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Takeaway: The second worst outflow all year in U.S. equity funds increase our caution on T Rowe Price and Janus Capital closing out the year

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the most recent 5 day period ending September 3rd, equity fund flow trends worsened substantially with domestic stock funds putting up the second worst weekly outflow all year with $5.3 billion being redeemed from the category (only surpassed by the $8.8 billion withdrawn by investors in the first week of July). Intermediate term trends in domestic funds are now drastically negative with outflow in 18 of the past 19 weeks with over $47 billion withdrawn by investors. While mean reversion would argue for now being a good time to look at the leading equity fund managers, we point to fund flow entering the seasonally weakest part of the year in 3Q and 4Q and that the average draw down since 2007 has averaged 40 weeks with over $113 billion lost (and thus this redemption sequence in domestic funds could be on going). We continue to recommend investors avoid shares of T Rowe Price (TROW) and Janus Capital (JNS) - see our recent TROW research here.

Total equity mutual funds had outflow in the most recent 5 day period ending September 3rd with $4.0 billion being redeemed in all stock funds as reported by the Investment Company Institute. The composition of flow trends continued to be weighted towards International stock funds with a $1.2 billion inflow buffering a substantial $5.3 billion redemption in U.S. stock funds. The inflow in International funds makes it a perfect 35 for 35, i.e. inflows in all 35 weeks of 2014. Conversely however, domestic trends are very dour with now 18 of 19 weeks of outflow now totaling over $47 billion lost. The running year-to-date weekly average for all equity fund flow continues to decline and now settles at a $1.3 billion inflow, now well below the $3.0 billion weekly average inflow from 2013. 

Fixed income mutual fund flow continues to be solid with $2.4 billion coming into the asset class. The inflow into taxable products of $1.7 billion made it 28 of 30 weeks with positive flow. Municipal or tax-free bond funds put up a $661 million inflow, making it 33 of 34 weeks with positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $1.9 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 mixed during the week with inflows into equity funds but redemptions in passive fixed income products. Equity ETFs put up a $5.6 billion subscription while fixed income ETFs put up a $1.5 billion outflow. The 2014 weekly averages are now a $1.7 billion weekly inflow for equity ETFs and a $895 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 $738 million spread for the week ($1.6 billion of total equity inflow versus the $869 million 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 $3.9 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.   

ICI Fund Flow Survey - Punching a Hole in the Hull...Equity Fund Trends Taking on Water - ICI chart 1

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

ICI Fund Flow Survey - Punching a Hole in the Hull...Equity Fund Trends Taking on Water - ICI chart 2

ICI Fund Flow Survey - Punching a Hole in the Hull...Equity Fund Trends Taking on Water - ICI chart 3

ICI Fund Flow Survey - Punching a Hole in the Hull...Equity Fund Trends Taking on Water - ICI chart 4

ICI Fund Flow Survey - Punching a Hole in the Hull...Equity Fund Trends Taking on Water - ICI chart 5

ICI Fund Flow Survey - Punching a Hole in the Hull...Equity Fund Trends Taking on Water - ICI chart 6

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

ICI Fund Flow Survey - Punching a Hole in the Hull...Equity Fund Trends Taking on Water - ICI chart 7

ICI Fund Flow Survey - Punching a Hole in the Hull...Equity Fund Trends Taking on Water - 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 $738 million spread for the week ($1.6 billion of total equity inflow versus the $869 million 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 $3.9 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. 

ICI Fund Flow Survey - Punching a Hole in the Hull...Equity Fund Trends Taking on Water - ICI chart 9 

Jonathan Casteleyn, CFA, CMT 

 

 

Joshua Steiner, CFA