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ICI Fund Flow Survey - First Inflow Into Bonds in 14 Weeks

Takeaway: Both mutual funds and ETFs flagged fixed income inflows for the first week of the year with outflows across the board in equities

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

Total equity mutual funds experienced moderate outflows for the first week of 2014 with $646 million flowing out of stock funds for the week ending January 8th. Within the total equity fund result, domestic equity mutual funds lost $3.3 billion, the biggest outflow in a month, with international equity funds posting a $2.7 billion inflow. This weekly loss of $646 million now serves as the running 2014 average and compares to the solid equity inflows experienced in 2013 which put up a $3.0 billion inflow per week. 

 

Fixed income mutual funds broke their dour stretch of 14 consecutive weeks of outflow with the first net subscription last week in three and a half months. In the week ending January 8th, total fixed income mutual funds produced a $2.6 billion inflow which broke out into a $2.9 billion inflow into taxable bonds and a $347 million outflow in tax-free bonds. This week's $2.6 billion inflow now serves as the 2014 weekly average which is an improvement for now against the 2013 weekly average in fixed income of a $1.5 billion outflow.

 

ETFs experienced mixed trends but essentially followed the direction of mutual funds with an outflow in passive equity funds and an inflow into bond ETFs. Stock ETFs lost $1.3 billion for the 5 day period ending January 8th with bond ETFs experiencing a $778 million inflow. 

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $5.4 billion spread for the week ($1.9 billion of total equity outflows versus $3.4 billion in fixed income inflows - negative numbers imply inflows for bonds). This result was the best week for total fixed income in 17 weeks and compared to the 52 week average of a $7.3 billion spread (positive spread to equities) but was well off of the 52 week high of $30.9 billion (positive spread to equities) and the smallest equity/debt weekly spread of -$9.2 billion (negative numbers imply a net inflow into bonds for the week).

 

We estimate that the strong return for stocks to end 2013 and the negative return for bonds to end last year may be resulting in an institutional re-balance to start 2014. In a hypothetical 60/40 portfolio of stocks/bonds, the returns in the broader averages of 30% in the S&P 500 and a negative 2% for the Barclay's Aggregate Index would mean an institutional portfolio would need to sell 6% of its stock holdings and buy 6% more in bonds, which may account for the year-to-date start in the asset classes (bonds outperforming stocks to start '14) with then mutual fund and ETF flows chasing this performance.


 

ICI Fund Flow Survey - First Inflow Into Bonds in 14 Weeks - ICI chart11

 

 

For the week ending January 8th, the Investment Company Institute reported moderate equity outflows from mutual funds with $646 million flowing out of total stock funds. The breakout between domestic and world stock funds separated to a $3.3 billion outflow from domestic stock funds and a $2.7 billion inflow into international or world stock funds. These results for the most recent 5 day period now serve as the year-to-date average for 2014 being they are the first week of the New Year and compare to the 2013 results of a $451 million average weekly inflow into domestic funds and a $2.6 weekly subscription into international or world funds for a total of a $3.0 billion weekly inflow average for last year.

 

On the fixed income side, bond funds broke their streak of 14 consecutive weeks of outflow for the 5 day period ended January 8th, with inflows into bond products for the first time in over 3 months. The aggregate of taxable and tax-free bond funds booked a $2.6 billion inflow, the first net weekly inflow since the $1.7 billion that came into bond fund the week ending September 25th. Taxable bonds carried the load with a $2.9 billion inflow, which was net against another outflow in municipal or tax-free bonds of $347 million. Intermediate term trends in fixed income are still negative with taxable bonds having had outflows in 27 of the past 33 weeks and municipal bonds having had 33 consecutive weeks of outflow. 

 

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 $880 million inflow in the most recent 5 day period, although the past 6 weeks have been below the recent 52 week average for 2013 of $1.5 billion per week. Hybrid funds have had inflow in 31 of the past 33 weeks.

 

 

ICI Fund Flow Survey - First Inflow Into Bonds in 14 Weeks - ICI chart2

ICI Fund Flow Survey - First Inflow Into Bonds in 14 Weeks - ICI chart3

ICI Fund Flow Survey - First Inflow Into Bonds in 14 Weeks - ICI chart4

ICI Fund Flow Survey - First Inflow Into Bonds in 14 Weeks - ICI chart5

ICI Fund Flow Survey - First Inflow Into Bonds in 14 Weeks - ICI chart6

 

 

Passive Products:

 

 

Exchange traded funds had mixed trends within the same 5 day period ending January 8th but essentially followed the asset allocation flows within mutual funds last week. Equity ETFs posted a weak $1.3 billion outflow in the most recent 5 day period, breaking a streak of 7 consecutive weeks of positive equity ETF flow. The 2014 weekly average for stock ETFs is now this recent $1.5 billion outflow, which compares to last year's $3.4 billion weekly average inflow.

 

Bond ETFs experienced moderate inflows for the 5 day period ending January 8th with a $778 million subscription, an improvement from the week prior which lost $224 million and now also an improvement from the new annual comparison of a $234 million weekly inflow for 2013. Bond ETF trends have been perfectly mixed over the past 10 weeks, with 5 weeks of inflow and 5 weeks of outflow.

 

 

ICI Fund Flow Survey - First Inflow Into Bonds in 14 Weeks - ICI chart7

ICI Fund Flow Survey - First Inflow Into Bonds in 14 Weeks - ICI chart8

 

 

Net Results:

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $5.4 billion spread for the week which favors fixed income ($1.9 billion of total equity outflows versus $3.4 billion in fixed income inflows - negative numbers imply inflows for bonds). This result was the best week for fixed income in 17 weeks and compared to the 52 week moving average of a $7.3 billion spread (positive spread to equities) but was well off of the 52 week high of $30.9 billion (positive spread to equities) and the smallest equity/debt weekly spread of -$9.2 billion (negative numbers imply a net inflow into bonds for the week).

 

We estimate that the strong return for stocks to end 2013 and the negative return for bonds to end last year may be resulting in an institutional re-balance to start 2014. In a hypothetical 60/40 portfolio of stocks/bonds, the returns of the broader averages of 30% in the S&P 500 and a negative 2% for the Barclay's Aggregate Index would mean an institutional portfolio would need to sell 6% of its stock holdings and buy 6% more in bonds which may account for the year-to-date start in the asset classes (bonds outperforming stocks to start '14) with then mutual fund and ETF flows chasing this performance. 

 

 

ICI Fund Flow Survey - First Inflow Into Bonds in 14 Weeks - ICI chart9

 

ICI Fund Flow Survey - First Inflow Into Bonds in 14 Weeks - ICI chart10

 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 



Where We Are

“The task of the leader is to get his people from where they are to where they have not been.”

-Henry Kissinger

 

Where we are from a US stock market perspective is not that complicated. With the SP500 and Russell 2000 closing at 1848 and 1171, respectively yesterday, we are at all-time highs.

 

Yes, all-time is a long time. And, yes, when I say “we”, I’m not talking about them. While my views might rub them the wrong way sometimes (them being the other team, or the other side of the trade), that means I’m just doing my job. I don’t play for them.

 

The aforementioned quote comes from page 59 of Unusually Excellent. The chapter is called “Being Compelling – The Commitment To Winning.” In spite of my many human flaws and countless mistakes, that is my commitment to both you and my team.

 

Back to the Global Macro Grind

 

Winning in this game (or in life for that matter) doesn’t start and end with feeling like we’re winning an argument. I personally have too many silent arguments in my head throughout a week to count – and if I’m not losing some of those, I’m not growing.

 

Arguing with the score of the game is harder to do than simply dismissing the other side of what you think. I just read an article about a hedge fund in Greenwich, CT that got smoked last year (and closed the fund). The head of the firm blamed a macro market that was “dislocated from fundamentals.” I guess that was easier than blaming himself.

 

This, of course, has been one of the best 13-14 month periods to be invested in “growth”, as an investment style factor, ever. Particularly if you are a macro guy (or gal) who was net long growth equities and short slow-growth yielding bonds (or stocks like Kinder Morgan (KMI), which missed last night, that look like bonds). #Fundamental, it was. Indeed.

 

But that is yesterday’s news…

 

Where we go today, tomorrow and the next day are places we have never been.  My job is to help both you and my firm get there without having to make excuses for wrong turns along the way

 

So let’s start with what matters most about where we are – our position:

  1. CASH = 27%
  2. Foreign Currencies = 27% (we still like the Euro, Pound, Kiwi, etc.)
  3. International Equities = 20% (we still like most of Europe, especially Germany and the UK)
  4. US Equities = 18% (Tech, Healthcare, Financials, Industrials, and Materials)
  5. Commodities = 8% (Coffee, Cattle, Copper – and maybe some Gold)
  6. Fixed Income = 0%

Explaining 1-6 in reverse is pretty straightforward:

  1. Fixed Income 0% allocation for 184 days (73% of the time in last 12 months - net short via sovereigns, long corporates)
  2. CRB Commodities Index signaled don’t short last month – still a Bernanke Bubble that popped, but one we can risk manage
  3. US Equities is where we made a Sector Style Shift away from Consumption and Into Inflation (see Q1 Macro Themes deck)
  4. International Equities is the easiest to stick with because the slope of European #GrowthAccelerating is the most obvious
  5. Foreign Currencies will only be easy to stick with if EUR/USD and GBP/USD hold $1.35 and $1.63 TREND supports
  6. Cash, when you are knowingly buying-the-damn-bubble #BTDB in US Equities, is still King at my house

In order to expand on how we think about asset allocation, country and sector/style picking, etc. we do our Global Macro Themes deep dives. If you’d like to review that slide deck, ping us at and you’ll see us refresh our risk management themes on our disruptor (to consensus TV) video platform @HedgeyeTV.

 

One of the videos our all-star offensive line analyst, Darius Dale, and I did this week walks through why we A) like Yen Down, Nikkei Up’s intermediate-term TREND, but B) wouldn’t be aggressive in allocating capital to Japanese Equities on pullbacks until we see some of our key lines of support (for the Nikkei) and resistance (for the Yen vs USD) confirm.

 

Here’s the video link.

 

Where we are from an immediate-term TRADE perspective sometimes deviates from our intermediate-term TREND views. That’s just the way markets (and life) work. Why else would I subject myself to getting up at this un-godly hour to hand bomb immediate-term TRADE lines in my notebook?

 

The alternative to being committed to winning is accepting mediocrity. The Manifestation of Mediocrity in America is something I think I could write a book about. So I’ll end that prickly point with a period. Because, to get a certain kind of person from where they are to somewhere better, sometimes feels like just that. Capitalizing on their frustration wins too.

 

Our immediate-term Global Macro Risk Ranges are now (TREND in brackets):

 

UST 10yr Yield 2.79-2.92% (bullish)

SPX 1 (bullish)

VIX 11.84-13.35 (bearish)

USD 80.74-81.31 (neutral)

Brent 106.12-108.66 (bearish)

Gold 1 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Where We Are - Chart of the Day

 

Where We Are - Virtual Portfolio


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January 16, 2014

January 16, 2014 - Slide1

 

BULLISH TRENDS

January 16, 2014 - Slide2

January 16, 2014 - Slide3

January 16, 2014 - Slide4

January 16, 2014 - Slide5

January 16, 2014 - Slide6

January 16, 2014 - Slide7

January 16, 2014 - Slide8

 

BEARISH TRENDS

January 16, 2014 - Slide9

January 16, 2014 - Slide10

January 16, 2014 - Slide11
January 16, 2014 - Slide12

 


THE M3: MACAU VISAS

THE MACAU METRO MONITOR, JANUARY 16, 2014

 

 

GOVT KNOWS OF NO CHANGES TO INDIVIDUAL VISA SCHEME Macau Business

According to a spokesperson, the Macau government is unaware of any changes to the individual visa scheme for mainlanders visiting Macau.  The spokesperson said so after the Hong Kong government announced a freeze on expansion of the scheme.  The scheme gives citizens of 49 mainland cities visas to travel to Macau or Hong Kong as individuals rather than as members of tour groups, who travel on collective visas.  Hong Kong chief executive Leung Chun-ying said the central government had agreed on a temporary freeze on the number of cities covered by the scheme.

 



THE HEDGEYE DAILY OUTLOOK

 TODAY’S S&P 500 SET-UP – January 16, 2014


As we look at today's setup for the S&P 500, the range is 17 points or 0.72% downside to 1835 and 0.20% upside to 1852.           

                                                                                                                    

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.49 from 2.50
  • VIX closed at 12.28 1 day percent change of 0.00%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: CPI m/m, Dec., est. 0.3% (prior 0.0%)
  • 8:30am: Init. Jobless Claims, Jan. 11, est. 328k (prior 330k)
  • 8:45am: Bloomberg U.S. Economic Survey, Jan.
  • 9am: Total Net TIC Flows, Nov. (prior $194.9b)
  • 9am: Fed’s Williams speaks in Washington
  • 9:45am: Bloomberg Economic Expectations, Jan. (prior -11)
  • 10am: Philly Fed Biz Outlook, Jan., est. 8.6 (pr 7, rev 6.4)
  • 10am: NAHB Housing Market Index, Jan., est. 58 (prior 58)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11:10am: Fed’s Bernanke speaks in Washington

GOVERNMENT:

    • Greek Deputy PM Evangelos Venizelos meets with Sec. of State John Kerry at State Dept
    • 9am: President Obama hosts event with college, university presidents and leaders from nonprofits, foundations, state governments, private-sector on expanding college opportunity
    • 9am: House Science, Space and Technology Cmte hearing on identity theft through Healthcare.gov
    • 9:15am: EPA’s McCarthy testifies at Senate Environment and Public Works Cmte hearing
    • 9:30am: House Energy and Commerce subcmte hears from Gary Cohen from CMS on health-care overhaul
    • 10am: Senate Finance Cmte holds hearing on advancing Congress’s trade agenda
    • 10am: National Transportation Safety Board unveils 2014 Most Wanted list of safety improvements
    • 11:30am: House Speaker Boehner, R-Ohio, holds press briefing

WHAT TO WATCH:

  • House passes $1.1t spending bill in shift from discord
  • J.C. Penney closing 33 stores, cutting 2,000 jobs
  • Yahoo’s Mayer said to have fired COO Henrique de Castro
  • Microsoft CEO list said to include Ericsson’s Vestberg
  • Citigroup sells servicing to Fannie Mae on $10b loans
  • Big banks face sharper risk-management focus in OCC policy shift
  • J&J said to agree to sell Ortho unit to Carlyle for $4b
  • Apollo buys Chuck E. Cheese in near $1b deal, FT says
  • Currency traders told Bank of England of fix practices in 2012
  • AOL gives up control of money-losing local news division Patch
  • Citibank to reissue debit cards after target hack: NYT
  • China’s Treasury holdings rose to record in November
  • ECB said to favor 6% capital requirement in stress test
  • Spain auctions 3Y notes at record-low yield of 1.595%
  • Ahold says 4Q U.S. same-store sales decline

AM EARNS:

    • BB&T (BBT) 5:45am, $0.72
    • BlackRock (BLK) 5:30am, $4.33
    • Charles Schwab (SCHW) 8:45am, $0.21
    • Citigroup (C) 8am, $0.95 - Preview
    • First Republic (FRC) 7am, $0.75
    • Goldman Sachs (GS) 7:35am, $4.18 - Preview
    • Huntington Bancshares (HBAN) 5:55am, $0.17
    • PNC Financial (PNC) 6:24am, $1.64
    • PPG Industries (PPG) 8:11am, $1.73 - Preview
    • UnitedHealth Group (UNH) 6am, $1.41 - Preview

PM EARNS:

    • American Express (AXP) 4:01pm, $1.25
    • Capital One Financial (COF) 4:05pm, $1.55
    • Intel (INTC) 4:01pm, $0.52 - Preview
    • People’s United Financial (PBCT) 4:03pm, $0.20
    • Skyworks Solutions (SWKS) 4:30pm, $0.66
    • SLM (SLM) 4:15pm, $0.73

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Sugar Falls to Lowest Since 2010 on India Subsidy; Cocoa Gains
  • JPMorgan Leads Mining Loan Rebound Amid Price Slump: Commodities
  • India Spurring Sugar Exports Sends Global Prices to 43-Month Low
  • WTI Crude Advances to Two-Week High as U.S. Inventories Decline
  • Soybeans Climb for a Sixth Session on Sustained Chinese Demand
  • Gold Declines for Worst Run in Four Weeks as Dollar Strengthens
  • Nickel Advances for Fifth Day on Speculation Supply to Tighten
  • Natural Gas Rebounds on Forecast for Record Drop in U.S. Supply
  • Rebar Falls From One-Week High Amid China’s Lower Credit Growth
  • Gold to Trade in Range for StanChart’s East as Asia Counters Fed
  • Singapore Exchange to Stop Trading, Clearing LME Futures
  • U.S. Corn Exports Seen in Peril as China Mops Domestic Glut
  • China to Cut Sugar Imports as Premium Narrows: Chart of the Day
  • Richest Coffee Takeover in Asia Seen With Super Group: Real M&A

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 


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