prev

ICI Fund Flow Survey - Below Average Equity and Better than Average Fixed Income Flow

Takeaway: This past week saw a rebound in both equity and fixed income flows, albeit to just running year-to-date averages.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

In the most recent 5 day period, absolute money flow into both equity and fixed income mutual funds rebounded week-to-week to near the year-to-date averages, reversing last week's negative trends:

 

Total equity mutual fund flow accelerated sequentially week-to-week, producing a tally only slightly below the 2014 year-to-date weekly average. The $3.5 billion that came into all equity mutual funds during the most recent 5 day period ending April 23rd was split between a $1.4 billion inflow into U.S. equity funds and an improved $2.1 billion inflow into international stock funds. This higher demand for foreign equity products has been consistent over the past two years with international stock fund inflow having averaged $2.9 billion per week this year and $2.6 billion per week last year in 2013 with domestic fund products averaging an inflow of just $1.3 billion thus far in '14 and a $451 million inflow last year in comparison. The 2014 running weekly average inflow for all equity mutual funds is now $4.1 billion, an improvement from the $3.0 billion weekly average inflow from 2013. 

 

Fixed income mutual fund flow also accelerated substantially on a w/w basis, reversing last week's trend lines in the product graphs below, which had displayed decreasing momentum for bond funds versus equity funds. For the week ending April 23rd, $2.3 billion flowed into all fixed income funds, as opposed to last week's paltry $659 million inflow. The improvement in bond fund inflow this week is the result of $1.7 billion that flowed into taxable products and $531 million that flowed into tax-free or municipal products. The inflow into taxable products this week was the 11th consecutive week of positive flow and the inflow into municipal or tax-free products was the 15th consecutive week of positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $1.9 billion weekly inflow, a vast improvement from 2013's weekly average outflow of $1.5 billion, but still 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 experienced dramatically positive w/w changes in trends, with a notable week subscription for Bond ETFs, which experienced an inflow of $1.2 billion, in contrast to the previous week's $204 million inflow. Stock ETFs left last week's $2.2 billion outflow far behind, netting $193 million in new inflows last week. The 2014 weekly averages are now a $973 million weekly inflow for equity ETFs and a $931 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 $276 million spread for the week ($3.7 billion of total equity inflow versus the $3.4 billion inflow 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 $5.4 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). 

 

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 - Below Average Equity and Better than Average Fixed Income Flow - 1

 

 

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

 

 

ICI Fund Flow Survey - Below Average Equity and Better than Average Fixed Income Flow - 2

 

ICI Fund Flow Survey - Below Average Equity and Better than Average Fixed Income Flow - 3

 

ICI Fund Flow Survey - Below Average Equity and Better than Average Fixed Income Flow - 4

 

ICI Fund Flow Survey - Below Average Equity and Better than Average Fixed Income Flow - 5

 

ICI Fund Flow Survey - Below Average Equity and Better than Average Fixed Income Flow - 6

 

 

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

  

 

ICI Fund Flow Survey - Below Average Equity and Better than Average Fixed Income Flow - 7

 

ICI Fund Flow Survey - Below Average Equity and Better than Average Fixed Income Flow - 8

 

 

Net Results:

 

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $276 million spread for the week ($3.7 billion of total equity inflow versus the $3.4 billion inflow 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 $5.4 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week).

 

 

ICI Fund Flow Survey - Below Average Equity and Better than Average Fixed Income Flow - 9 

 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 



A Terrible, Horrible, No Good, Very Bad GDP Report

Client Talking Points

POUND

If you really want to buy #GrowthAccelerating, stay with our Hedgeye playbook and only buy countries with #StrongCurrencies like the Pound. The UK PMI accelerates (again) to 57.3 in April versus 55.3 in March and the FTSE looks solid. Yes – currencies matter.

UST 10YR

If I’m right, and inflation continues to slow U.S. growth in Q2, then 2.66% for the 10-year yield looks primed to test my TAIL risk line of 2.59%. It’s great news if you are long slow growth yield chasers (Bonds, Utilites, REITS, etc). Not so great if you’re long the Russell 2000 (IWM) etc.

USD

The US Dollar is on its knees (at year-to-date lows) following the massive GDP miss – if all the weather experts nailed the weather, why didn’t they nail the number? Looks like both the currency and bond market is front-running a Yellen “un-taper” in May to me. Guess we’ll see.

Asset Allocation

CASH 30% US EQUITIES 0%
INTL EQUITIES 12% COMMODITIES 20%
FIXED INCOME 19% INTL CURRENCIES 19%

Top Long Ideas

Company Ticker Sector Duration
HOLX

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds.  Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.

OC

Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.

DRI

Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

Three for the Road

TWEET OF THE DAY

Denmark's unemployment rate drops to 4.0% (and to think they didn't need the Fed) @KeithMcCullough

QUOTE OF THE DAY

"Every worthy act is difficult. Ascent is always difficult. Descent is easy and often slippery." - Mahatma Gandhi

STAT OF THE DAY

One out of three Americans now live in a housing market where rent for a three-bedroom home eats up more than 30% of the monthly median income, the traditional threshold for affordability, according to RealtyTrac. Big demand for rental housing has helped push rents more than 21% higher since the housing market peaked in 2006. (CNN)


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

BYD: COULD’VE BEEN A BEAT, BETTER THINGS TO COME

Pay no mind to EPS - top of the EBITDA guidance range isn’t bad. Non-recurring online costs, high income taxes, and a comp expense adjustment prevented a beat. Borgata looking much better for Q2.

 

 

CALL TO ACTION

We like the setup here for BYD, assuming the economy behaves.  Q1 would’ve been much better, if not for some non-recurring items.  Instead, the stock is indicating down based on a headline EPS miss.  Despite the items, EBITDA still fell at the high end of company guidance and in line with consensus.  The upcoming catalysts look favorable: 

  • a much better April at the Borgata
  • potential breakeven operations as soon as April for online
  • compensation expense normalizing
  • much easier comps
  • a potentially very material property tax rebate in Atlantic City
  • a lower go forward property tax rate that could add $15-20 million annually to Borgata EBITDA – 13-17% boost to our current Borgata estimate
  • a series of potential debt refinancings beginning in August that could generate $0.15-0.20 in incremental EPS 

Q1: HEADLINE EPS MISS BUT EBITDA AT THE TOP END OF GUIDANCE

 

The headlines read that BYD missed on EPS.  However, Q1 EBITDA of $144.5 million was in line with consensus and at the high end of management’s guidance of $140-145 million.  Moreover, bad weather impacted the quarter by $2m more than guidance, Borgata online suffered a loss of $3m of which $2m was due to non-recurring start-up costs, a stock compensation adjustment hurt pre-tax income by another $2m, and income taxes were unusually high.  The first two items hit EBITDA while the remaining were below the EBITDA line.  Q1 was a solid quarter relative to expectations.

 

By region, we suspect BYD posted better results everywhere with the exception of Borgata due in part to the online losses but also very bad weather which seemed to impact the hotel and F&B more than gaming.  Good cost controls helped the LV Locals business post YoY EBITDA growth but the lack of revenue growth remains frustrating.

 

GOING FORWARD

 

2014 EBITDA guidance of $600-620 million bracketed the consensus EBITDA projection of $610 million.  Management forward commentary was similar to the PENN and PNK conference calls that April was soft.  We would note that our research indicates that April will be much better than Q1 and March in terms of YoY growth and we are projecting accelerating trends for May and June.  Borgata, in particular, looks much better both on land and in cyber space.  We should be getting New Jersey’s April gaming revenues on May 14 and we suspect Borgata did well.  Borgata’s online operations – a major drag on Q1 – could move into the black sometime in Q2.

 

Comps look very easy for the back half of 2014 and BYD should post solid growth.  Upside to guidance could come from top line growth in Las Vegas and more cost cutting in other markets.  The big prize will be a favorable resolution to the property tax dispute in Atlantic City.  We don’t think investors have focused on how important this development could be for BYD.  Here is the rundown:

  • In July, a judge will hear the city’s appeal of a favorable court ruling for BYD that awarded the company $54m in rebates and interest for 2009/2010. 
  • In September, a judge will hear for the first time, BYD’s contention that they are due a similar rebate for 2010-2012 totaling $75m.
  • Prospectively, BYD is negotiating all along similar lines for lower property taxes that could result in $15-20m annually in incremental EBITDA for Borgata.
  • Combined, these property tax adjustments would generate $1.75 to $2.00 per share in value to BYD stockholders.

CONCLUSION

 

Headline EPS be damned, Q1 and guidance were solid.  Positive catalysts are out there.  Overall, there is a lot of value in BYD, particularly if the company can continue to make operational changes to improve its underperforming margins or pursue any real estate related transactions.  


LEISURE LETTER (05/01/2014)

TICKERS:  MGAM, WYNN, HOT, NCLH

EVENTS TO WATCH

Thursday, May 1

  • HST Q1 – 10am
  • OEH Q1 – 10am , Passcode: 22074904
  • FCH Q1 – 12pm , Passcode: 28469900
  • WYNN Q1 – 430pm , Passcode:  17666834
  • BYI FQ3 – 430pm
  • EXPE Q1 – 430pm

Friday, May 2

  • April Employment Report
  • HT Q1 – 9am , Passcode: 1398938

Monday, May 5

  • Genting Singapore Q1 – 6am 

Tuesday, May 6

  • RHP Q1  – 10am , Passcode: 25122491
  • SHO Q1  – 12pm
  • TRIP Q1  – 430pm
  • DIS FQ2  – 5pm , Passcode: 36995300

Wednesday, May 7

  • STAY Q1  – 830am
  • STN Q1 – 4pm
  • CZR Q1 – 5pm , Passcode: 20337702

Thursday, May 8

  • PCLN Q1 – 730am
  • MPEL Q1 – 830am , Passcode: MPEL
  • CAR Q1 – 830am , Passcode Avis Budget
  • BEE Q1 – 10am , Passcode: 10895989
  • SGMS Q1 – 430pm , Password: SGMS

Friday, May 9

  • HLT Q1 – 10am , Passcode: 25981567
  • AHT Q1 – 11am

COMPANY NEWS

MGAM – Multimedia Games is buying PokerTek for $1.35/share or $13m.  MGAM expects the transaction will be neutral to diluted EPS in FY2015 and accretive to FY2016 EPS.  Merger will be completed in CY 2014.

Takeaway: E-tables is where the growth lies for the suppliers

 

Parx – (Allentown Morning Call) Parx Casino has won a legal victory that could lead to a tax reduction.  PA Supreme Court ruled that Parx's prizes given out in 2006/2007 such as cars, sports tickets and gift cards will not be taxed, saving Parx $1.1m.  The ruling might have set a precedent for all PA casinos but it is unclear whether the casinos can file appeals for past years

Takeaway:  Potential positive for PENN


WYNN – another Universal Entertainment defamation criminal complaint filing against Mr. Wynn

Takeaway:  Nothing new

 

HOT – announced Vasant Prabhu resigned as Vice Chairman and CFO to join NBC Universal as CFO.  During the transition, Vasant will continue with Starwood through May 30.  Alan Schnaid, currently SVP, Finance and Chief Accounting Officer, will serve as interim CFO effective immediately

Takeaway: Now we should find out who was holding back the stock buy back.

 

NCLH -  Launching a buy one, get one free deal.  From April 30 through May 11, guests who book on Getaway or Breakaway will receive a voucher for a complimentary 3-4 day bahamas cruise on Sky.

Takeaway:  A desperate promotion.  Norwegian is lucky to have some additional cost cuts in the bag; otherwise, net yields could have been a disaster this year.

 

MSC - 'We're not giving up on North America' USA Today 

According to Ken Muskat, executive vice president for Sales, PR & Guest Services at the European line's U.S. division, the redeployment of MSC Divina to Europe in 2015 was a function of significant weakness in pricing for summer cruises in the Caribbean that is affecting the entire industry.

 

"The summer continues to be a bloodbath for everybody" in the Caribbean.  We had planned for the ship being (in Miami) year-round. We had planned for it being in the Caribbean next summer, but given (the weakness in Caribbean pricing) one thing we strongly had to consider was do we want to stay in the Caribbean in the summer and be a (discount) price leader,"  Muskat commented.

Takeaway:  Telling of the severity of Caribbean discounting if MSC can't stay in the Caribbean market as a discount price leader.

INdUSTRY NEWS

NJ - According to a survey by CAMS, only 42-46% of credit cards used by players in the US accept online gaming accounts.  The low acceptance of credit cards is the single biggest holdback growth in New Jersey, said CAMS CEO Matt Katz said.

Takeaway:  Payment issues continue to plague the on line ramp in New Jersey but there are solutions.  


Internet Gaming - there is an increasing clamor regarding Native American tribes creating an interstate alliance to pursue internet gaming.  Outside California, many of the 255 tribes in the lower 48 states believe interstate alliances are crucial to efforts to leverage entry into online gambling and create viable gaming for rural America while also increasing competition for the 425 Indian casinos in 28 states.  California is seeking legislation to legalize intrastate internet poker for its 38+ million residents. 

Takeaway:  A push by Native American tribes to enter online gaming, might just be the event to cause the US Congress to revisit online gaming.


Hotel M&A - Apollo European Principal Finance Fund II bought 18 European hotels from Ivanhoe Cambridge.  Term were not disclosed.  The hotels include 11 in Germany, two in Spain, two in the Netherlands and one each in Austria, Belgium and France.  They operate under the Crowne Plaza banners, Holiday Inn and Holiday Inn Express IHG.

Takeaway:  Now if only HOT could get its act together.

 

El Niño -  the National Oceanic and Atmospheric Administration reports an increased likelihood of an El Niño during the fall and winter of 2014/2015.  NOAA's specific comment "ENSO-neutral is favored for the Northern Hemisphere spring 2014, with chances of El Niño increasing during the rest of the year, exceeding 50% by summer."

Takeaway: with a >60% probability for El Nino during fall/winter 2014/2015, we could see much easier "weather comp" during Q4 2014 and Q1 2015 - especially for the regional gaming stocks.

MACRO

Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.

 

 



investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

next