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ICI Fund Flow Survey - Best Week All Year For Bonds Versus Very Light Week For Equities

Takeaway: Last week the combination of taxable and tax-free bond fund flow had the best week all year versus very light equity fund flows

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

In the most recent 5 day period, the combination of taxable and tax-free bond funds had the best week all year with $5.5 billion in inflow, well above the running year-to-date average of $1.9 billion. Conversely, equity funds had a very light inflow of just $754 million, well below the year-to-date average of $3.3 billion

 

It was an anemic week for equity mutual fund and ETF trends. Total equity mutual fund flows experienced slight relief w/w, improving sequentially from a net outflow last week, but still producing a tally well below the 2014 year-to-date weekly average. The $754 million that flowed into all equity mutual funds during the most recent 5 day period ending May 7th was split between a $2.0 billion outflow from domestic equity funds and $2.7 billion inflow into international equity funds. This outperformance from foreign equity products has been consistent over the past two years; international stock fund inflow has averaged $2.6 billion per week thus far this year, on par with 2013's $2.6 billion inflow, while domestic fund trends have averaged an inflow of just $770 million thus far in '14 and $451 million inflow in '13. The 2014 running weekly average inflow for all equity mutual funds is now $3.3 billion, only a slight improvement from the $3.1 billion weekly average inflow from 2013. 

 

Conversely, fixed income mutual fund flows accelerated notably on a w/w basis. For the five day period ending May 7th, $5.5 billion flowed into all fixed income funds, as opposed to last week's much weaker $931 million inflow. The improvement in bond fund flow this week was the result of $4.4 billion that flowed into taxable products and $1.1 billion that flowed into tax-free or municipal products. The inflow into taxable products this week was the 13th consecutive week of positive flow and the inflow into municipal or tax-free products was the 17th 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 had polarized trends this week, with a substantial weekly redemption in equity ETFs and a solid week for bond ETFs. Equity ETFs experienced an $8.7 billion outflow w/w, while Fixed Income ETFs experienced $3.0 billion in inflows. The previous week saw a $4 billion inflow into stock ETFs and a $818 million inflow into bond ETFs. The 2014 weekly averages are now a $385 million weekly inflow for equity ETFs and a $1.0 billion 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 negative $16.4 billion spread for the week ($8.0 billion of total equity outflow versus the $8.5 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 $7.4 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 - Best Week All Year For Bonds Versus Very Light Week For Equities - chart11

ICI Fund Flow Survey - Best Week All Year For Bonds Versus Very Light Week For Equities - chart12

 

 

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

 

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

 

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ICI Fund Flow Survey - Best Week All Year For Bonds Versus Very Light Week For Equities - 8

 

 

Net Results:

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $16.4 billion spread for the week ($8.0 billion of total equity outflow versus the $8.5 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 $7.4 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 - Best Week All Year For Bonds Versus Very Light Week For Equities - 9.2 

 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 


Scary WMT Visual ***Correction

Takeaway: The comp miss is obvious. But the EPS miss is startling given historical context. Not a great start for new CEO McMillon.

Chart 1 shows what everybody already knows, that WMT comps disappointed. The company cited weather for 20bps of the decline. If there's any retailer who's data we trust, it's Wal-Mart's. But the 2-year trend, which we place much heavier weight on as it relates to drilling down the real underlying trend, is nothing to write home about. This plays right into Hedgeye's #growthslowing theme as it relates to the US Consumer.

 

Scary WMT Visual ***Correction - wmt comps

 

The more telling visual is the EPS miss. In 11 years, WMT has only missed 12 times, and nine of those were by a penny. Today it missed by a nickel. That's only happened once before -- in 2007. The blue bars in this chart show the absolute EPS variance to consensus for each quarter. The dots refer to the right axis showing the percent beat or miss in each period.   Not a good way to start things off in the first quarter for new CEO Doug McMillon.

 

Scary WMT Visual ***Correction - eps variance 


INITIAL CLAIMS: ON THIS MEASURE, LABOR CONTINUES TO LOOK QUITE STRONG

Takeaway: Sub-300k initial claims takes us back to 1999 / 2006, for better or worse. It'll be interesting to see if and when wage inflation engages.

Party Like It's 1999 ...

The labor market is heading very much in the right direction again. This morning's data marked just the second time since 2007 that the SA print came in below 300k. As the chart below shows, 300k is a Rubicon of sorts in that it has historically coincided with levels of near-peak employment such as 1999 and 2006. It's interesting to look at the contrast between then and now as the unemployment rate and NFP reports remain well off the levels seen in those respective timeframes. The disconnect has largely to do with the long-term unemployed, both those being counted in the data and those who've dropped out of the work force, either due to disability or otherwise. If one excludes those in the long-term unemployed category one finds that the labor market today is functionally similar to that last seen in the '99 and '06 periods, albeit with much more modest wage inflation. We would reiterate the question, however, that if claims are a measure of slack in the labor force and slack is tight it would seem reasonable to assume that wage inflation should be coming in the near future. The one wrinkle here remains housing, which is showing plenty of signs of ongoing deceleration.

 

INITIAL CLAIMS: ON THIS MEASURE, LABOR CONTINUES TO LOOK QUITE STRONG - 9

 

The Data

Prior to revision, initial jobless claims fell 22k to 297k from 319k WoW, as the prior week's number was revised up by 2k to 321k.

 

The headline (unrevised) number shows claims were lower by 24k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -2k WoW to 323k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -6.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -5.2%

 

INITIAL CLAIMS: ON THIS MEASURE, LABOR CONTINUES TO LOOK QUITE STRONG - 1

 

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INITIAL CLAIMS: ON THIS MEASURE, LABOR CONTINUES TO LOOK QUITE STRONG - 14

 

Yield Spreads

The 2-10 spread fell -1 basis points WoW to 218 bps. 2Q14TD, the 2-10 spread is averaging 226 bps, which is lower by -13 bps relative to 1Q14.

 

INITIAL CLAIMS: ON THIS MEASURE, LABOR CONTINUES TO LOOK QUITE STRONG - 15

 

INITIAL CLAIMS: ON THIS MEASURE, LABOR CONTINUES TO LOOK QUITE STRONG - 16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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VIDEO | Keith's Macro Notebook 5/15: EUROPE RUSSELL UST10YR


Consensus Is Way Wrong

Client Talking Points

EUROPE

ECB President Mario Draghi’s impact on the FX market = lower-highs for the European Equity market? Nope, that wasn’t what he was looking for – so we’ll see if he backs off on getting easier, when it’s been getting tighter (on the margin) that’s worked for both GDP and Eurostoxx.

RUT

The Russell2000 smoked for another -1.6% down day yesterday as CNBC trumpets the “all-time-highs” in their style factor ignorance. RUT is now down -8.7% from its bubbled up March top and remains bearish TREND at Hedgeye. 

10YR

Big day for the inflation slows-growth, long bonds theme yesterday (PPI up +2.1% year-over-year for April). At 2.54% 10-year this morning, (fresh year-to-date lows) bonds are signaling overbought within a very bullish TREND. Consensus on #RatesRising in 2014 is way wrong.

Asset Allocation

CASH 20% US EQUITIES 6%
INTL EQUITIES 8% COMMODITIES 22%
FIXED INCOME 22% INTL CURRENCIES 22%

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

TREASURIES: big time payday for #ConsumerSlowing Bond Bulls yesterday @KeithMcCullough

QUOTE OF THE DAY

"If you want to live a happy life, tie it to a goal, not to people or things." - Albert Einstein

STAT OF THE DAY

29, the number of saves Montreal goalie Casey Price made in the Canadiens’ 3-1 victory over the Boston Bruins last night to advance to the Eastern Conference finals.



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