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Takeaway: U.S. stock funds continue to be redeemed by investors with equity managers T Rowe and Janus putting up outflows in August

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the most recent 5 day period ending September 10th, U.S. equity fund flow continued dire intermediate term trends with another $1.3 billion redeemed by investors. This now makes 19 of 20 weeks of outflow heading into the seasonally soft 4th quarter which could exacerbate the ongoing trend. Our research shows that despite these already substantial losses in the U.S. equity fund category over the past 5 months which total $48 billion, that the average draw down in U.S. stock funds since 2007 has averaged 40 weeks with over $113 billion lost, so trends could continue on their downward slope. Furthermore, while this weekly report focuses solely on industry related ICI fund data, the more discreet survey by Strategic Insight which actually distills fund flow by specific manager shows that both T Rowe Price (TROW) and Janus Capital (JNS) booked outflows in the most recent survey last week. The trends specifically for T Rowe are softening with inflows of $1.2 billion for May; inflows of $734 million for June; and inflows of $267 million for July; turning to an outflow of $212 million in the latest survey for August which was disseminated last week (Strategic Insight monthly tables directly below). T Rowe Price shares continue on our Best Ideas Short list currently. 

ICI Fund Flow Survey - Trending not Mending - U.S. Stock Funds Continue in Redemption - SI chart 1

ICI Fund Flow Survey - Trending not Mending - U.S. Stock Funds Continue in Redemption - SI chart 2

Hedgeye Best Ideas TROW Research 

Total equity mutual funds had inflow in the most recent 5 day period ending September 10th with a $1.2 billion subscription into 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 $2.5 billion inflow buffering a $1.3 billion redemption in U.S. stock funds. The inflow in International funds makes it a perfect 36 for 36, i.e. inflows in all 36 weeks of 2014. Conversely however, domestic trends are very dour with now 19 of 20 weeks of outflow now totaling over $48 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 stable with $1.5 billion coming into the asset class. The inflow into taxable products of $704 million made it 29 of 31 weeks with positive flow. Municipal or tax-free bond funds put up a $841 million inflow, making it 34 of 35 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 $1.1 billion subscription while fixed income ETFs put up a $272 million outflow. The 2014 weekly averages are now a $1.7 billion weekly inflow for equity ETFs and a $862 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 $1.0 billion spread for the week ($2.3 billion of total equity inflow versus the $1.2 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.   

ICI Fund Flow Survey - Trending not Mending - U.S. Stock Funds Continue in Redemption - SI chart 3

ICI Fund Flow Survey - Trending not Mending - U.S. Stock Funds Continue in Redemption - SI chart 4

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

ICI Fund Flow Survey - Trending not Mending - U.S. Stock Funds Continue in Redemption - SI chart 5

ICI Fund Flow Survey - Trending not Mending - U.S. Stock Funds Continue in Redemption - SI chart 6

ICI Fund Flow Survey - Trending not Mending - U.S. Stock Funds Continue in Redemption - SI chart 7

ICI Fund Flow Survey - Trending not Mending - U.S. Stock Funds Continue in Redemption - SI chart 8

ICI Fund Flow Survey - Trending not Mending - U.S. Stock Funds Continue in Redemption - SI chart 9

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

ICI Fund Flow Survey - Trending not Mending - U.S. Stock Funds Continue in Redemption - SI chart 10

ICI Fund Flow Survey - Trending not Mending - U.S. Stock Funds Continue in Redemption - SI chart 11

Net Results:

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $1.0 billion spread for the week ($2.3 billion of total equity inflow versus the $1.2 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. 

ICI Fund Flow Survey - Trending not Mending - U.S. Stock Funds Continue in Redemption - SI chart 12 

Jonathan Casteleyn, CFA, CMT 

 

 

Joshua Steiner, CFA