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Fund Flows, Refreshed (U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow)

Takeaway: Domestic stock funds put up their 16 consecutive week of outflow and are now entering the seasonally weakest period of the year.

This note was originally published August 21, 2014 at 09:33 in Financials

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Fund Flows, Refreshed (U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow) - b7 

In the most recent 5 day period ending August 13th, taxable fixed income flows snapped back to positive territory, eking out a slight inflow of $519 million after the substantial panic outflow of over $8.0 billion the week prior. Intermediate term trends are still intact for taxable bonds with inflow in 25 of the past 27 weeks. Domestic stock funds conversely continue to struggle with another $1.0 billion being withdrawn by investors last week which make it 16 consecutive weeks of outflows with now over $40 billion lost in the category. We remind investors that looking back to 2007, that the average outflow sequence in domestic stock funds has averaged 40 weeks with over $113 billion on average drawn down, so the initial weakness in domestic stock funds could easily run through the rest of 2014 (and into 2015). The equity mutual fund channel is also entering the seasonally weakest part of the year (the fourth quarter), and we recommend that investors avoid Janus Capital (JNS) and T Rowe Price (TROW) with the most exposure to the U.S. stock funds (see our report on why TROW should underperform).

 

Fund Flows, Refreshed (U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow) - cast1


Fund Flows, Refreshed (U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow) - chart 2 seasonality

 

Total equity mutual funds put up a slight inflow in the most recent 5 day period ending August 13th with $225 million coming into the all stock category as reported by the Investment Company Institute. The composition of the inflow continued to be weighted towards International stock funds with $1.2 billion coming into the category offset by the ongoing 16 week redemption in domestic equity funds which totaled a $1.0 billion outflow last week. This draw down in domestic equity funds has now totaled a $40 billion outflow over the past 4 months. The running year-to-date weekly average for equity fund flow is now a $1.5 billion inflow, which is now well below the $3.0 billion weekly average inflow from 2013. 

 

Fixed income mutual funds had another positive week of production with $1.8 billion coming into the asset class. The inflow into taxable products of $519 million made it 25 of 27 weeks with positive flow. Municipal or tax-free bond funds put up a $897 million inflow, making it 30 of 31 weeks with positive subscriptions. 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, 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). 

 

ETF results were broadly positive during the week with inflows into both equity funds and fixed income products. Equity ETFs put up a $2.8 billion subscription while fixed income ETFs put up a $2.6 billion inflow. The 2014 weekly averages are now a $1.2 billion weekly inflow for equity ETFs and a $939 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 negative $1.0 billion spread for the week ($3.0 billion of total equity inflow versus the $4.1 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 $4.0 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). The 52 week moving average chart displays the declining demand for all equity products (funds and ETFs) for the safety and security of fixed income. 

 

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.   

 

Fund Flows, Refreshed (U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow) - ICI chart1

Fund Flows, Refreshed (U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow) - ICI chart2

 

 

 

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

 

Fund Flows, Refreshed (U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow) - ICI chart3

 

Fund Flows, Refreshed (U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow) - ICI chart4

 

Fund Flows, Refreshed (U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow) - ICI chart5

 

Fund Flows, Refreshed (U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow) - ICI chart6

 

Fund Flows, Refreshed (U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow) - ICI chart7

 

 

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

 

Fund Flows, Refreshed (U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow) - ICI chart8

 

Fund Flows, Refreshed (U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow) - ICI chart9

 

 

Net Results:

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $1.0 billion spread for the week ($3.0 billion of total equity inflow versus the $4.1 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 $4.0 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). The 52 week moving average chart displays the declining demand for all equity products (funds and ETFs) for the safety and security of fixed income. 

 

Fund Flows, Refreshed (U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow) - ICI chart10 

 

 

 

Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com


Retail Callouts (8/27): ASOS, EBAY, AMZN, TIF, M, GPS, HD

Takeaway: Is ASOS ready to be bought by EBAY or AMZN? It’s logical, and getting cheap. TIF needs GM strength to continue.

EVENTS TO WATCH

 

Wednesday (8/27)

GES - Earnings Call: 4:30pm

WSM - Earnings Call: 5:00pm

 

Thursday (8/28)

ANF - Earnings Call: 8:30am

DG - Earnings Call: 10:00am

 

 

COMPANY HIGHLIGHTS

 

ASOS, AMZN, EBAY - ASOS shares are back in fashion amid US bid rumours - but boss could still offload stock to fund divorce

(http://www.dailymail.co.uk/money/markets/article-2735223/MARKET-REPORT-ASOS-shares-fashion.html)

 

  • "Shares of online fashion emporium ASOS, which has clothed Prime Minister’s wife Samantha Cameron and superstar singer Rihanna, were suddenly in vogue again as takeover rumours swept sparsely populated dealing rooms."
  • "Interested buyers are believed to be eBay, the US multinational e-commerce group, and Amazon, despite yesterday announcing the completion of its £585million purchase of game streaming site Twitch. Both giants want to expand further into clothing."

 

Takeaway: We're fans of the ASOS business model, but the reality is that it is probably not going to exist as a stand-alone company in another two years. The company has lost 2/3 of its market value since it presented to a packed room of 300 people at ICR in January. That's $6.5bn in shareholder value that has evaporated year-to-date. It especially makes sense for EBAY to step in here, particularly given that we're seeing AAPL get more aggressive with payment services (and therefore threatening PayPal -- EBAY's crown jewel). But the reality is that 38% of ASOS stock is owned by insiders. Chances are they have a very long 'valuation memory', meaning that there's no way they'd sell here -- unless they have to. Either way, ASOS is starting to look interesting to us.

 

TIF - 2Q14 Earnings


Takeaway: Good earnings algorithm overall -- Rev up 7%, Gross Profit up 12%, EBIT up 18% EPS up 15%.  Inventories were on the high side and grew faster than sales for the first time in six quarters, but the absolute level is nothing we'd consider unmanageable.  All that said, there was meaningful sequential decelerations on almost every line item. Management prepped the Street for this 13 weeks ago, but it doesn't mean those trends will reverse. The big savior this quarter was gross margin, which was up 247bp on a mere 3% sales comp. TIF will need that to continue, because it's about to go against a 255bp improvement that it had in 3Q of last year.

 

Retail Callouts (8/27): ASOS, EBAY, AMZN, TIF, M, GPS, HD - 8 27 chart1

 

 

OTHER NEWS

 

M - Macy's Offers Digital Wallet Option

(http://www.wwd.com/fashion-news/fashion-scoops/macys-offers-digital-wallet-option-7850439?module=Retail-latest)

 

  • "Macy’s Inc. on Tuesday offered its customers a digital wallet option to store and manage Macy’s offers as well as payment options online. Users first need to fill out a profile, and once the individual is signed into that profile, the person can then choose My Wallet on the navigation menu. Users who register their Macy’s credit card will see Star Passes promotions automatically added to the wallet. Users can add up to 10 credit card options."
  • "Users who shop in-store have to swipe their Macy’s credit card at checkout to see a list of save offers. My Wallet can also be used on the retailer’s website via a mobile device’s web browser."

 

GPS - Gap to Create 1,200 Jobs in New York

(http://www.wwd.com/business-news/human-resources/gap-to-create-1200-jobs-in-new-york-7850431?module=Business-latest)

 

  • "Gap Inc.’s distribution center in Fishkill, N.Y., will have a capital investment of $96 million, creating 1,200 jobs by June 2019, and expanding the current 2.3 million square foot facility."
  • "Empire State Development is providing Gap Inc. with $12 million in performance based Excelsior Jobs Tax Credits, tied to job creation and investment commitments."

 

JWN - Nordstrom Wants You to Shop on Instagram

(http://www.businessweek.com/articles/2014-08-26/nordstrom-leverages-instagram-users)

 

  • "How do businesses turn Instagram 'likes' into sales dollars? That’s the multimillion-dollar question in a retail industry struggling to find the sweet spot between e-commerce and old-fashioned stores."
  • "Nordstrom’s answer: Build a sort of fake Instagram. In a platform that launches this morning, the department store has created a site called Like2Buy that looks like the social network and acts like the social network but links photos directly to product pages on its Web store and stores the photos that users 'like.'"

 

RSH - RadioShack Said to Discuss Rescue Deal With Shareholder

(http://www.bloomberg.com/news/2014-08-26/standard-general-said-to-explore-rescue-financing-for-radioshack.html)

 

  • "RadioShack Corp. is talking with shareholder Standard General LP about getting a rescue financing package that could help the retailer stave off a bankruptcy filing, two people with knowledge of the matter said."
  • "Standard General, a hedge fund that’s also orchestrating a lifeline for American Apparel Inc., is seeking to bolster RadioShack’s cash by issuing debt or equity, said the people, who asked not to be identified because the discussions are private. The firm also is working with RadioShack’s management to craft a plan that would avoid Chapter 11, the people said."

 

HD - Home Depot, Yardi partner on digital payment

(http://www.chainstoreage.com/article/home-depot-yardi-partner-digital-payment?ad=news)

 

  • "Customers of real estate management software provider Yardi can now have access to thousands of The Home Depot products either in store or online with a click of a button via the online procurement system offered with Yardi Procure to Pay, a fully automated end-to-end procurement and invoice processing platform. The Yardi Procure to Pay system enables The Home Depot purchase orders and invoices to flow through an automated, customized online approval workflow, giving property owners and managers insight into all purchases and ensuring complete purchasing compliance."

Expert Call Today | Analyzing the BKW/THI Merger

We are hosting an expert call TODAY @ 1PM EST to discuss the recent BKW/THI merger.

Call Details

Toll Free Number:

Direct Dial Number:

Conference Code: 195382#

 

Our call will feature John Barker, former Senior VP and CCO of Wendy’s, who lived through the merger of Wendy’s and Tim Hortons.

KEY TOPICS WILL INCLUDE:

  • Why was the merger of Wendy’s and Tim Hortons a failure?
  • Why has Tim Hortons been slow to grow in the U.S.?
  • Can Tim Hortons leverage Burger King's infrastructure to accelerate growth in the U.S.?
  • What are some of the issues Tim Hortons will face in its attempt to grow globally?

ABOUT JOHN BARKER

John Barker joined Wendy's in 1996 as VP of Investor Relations when the company acquired Tim Hortons.   He worked closely with senior management of Tim Hortons and led IR for the IPO and spinoff of the chain 10 years later.  While at Wendy's through the end of June 2014, Barker was Chief Communications Officer and reported directly to the CEO. He led IR, Marketing PR, Government Relations, Crisis Management, Internal Communications, Corporate Services and other corporate functions.  He is currently at The Ohio State University's Fisher College of Business teaching strategy and marketing.  He previously led IR at American Greetings and was a financial journalist. 

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


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LEISURE LETTER (08/27/2014)

Tickers: HOT, NCLH, CCL

EVENTS

  • Aug 27: 
    • ISLE FQ1 2015, 11 am
    • BYI 2Q earnings
  • Aug 28:  Hollywood Dayton Raceway Opening
  • Sept 1/2:  Revel closes

COMPANY NEWS

HOT – Starwood Hotels & Resorts named Thomas Mangas EVP, CFO, effective September 29, 2014. Most recently, Mr. Mangas was EVP and CEO of Armstrong Floor Products, a division of Armstrong World Industries, Inc.  

Takeaway:  A differentiated background.

 

NCLH (TTG Digital)–  Norwegian considers another 'try before you buy' day

Francis Riley, vice-president and general manager international, said the “try before you buy” concept that was successful for Getaway, will be implemented on Escape.  The new ship, which comes into operation in October 2015, is scheduled to sail from Europe to Southampton on October 25.  

 

Riley said while both the UK and German market are performing strongly, he could not yet say whether the company would base a ship in either country in the immediate future.  “With four ships coming between 2015 and 2019 we’re adding close to a million guests by 2020. We’re starting to figure through the deployment plan. Does that mean a UK ship? A German ship? Nothing’s off the table - but there’s also a lot of North American ports we’re not in yet, and clearly Asia is a massive opportunity for us and it’s more of a case of when, rather than if, we’ll go into Asia,” he said.

Takeaway:  A firm date on Escape's debut.  NCL still needs to diversify from its congested Florida home.

  

CCL (Reuters) Japan's Mitsubishi Heavy is planning to exit the cruise ship-making business, German business daily Handelsblatt reported, citing several ship owners. That means Germany's Meyer-Werft stands a good chance of winning back Carnival's Aida Cruises as a customer, the paper reported.

Mitsubishi Heavy took a hit to its results for the 2013/14 fiscal year after delays in the construction of two big cruise ships for Aida led to unexpectedly high costs.

Takeaway:  Less competition for the shipyards

INDUSTRY NEWs

24-hour crossing – The Cross Border Industrial Zone immigration checkpoint can open from midnight to 7:00am for Macau residents as well as migrant workers.

Takeaway:  Good news to lessen congestion

 

Clarion closing – The 200-room Clarion hotel and casino in Las Vegas is reportedly closing on Monday.

Takeaway:  Too small to be profitable in LV


LV home prices  rose 15.2% YoY in June, according to S&P/Case-Shiller 

Takeaway:  June was 2 months ago.  Our housing team continues to believe price growth will slow in 2H 2014.


Singapore June visitor arrivals  fell 8.4% YoY as Mainland China visitors tumbled 45.2% YoY to 91,422, the lowest level since Sept 2010.

 

LEISURE LETTER (08/27/2014) - ss

 

Takeaway:  One reason why S'pore gaming is struggling to grow.

 

New Jersey Sports Betting – New Jersey State Senator Ray Lesniak has decided to try to override Gov. Chris Christie’s veto of his sports betting bill, and Lesniak has set September 22 as the date for the override attempt. The sports betting legislation overwhelmingly passed through the legislature, but there is considerable doubt about an override given that Republican legislators will stick by Christie.

Takeaway: Low probability of an override.

 

NEW CASINOS

Glendale Casino (AZ Central) – Tohono O'odham Indians broke ground on their $400m Glendale Casino.  The development will include a 75,000-square-foot gaming floor, 400 hotel rooms, restaurants and a spa.  It is designed to include 1 million square feet of space when completed.

Takeaway:  This long-delayed project is finally coming along. Some roadblocks remain, including a bill in Congress to outlaw any new casinos in the Phoenix area until 2017. 

 

Cherokee Casino South Coffeyville – The Cherokee Indians will break ground on the Cherokee Casino South Coffeyville Wednesday. Construction is expected to finish in six months. The new casino will feature 300 electronic games. 

Takeaway:  Too small to matter for the suppliers.


Hotel fees (Hotel News Now) – U.S. hotels are expected to collect a record $2.3 billion in fees and surcharges this year, according to an analysis by Bjorn Hanson, clinical professor with the New York University School of Professional Studies Preston Robert Tisch Center for Hospitality, Tourism and Sports Management.  This would surpass 2013's $2.1 billion in fees and surcharges.  “Fees and surcharges are highly profitable; most have incremental profitability of 80(%) to 90% or more of the amounts collected,” according to the analysis.

Takeaway: No surprise here since 2013 was a record and the industry has only gotten stronger.


London Luxury Hotel Development – Singapore-based  UOL Group Limited acquired the site for the future Heron Plaza development on Bishopsgate and plans to open a hotel under its Pan Pacific brand.  Not only this be the first Pan Pacific for Europe, and only the fifth outside Asia-Pacific (current offerings include: Seattle, Vancouver, and Whistler times two), this location is also the end for what everyone had long accepted would be the third Four Seasons hotel in London City. UOL paid £97 million for the land, which currently has zoning approval for a 43-story tower with 109 residences, 190-room hotel, and retail. The group will “review” the currently approved configuration.

Takeaway: Strong ADRs support luxury hotel development in global cities.  

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.


DEMAND ANEMIA PERSISTS

Takeaway: Purchase demand bounces 2.6% but holds below the 170-level for a 7th consecutive wk – the longest such soft streak since Apr '95.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume

 

*Note - to maintain cross-metric comparability, the purchase applications index shown in the table below represents the monthly average as opposed to the most recent weekly data point

 

DEMAND ANEMIA PERSISTS - Compendium 072714

 

Today's Focus: MBA Mortgage Applications

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended August 22nd.

 

A 2.6% increase in purchase activity supported the rise in the composite index in the latest week but the gain was largely hollow with the purchase  index holding below the 170-level for a 7th consecutive week – the 1st such occurrence since April of 1995

 

  • 7 Week Slump: After 3 weeks of decline, Purchase demand rose +2.6% in the latest week, taking the index to 168.4.  This marks the 7th consecutive week below the 170-level on the index – the longest such soft streak since April ’95.  Purchase demand is currently running -5.8% QoQ  and tracking at its lowest level since 2Q95. 
  • Refi & Rates:  Refinance activity increased for a 2nd straight week, rising +2.8% sequentially alongside another tick lower in the 30Y FRM contract to 4.28%.  Rates have declined -8bps in the last two weeks and currently sit just north of the lowest level since May of last year. Refi activity remains down -25% YoY  (vs -31% last week) but continues to improve as we traverse through the easiest 2013 comps. 

 

Cash sales remain elevated and the regulation-catalyzed shift in the origination channel may be a challenge to intertemporal reliability and dampening reported demand as measured by the MBA survey, but the broader takeaway remains unchanged:

 

Multi-decade lows in purchase demand (modestly distorted or not) is not the stuff accelerating housing recoveries are made of.   We remain inclined to maintain our bearish view on the housing complex until the slope of HPI deceleration inflects.

 

DEMAND ANEMIA PERSISTS - Purchase Apps Qtrly Ave 

 

DEMAND ANEMIA PERSISTS - Purchase   Refi YoY   

 

DEMAND ANEMIA PERSISTS - Purchase Apps 7wk rolling ave 

 

DEMAND ANEMIA PERSISTS - Purchase Apps LT w summary stats 

 

DEMAND ANEMIA PERSISTS - Composite LT w summary stats 

 

DEMAND ANEMIA PERSISTS - 30Y FRM

 

 

About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 

 

Frequency:

The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.

 

 

Joshua Steiner, CFA

 

Christian B. Drake


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%
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