 44 45 AM




The current bull case for BLMN either goes something like this:


“We believe Bloomin’ Brands should be viewed as a unique and compelling casual dining portfolio, with strong brands across multiple categories.  The portfolio combines the maturity and industry leadership of Outback U.S. along with the growth of Bonefish, Outback International and Carrabba’s.  Looking to 2014, we expect comp outperformance to prevail, and cost savings to be large, supporting high-teens EPS growth. While casual dining remains challenged, we believe the relative strengths of the Bloomin’ portfolio make a compelling long-term investment.”


Or something like this:


“Bloomin’ has the internal same-store sales drivers and margin improvement/productivity initiatives to offset a tough casual dining environment and outperform its peers.”




First, there has NEVER been a successful, much less compelling company in the casual dining sector that consisted of a “casual dining portfolio, with strong brands across multiple categories.”  It doesn’t matter whether you sell fish, chicken, or steak if people aren’t going out to eat.  The best run restaurants focus on doing one thing right.


Second, the casual dining industry is in secular decline.  According to Knapp Track data, after declining -2.6% in 2013, the industry reported its eight consecutive annual decline in same-restaurant traffic.  A company with a portfolio of brands imbedded in an industry in a secular decline is at greater risk of missing the numbers than a company focused on doing one thing right.  Another issue BLMN faces is the fact that the company is trying to grow capacity in the midst of a secular decline in traffic – a strategy that DRI has proven to be a huge mistake.


Third, where is the margin improvement?  Since going public, the company has been telling the story of “improvement/productivity initiatives” which we believe has not materialized.  On a TTM basis in 3Q13, restaurant level margins declined 36 bps as operating margins improved 58 bps.







Howard Penney

Managing Director


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