• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Here

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

Takeaway: Both equity mutual funds and ETFs had positive fund flow for the most recent period at the expense of fixed income again

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Total equity mutual funds experienced another week of strong follow through for the third week of 2014 with $6.4 billion flowing into all stock funds for the week ending January 22nd. Within the total equity fund result, domestic equity mutual funds gained $2.4 billion, double the emerging 2014 weekly average, with international equity funds posting a $3.9 billion inflow. This robust weekly inflow coupled with the strong result from the week prior has now moved the 2014 weekly average to a $4.7 billion inflow for equities to start 2014, a continuation on 2013's positive trends where $3.0 billion per week on average flowed into stock funds. 

Fixed income mutual funds had a slight outflow for the most recent 5 day period however the result essentially netted to a flat result. In the week ending January 22nd, total fixed income mutual funds produced a $247 million outflow, which broke out into a $375 million redemption in taxable bonds and a $128 million inflow into tax-free bonds, the second straight week of inflow for munis. The 2014 weekly average for fixed income mutual funds now stands at a $1.1 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 flat result within bond ETFs. Stock ETFs gained a solid $2.0 billion for the 5 day period ending January 22nd with bond ETFs producing a $92 million inflow.  The 2014 weekly averages considering this new production are now a $389 million weekly inflow for equity ETFs and a $243 million weekly 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 $8.6 billion spread for the week ($8.5 billion of total equity inflows versus the $155 million outflow within fixed income; positive numbers imply inflows for stocks). The 52 week moving average has been $7.7 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). 

Despite the slow start for equity returns in 2014 and nascent fears of global contagion from emerging markets, the continued follow through of positive equity flows is not surprising being that in analyzing 15 years of mutual fund flow versus market performance data that generally there has been a six month lag as retail investors chase performance with fund flow on the equity side and a 9 month historical lag between benchmark fixed income performance and bond fund flows. Hence the dramatic up year of 30% for the S&P 500 and the first loss in the Barclay's Aggregate Bond index in 14 years last year could create tails of up to 2-3 quarters of inflows (for equities) and outflows for bonds (although we acknowledge that the linear 12 week trend lines in fixed income flow below are improving and likely we will see substantial equity outflows next week considering the sharp drop in stocks this week). Although counter intuitive to how "performance" is actually created, this has been the historical behavioral pattern of mutual fund investors which are almost exclusively retail driven.

ICI Fund Flow Survey - Equity Fund Follow Through...Fixed Income Flat Lines - ICI chart 1

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

ICI Fund Flow Survey - Equity Fund Follow Through...Fixed Income Flat Lines - ICI chart 2

ICI Fund Flow Survey - Equity Fund Follow Through...Fixed Income Flat Lines - ICI chart 3

ICI Fund Flow Survey - Equity Fund Follow Through...Fixed Income Flat Lines - ICI chart 4

ICI Fund Flow Survey - Equity Fund Follow Through...Fixed Income Flat Lines - ICI chart 5

ICI Fund Flow Survey - Equity Fund Follow Through...Fixed Income Flat Lines - ICI chart 6

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

ICI Fund Flow Survey - Equity Fund Follow Through...Fixed Income Flat Lines - ICI chart 7

ICI Fund Flow Survey - Equity Fund Follow Through...Fixed Income Flat Lines - ICI chart 8

Net Results:

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $8.6 billion spread for the week ($8.5 billion of total equity inflows versus the $155 million outflow within fixed income; positive numbers imply inflows for stocks). The 52 week rolling average spread has been $7.7 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 Fund Follow Through...Fixed Income Flat Lines - ICI chart 9

Key Asset Management Stat of the Week:

Despite the slow start for equity returns in 2014 and nascent fears of global contagion from emerging markets, the continued follow through of positive equity flows is not surprising being that in analyzing 15 years of mutual fund flow versus market performance data that generally there has been a six month lag as retail investors chase performance with fund flow on the equity side and a 9 month historical lag between benchmark fixed income performance and bond fund flows. Hence the dramatic up year of 30% for the S&P 500 and the first loss in the Barclay's Aggregate Bond index in 14 years last year could create tails of up to 2-3 quarters of inflows (for equities) and outflows for bonds (although we acknowledge that the linear 12 week trend lines in fixed income flow below are improving and likely we will see substantial equity outflows next week considering the sharp drop in stocks this week). Although counter intuitive to how "performance" is actually created, this has been the historical behavioral pattern of mutual fund investors which are almost exclusively retail driven.

ICI Fund Flow Survey - Equity Fund Follow Through...Fixed Income Flat Lines - ICI chart 10

ICI Fund Flow Survey - Equity Fund Follow Through...Fixed Income Flat Lines - ICI chart 11

Jonathan Casteleyn, CFA, CMT 

 

 

Joshua Steiner, CFA