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ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows

Takeaway: Equity flows perked up strongly after a negative week to start '14 with the biggest inflow in 10 weeks; Munis finally have a week of inflow

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

Total equity mutual funds experienced strong inflows for the second week of 2014 with $8.2 billion flowing into all stock funds for the week ending January 15th, after a slight negative outflow last week to start the year. Within the total equity fund result, domestic equity mutual funds gained $4.2 billion, the biggest subscription in 10 weeks, with international equity funds posting a similar $4.0 billion inflow. This strong weekly inflow coupled with the slight outflow from last week has now moved the 2014 weekly average to a $3.9 billion average inflow for equities to start 2014, a follow through on 2013's positive trends where $3.0 billion per week on average flowed into stock funds. 

 

Fixed income mutual funds had a slight inflow for the most recent 5 day period however the action was hardly robust. In the week ending January 15th, total fixed income mutual funds produced a $912 million inflow, which broke out into a $684 million inflow into taxable bonds and a $228 million inflow into tax-free bonds. This slight subscription into muni or tax-free bonds broke a streak of 33 consecutive weeks of outflow. The 2014 weekly average for fixed income mutual funds now stands at a $1.8 billion weekly inflow, an improvement from 2013's weekly average outflow of $1.5 billion. This improved 2014 weekly statistic however is still a far cry from the $5.8 billion weekly average inflow from 2012 (our view of the blow off top in the bond market).

 

ETFs experienced mixed trends during the week but essentially followed the direction of mutual funds with an inflow into passive equity funds and a slight outflow from bond ETFs. Stock ETFs gained a modest $421 million for the 5 day period ending January 15th with bond ETFs experiencing a slight $142 million outflow.  The 2014 weekly averages considering this new production are now a $464 million outflow for equity ETFs and a $318 million inflow for fixed income ETFs. 

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $7.9 billion spread for the week ($8.7 billion of total equity inflows versus the $770 million inflow within fixed income; positive numbers imply inflows for stocks). The 52 week rolling average spread has been $7.3 billion (positive spread to equities), with a 52 week high of $30.9 billion (positive spread to equities) and a 52 week low of equity/debt weekly spread of -$9.2 billion (negative numbers imply a net inflow into bonds for the week).

 

We relay that our ongoing call of a retail investor allocation into equities and out of fixed income started as of mid-year 2013 and is continuing. As crystallised in the recent BlackRock fourth quarter earnings report, BLK's category asset flows showed the strongest growth in retail equities with weaker comparative trends in fixed income. We think that the retail story relayed by BlackRock is a trend that can continue into 2014 as mutual fund flow driven by retail investors is a performance chasing exercise with still better return prospects in equities over fixed income. With this theme in mind, we continue to recommend T Rowe Price (TROW) on the long side with allocations of 82% of its assets-under-management in equities and 80% of the firm's AUM in retail. The separate story relayed from BlackRock is an institutional reallocation on the margin out of equities and into fixed income continues to be a function of two dynamics in our view. Firstly with the strong returns of 2013, a 60/40 institutional portfolio of stocks/bonds would have to shift by 6% in order to maintain that weighting (6% of the stock portfolio would have to be sold and reallocated into 6% more bonds which may explain the asset returns to start 2014). In addition, our recent pension fund survey highlighted that liability driven investing and "derisking" within the $16 trillion pension fund market are the highest priorities which generally decreases the demand for equities and increases the demand for bonds institutionally (see our report on this issue). This emerging trend on the institutional side of the market also benefits the Alternative asset managers who stand to get new market share from this reallocation. 

 

 

ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows - ICI chart 1

ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows - ICI chart 2

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product:

 

ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows - ICI chart 3

 

ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows - ICI chart 4

 

ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows - ICI chart 5

 

ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows - ICI chart 6

 

ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows - ICI chart 7

 

Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds:

  

ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows - ICI chart 8

 

ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows - ICI chart 9

 

 Net Results:

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $7.9 billion spread for the week ($8.7 billion of total equity inflows versus the $770 million inflow within in fixed income; positive numbers imply inflows for stocks). The 52 week rolling average spread has been $7.3 billion (positive spread to equities), with a 52 week high of $30.9 billion (positive spread to equities) and a 52 week low of equity/debt weekly spread of -$9.2 billion (negative numbers imply a net inflow into bonds for the week).

 

ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows - ICI chart 10

 

Key Asset Management Thought:

 

We relay that our ongoing call of a retail investor allocation into equities and out of fixed income started as of mid-year 2013 and is continuing. As crystallised in the recent BlackRock fourth quarter earnings report, BLK's category asset flows showed the strongest growth in retail equities with weaker comparative trends in fixed income. We think that the retail story relayed by BlackRock is a trend that can continue into 2014 as mutual fund flow driven by retail investors is a performance chasing exercise with still better return prospects in equities over fixed income. With this theme in mind, we continue to recommend T Rowe Price (TROW) on the long side with allocations of 82% of its assets-under-management in equities and 80% of the firm's AUM in retail. The separate story relayed from BlackRock is an institutional reallocation on the margin out of equities and into fixed income continues to be a function of two dynamics in our view. Firstly with the strong returns of 2013, a 60/40 institutional portfolio of stocks/bonds would have to shift by 6% in order to maintain that weighting (6% of the stock portfolio would have to be sold and reallocated into 6% more bonds which may explain the asset returns to start 2014). In addition, our recent pension fund survey highlighted that liability driven investing and "derisking" within the $16 trillion pension fund market are the highest priorities which generally decreases the demand for equities and increases the demand for bonds institutionally (see our report on this issue). This emerging trend on the institutional side of the market also benefits the Alternative asset managers who stand to get new market share from this reallocation. 

 

ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows - ICI chart 11 BLK flow

 

ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows - ICI chart 14 BLK flow

 

ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows - ICI chart 12 TROW

 

ICI Fund Flow Survey - Equity Flow Rebounds Strongly paired with Slight Bond Inflows - ICI chart 13 TROW

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 



Theory vs Practice

“In theory, there is no difference between theory and practice. In practice there is.”

-Yogi Berra

 

I had a ton of feedback on yesterday’s Early Look (on how and why I use Twitter), so I wanted to thank you for that. Without having to answer to and consider your objective questions and thoughts, I’d just be a man in a room who is hostage to my own thinking. #scary

 

Your feedback generates more questions and ideas for our research team to work on. So I decided to take 6 minutes to walk through who scores as The 3 Most Overrated Economists in The World (for @HedgeyeTV video CLICK HERE ). I also crowd-sourced (on Twitter) who my followers thought were the most overrated. We came up with completely different answers.

 

Today, I’d like to throw that right back at you and add the follow-on question – who are The Most Underrated Economists (and/or strategists) that you follow? This has nothing to do with being mean or nice. This has everything to do with competence. We all need to find a better way. In theory, there are “experts” spewing on TV all day long. In practice, you (the players) know who gets it.

 

Back to the Global Macro Grind

 

#Davos is a big deal. CNBC focused on Matt Damon’s "Save the World’s Water" thing yesterday and Reuters is all over actress Goldie Hawn this morning. Up next, after living large last night, Nouriel Roubini is Snapchatting the world a picture of him pecking Arianna Huffington on the cheek.

Theory vs Practice - nour5 

Great.


In other news, 2 of our Top 3 Global Macro Themes are trending in markets this morning, big time:

 

1.       #InflationAccelerating
2.       #GrowthDivergences

 

On Inflation, just to clarify:

  1. Our call here is like all the calls we make – rate of change – deflating the inflation (last year’s theme = #over)
  2. We aren’t purely focused on commodity deflation ending; but it’s a big part of the market expectations mismatch
  3. #InflationAccelerating is a bigger problem in the US than it is in Europe (that’s why we like European Equities more)

Got Commodity inflation in 2014 YTD?

  1. CRB Commodities Index (19 commodities) is beating both the Dow and the SP500 YTD (it’s up instead of down)
  2. CRB Food Index = +1.5% YTD (after food prices crashed last year from the 2012 all-time highs)
  3. YTD Food Inflations = Oats +12.9%, Cattle +5.1%, Coffee +3.9%
  4. Natural Gas at $4.76 (don’t tell Washington about heating your home) = +12.9% YTD
  5. Precious Metals YTD = Platinum +6.5%, Palladium +4.3%, Gold +3.7%

In stark contrast to what you would have seen in the Hedgeye Asset Allocation Model for the better part of the last year (0% allocation to Commodities), we have a 9% asset allocation to Commodities right now. From here, that’s going up, not down.

 

In Real-Time Alerts we are long of Gold in Gold terms (GLD) and Coffee via the CAFÉ (take the little chapeau off the French spellchecker and you’ll see the Coffee ETN – not a perfect security, so if you’re an Institutional investor, just buy the futures).

 

On the other side of this Q1 theme, there are plenty of short ideas to sink your teeth into; Restaurant Shorts in particular (Slowing Sales and Rising Food Costs). This is the highest # of short ideas our Food/Bev guru Howard Penney has had since 2008. He held a Best Short Ideas call last week @Hedgeye on Cheesecake Factory (CAKE). And he’ll write the Early Look for you tomorrow.

 

With Roubini going bullish, got short ideas? Here are some high-quality Food #InflationAccelerating ideas currently in Real-Time Alerts:

  1. Cheesecake (CAKE)
  2. Bloomin’ Brands (BLMN)
  3. Red Robin Gourmet Burgers (RRGB)
  4. McDonald’s (MCD)

In other words, 50% of my #timestamped short book is in Restaurant Shorts (10 LONGS, 8 SHORTS currently @Hedgeye after selling into yesterday’s all-time Russell2000 high of 1181).

 

In another @HedgeyeTV video this week titled Here’s What’s Working (for video CLICK HERE), I made a very simple point about our #GrowthDivergences theme (which syncs with #InflationAccelerating): country and sector picking matters as much as stock picking right now (i.e. pick the right sectors in the right countries and you’ll look like a good stock picker!).

 

If you really want to boil that macro point down, for now you want to be:

 

A)     Long Inflation Expectations assets (like breakevens)

B)     Short US Consumption assets (like restaurants)

 

Since the European growth recovery is 1-2 years behind the US (and most of Asia, including Japan), that’s the other reason why we think you’re going to continue to see European Equities outperform the Global Equities league tables.

 

Remember, in theory consensus might think it’s about absolute levels of growth. In practice, it’s all about the rate of change of growth. And that’s all I have to say about that.

 

Our immediate-term Global Macro Risk Ranges are now:

 

SPX 1

Brent 105.87-108.75

NatGas 4.35-4.77

Gold 1

Copper 3.30-3.40

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Theory vs Practice - Chart of the Day

 

Theory vs Practice - Virtual Portfolio


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THE M3: VISITOR ARRIVALS; MELCOLOT

THE MACAU METRO MONITOR, JANUARY 23, 2014

 

 

MACAU VISITOR ARRIVALS FOR DECEMBER 2013 DSEC

Visitor arrivals increased by 4% YoY to 2,586,829 in December 2013.  Visitors from Mainland China increased by 8% YoY to 1,620,434, coming primarily from Guangdong Province (647,348) and Fujian Province (66,940); Mainland visitors travelling under the Individual Visit Scheme totaled 700,934.  Moreover, visitors from the Republic of Korea (46,412) and Malaysia (40,935) increased by 5% and 8% respectively YoY, while those from Hong Kong (570,830) and Taiwan (86,575) decreased by 7%.  The average length of stay of visitors stayed unchanged from a year earlier, at 1.0 day in December 2013.

 

THE M3:  VISITOR ARRIVALS; MELCOLOT - MA

 

MELCO INTL SELLS STAKE IN LOTTERY GEAR DISTRIBUTOR DSEC

Melco International Development Ltd says it has sold some of its shares in a mainland supplier of lottery equipment, MelcoLot Ltd, for HK$224.81 million (US$29 million).  MelcoLot Ltd distributes lottery terminals used by the state-run China Sports Lottery Administration Centre.


January 23, 2014

January 23, 2014 - Slide1

 

BULLISH TRENDS

January 23, 2014 - Slide2

January 23, 2014 - Slide3

January 23, 2014 - Slide4

January 23, 2014 - Slide5

January 23, 2014 - Slide6

January 23, 2014 - Slide7

January 23, 2014 - Slide8

 

BEARISH TRENDS

January 23, 2014 - Slide9

January 23, 2014 - Slide10

January 23, 2014 - Slide11

 


Got #GrowthDivergences Yet?

Takeaway: Country/sector/asset picking matters in a lower variance, divergent performance environment.

Hedgeye’s Macro Team recently released our Q1 Macro Themes—three key global macro forces we believe will play a dominant role in shaping the markets near term.

 

 #GrowthDivergences is one.

 

Looking to the U.S., Europe, China and Japan, we see the heavyweights of the world economy diverging from an economic growth perspective as some countries and/or regions are much further along in the economic cycle than others. We highlight those divergences and identify which countries and/or regions you want to be allocating assets to at the start of the year.

 

Our macro call is bearing fruit. Take a look.

 

Got #GrowthDivergences Yet? - Growth Div

 

The point here is that country/sector/asset picking matters in a lower variance, divergent performance environment.  Some big YTD divergence…and the YTD is only a few weeks old.  

 

This is a complimentary excerpt from Hedgeye research.

Join the Hedgeye Revolution today.  


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