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Takeaway: Mutual fund activity during the past 5 days continued to be subdued, giving way to more robust trends in exchange traded funds

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We are hosting a Speaker Series call with the Head of Americas research at Lipper this morning at 11 am EST to discuss the historical outflows at PIMCO and which asset management firms stand to benefit. Please join us:

Participant Dial-In Instructions - Today December 4th at 11 am EST:

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Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the most recent 5 day period, mutual fund activity was subdued with investors continuing to prefer exchange trade funds. All ETFs took in over +$12.7 billion (both fixed income and equity) versus the total take for all mutual fund products at  just +$1.5 billion. Year-to-date, running aggregate money flow also reflects this preference for passive products with equity ETFs more than doubling the production of equity mutual funds (with $122 billion netted by equity ETFs versus just $47 billion inserted into equity mutual funds).  The battle in fixed income is more balanced with bond funds taking in $52.8 billion YTD versus fixed income ETFs’ having raised $48.5 billion. As outlined in our sector exposure table at the bottom of this note, BlackRock (BLK) and Invesco (IVZ) house the most substantial ETF exposure on a revenue basis at 44% and 19% respectively. Both stocks year-to-date have outflanked the S&P asset management index with BLK returning +15.5% and IVZ up +14.0%. The asset management group is up 9.6% thus far in 2014.

ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 12 2

In the most recent 5 day period ending November 26th, total equity mutual funds put up net outflows of $1.2 billion according to the Investment Company Institute. The composition of the outflow was sourced by domestic stock fund withdrawals of $2.0 billion versus the $869 million subscription into international stock funds. The international and domestic equity categories continue to be polarized with international stock funds having inflows in 46 of the past 47 weeks, versus domestic trends which have been very soft with inflow in just 16 of the past 47 weeks (with outflows in 30 of the past 32 most recent weeks). This data continues to be supportive of our underweight or short recommendations on the U.S. centric equity asset managers (see our research here). The running year-to-date weekly average for all equity fund flow continues to decline and now settles at a $1.0 billion inflow, now well below the $3.1 billion weekly average inflow from 2013. 

Fixed income mutual funds put up inflows in both categories with taxable fixed income netting $1.8 billion and municipal bond funds putting up a $769 million inflow during the week. Munis have had a solid run with subscriptions in 45 of the past 47 weeks. The 2014 weekly average for fixed income mutual funds now stands at a $1.1 billion weekly inflow, an improvement from 2013's weekly average outflow of $1.5 billion, but still a pittance of the weekly average of +$5.8 billion in 2012 (our view of the blow off top in bond fund inflow). 

Aforementioned ETF results were strong during the most recent 5 days with substantial inflows into equities and decent subscriptions into passive fixed income products. Equity ETFs put up a $11.1 billion inflow which is well above the 2014 weekly average of a $2.5 billion inflow. Fixed income ETFs netted $1.5 billion in new investor funds, slightly above the year-to-date average of $1.0 billion.

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 - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 1 2

Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the running weekly year-to-date average for 2014 and the weekly quarter-to-date average for 4Q 2014:

ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 2

ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 3

ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 4

ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 5

ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 6

Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI) and the running weekly year-to-date average for 2014 and the weekly quarter-to-date average for 4Q 2014. The third table are the results of the weekly flows into and out of the major market and sector SPDRs:

ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 7

ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 8

Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors bounced the energy sector with the XLE taking in +$826 million or a 9% increase in total assets for the week. In addition, Financials grabbed a bit of new investor interest with the XLF collecting +$645 million last week or a  3% increase.

ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 9 2

Net Results:

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $5.8 billion spread for the week ($10.0 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 $2.6 billion (more positive money flow to equities), with a 52 week high of $17.7 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 - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 10

Exposures: The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 11 

Jonathan Casteleyn, CFA, CMT 

 

 

Joshua Steiner, CFA