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Takeaway: The most recent ICI fund flow survey relayed the strongest taxable bond fund flow in well over 3 quarters since May of 2013

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the most recent week, while equity mutual funds continued positive flow trends the real story was the continued momentum in fixed income with the highest weekly inflow into taxable bond products since the second week of May last year:

Total equity mutual funds produced another week of inflow with $3.1 billion of net subscriptions, a deceleration from the $5.3 billion inflow the week prior. The $3.1 billion inflow had a domestic fund bias during the most recent 5 day period ending March 12th, with $1.9 billion flowing into U.S. equity funds and $1.2 billion flowing into international stock funds. The 2014 running weekly average inflow for equity mutual funds is now $4.7 billion, an improvement from the $3.0 billion weekly average inflow for 2013. 

Fixed income mutual funds continued improving fund flow trends for the week ending March 12th with $5.2 billion flowing into all fixed income funds. The breakout of improving bond fund inflow amounted to $4.7 billion into taxable products and a $551 million inflow into tax-free or municipal products. The inflow into taxable products this week was the largest subscription in 44 weeks since the second week of May last year and the inflow into municipal or tax-free products was the 9th consecutive week of positive inflow. The 2014 weekly average for fixed income mutual funds now stands at a $1.4 billion weekly inflow, an improvement from 2013's weekly average outflow of $1.5 billion but a far cry from the $5.8 billion weekly average inflow from 2012 (our view of the blow off top in bond fund inflow).

ETFs had mixed trends during the week, with a positive week of subscriptions in stock ETFs with $5.4 billion in net inflow with bond ETFs experiencing a slight $940 million outflow. The 2014 weekly averages are now a $337 million weekly outflow for equity ETFs and a $888 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 $4.2 billion spread for the week ($8.5 billion of total equity inflow versus the $4.3 billion outflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $7.5 billion (more positive money flow to equities), with a 52 week high of $30.9 billion (more positive money flow to equities) and a 52 week low of -$36.9 billion (negative numbers imply more positive money flow to bonds for the week). 

Continued positive equity mutual fund inflow currently supports our long recommendation on T Rowe Price (TROW) which benefits from this trend with a leading retail equity mutual fund franchise. In addition, we recently added Legg Mason (LM) to our Best Ideas list on the long side to capture the nascent trends on the institutional side of the industry, which is seeing a shift in asset allocation into fixed income and alternatives as pensions de-risk away from equities  (see our Legg report here).

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   

ICI Fund Flow Survey - Best Taxable Bond Fund Flow in 44 Weeks - ICI chart 1

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

ICI Fund Flow Survey - Best Taxable Bond Fund Flow in 44 Weeks - ICI chart 2

ICI Fund Flow Survey - Best Taxable Bond Fund Flow in 44 Weeks - ICI chart 3

ICI Fund Flow Survey - Best Taxable Bond Fund Flow in 44 Weeks - ICI chart 4

ICI Fund Flow Survey - Best Taxable Bond Fund Flow in 44 Weeks - ICI chart 5

ICI Fund Flow Survey - Best Taxable Bond Fund Flow in 44 Weeks - ICI chart 6

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

ICI Fund Flow Survey - Best Taxable Bond Fund Flow in 44 Weeks - ICI chart 7

ICI Fund Flow Survey - Best Taxable Bond Fund Flow in 44 Weeks - 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 $4.2 billion spread for the week ($8.5 billion of total equity inflow versus the $4.3 billion outflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $7.5 billion (more positive money flow to equities), with a 52 week high of $30.9 billion (more positive money flow to equities) and a 52 week low of -$36.9 billion (negative numbers imply more positive money flow to bonds for the week). 

ICI Fund Flow Survey - Best Taxable Bond Fund Flow in 44 Weeks - ICI chart 9 

Continued positive equity mutual fund inflow currently supports our long recommendation on T Rowe Price (TROW) which benefits from this trend with a leading retail equity mutual fund franchise. In addition, we recently added Legg Mason (LM) to our Best Ideas list on the long side to capture the nascent trends on the institutional side of the industry, which is seeing a shift in asset allocation into fixed income and alternatives as pensions de-risk away from equities  (see our Legg report here).

Jonathan Casteleyn, CFA, CMT 

 

 

Joshua Steiner, CFA