prev

ICI Fund Flow Survey: Bond Bulls Continue to Rule 2015

Takeaway: Make it 6 for 6 or all weekly periods in 2015 as having higher demand for fixed income than equities

This note was originally published February 19, 2015 at 07:14 in Financials. Click here for more information on how you can become a subscriber to Hedgeye.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

Investors remained defensive in the most recent mutual fund and ETF money flow survey for the week ending February 11th. The sum of total equity mutual funds and ETFs against total bond mutual funds and ETFs, remained negative (-$2.1 billion) for the sixth straight week which has now totaled -$39.0 billion thus far this year (a $39 billion favoritism by investors for fixed income versus equities). For the equivalent first six weeks of 2014, investors had favored equities over fixed income by a +$31.3 billion spread, highlighting the very risk averse start to the New Year. In addition, investors built up cash positions last week, contributing +$4 billion to money market funds.

 

Focusing on domestic equity mutual fund flows, even with a quick 3 week positive subscription of +$7.8 billion for the prior 3 weeks, domestic equity mutual funds put up another loss of -$27 million this week and have now lost -$62.4 billion over the past 52 weeks (with outflows in 37 of 52 weeks).  We continue to flag caution for the most directly affected managers in this group with our underweight or short views on T Rowe Price and Janus Capital (see our TROW and JNS research).

 

ICI Fund Flow Survey: Bond Bulls Continue to Rule 2015 - josh

 

In the most recent 5 day period, ending February 11th, total equity mutual funds put up net inflows of +$1.3 billion according to the Investment Company Institute, lagging the year-to-date weekly average inflow of +$1.5 billion but outpacing the 2014 average inflow of +$620 million. The inflow was composed of international stock fund contributions of +$1.3 billion and domestic stock fund withdrawals of -$27 million.  International equity funds have had positive flows in 48 of the last 52 weeks while domestic equity funds have had only 15 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up inflows of +$5.9 billion, outpacing their year-to-date weekly average inflow of +$2.7 billion and their 2014 average inflow of +$929 million. The inflow was composed of +$5.2 billion of contributions to taxable funds and +$693 million of contributions to tax-free or municipal bond funds.  Munis have had a solid run with subscriptions in 51 of the last 52 weeks.

 

Equity ETFs gained +$4.7 billion in contributions, outpacing both the year-to-date weekly average outflow of -$2.3 billion and the 2014 weekly average inflow of +$3.2 billion. Fixed income ETFs took in +$2.2 billion, trailing the year-to-date weekly average inflow of +$3.0 billion but outpacing the 2014 weekly average inflow 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.   

 

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 weekly average for 2014 and the weekly quarter-to-date average for 1Q 2015:

 

ICI Fund Flow Survey: Bond Bulls Continue to Rule 2015 - ICI 2

 

ICI Fund Flow Survey: Bond Bulls Continue to Rule 2015 - ICI 3

 

ICI Fund Flow Survey: Bond Bulls Continue to Rule 2015 - ICI 4

 

ICI Fund Flow Survey: Bond Bulls Continue to Rule 2015 - ICI 5

 

ICI Fund Flow Survey: Bond Bulls Continue to Rule 2015 - 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), the weekly average for 2014, and the weekly quarter-to-date average for 1Q 2015. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

ICI Fund Flow Survey: Bond Bulls Continue to Rule 2015 - ICI 7

 

ICI Fund Flow Survey: Bond Bulls Continue to Rule 2015 - ICI 8

 

Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR call-outs, energy XLE flows continue to track performance; the XLE returned -0.63% from 2/5 to 2/11 and lost -4% (-$570 million) in withdrawals over the same period.  Separately, investors continue to make defensive sector allocations, contributing +4% (+$302 million) to the utilities exchange traded fund the XLU.

 

ICI Fund Flow Survey: Bond Bulls Continue to Rule 2015 - ICI 9

 

 

Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$2.1 billion spread for the week (+$5.9 billion of total equity inflow outweighed by the +$8.1 billion inflow to 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 +$1.6 billion (more positive money flow to equities), with a 52 week high of +$27.9 billion (more positive money flow to equities) and a 52 week low of -$15.5 billion (negative numbers imply more positive money flow to bonds for the week). 

  

ICI Fund Flow Survey: Bond Bulls Continue to Rule 2015 - 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: Bond Bulls Continue to Rule 2015 - ICI 11 

 

 

Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com

 

 


MACAU WEEKLY ANALYSIS (FEB 16-23)

Takeaway: The Year of the Goat is starting off baaaadly. Lowering Feb and 2015 forecast

CALL TO ACTION

The Macau stocks have worked against us the last few weeks; that is to say they’ve worked higher. However, February 2015 doesn’t just face a difficult comparison, trends are deteriorating and the month is set up to fall at least 50%, much worse than the consensus 30-35% decline projected before the month started. The latest weekly numbers were awful, a sequential decline despite the onset of the Chinese New Year celebration. With still deteriorating market conditions – March looks awful - and new risks emerging including a further restriction of Visa travel, the outlook for Macau stocks looks lower, possibly retesting 52 week lows.

 

Please see our detailed note:

http://docs.hedgeye.com/HE_Macau_2.24.15.pdf


Countered

Client Talking Points

#DEFLATION

Despite the 3 week counter-TREND reflation move in FEB, this remains our Top Global Macro Theme right now. The Eurozone just reported lower-lows in CPI at -0.6% year-over-year and the U.S. is going to print another CPI miss on Thursday. Will Janet Yellen be as dovish as this data is going to get come JUN? Stay tuned. Her forecasts are the problem.

USD

Burning Yens and Euros perpetuate #StrongDollar, so this Yen move to -0.6% gets you new 15 year highs in the Nikkei (+0.7% overnight to +6.6% year-to-date), but it also gets you an uglier Oil price deck and falling CRB Commodities Index (-1.2% yesterday to -3.5% year-to-date). Coffee prices pounded yesterday -3.3% to -13.3% year-to-date!

UST 10YR

UST 10YR Yields finally backed off @Hedgeye resistance and remains bearish TREND ahead of both the Yellen comments and slowing CPI and GDP data (Thursday/Friday) – immediate-term risk range is now 1.85-2.16% and that made REITS the best sub-sector yesterday +0.7% vs. Oil & Gas stocks (XOP) -0.9%. 

Asset Allocation

CASH 42% US EQUITIES 8%
INTL EQUITIES 8% COMMODITIES 0%
FIXED INCOME 29% INTL CURRENCIES 13%

Top Long Ideas

Company Ticker Sector Duration
EDV

You want to own the Vanguard Extended Duration Treasury (EDV) in this current yield-chasing, growth slowing environment. The trend in domestic growth continues to signal growth slowing, and the counter-TREND moves we’ve seen over the last few weeks (@Hedgeye TREND is our view on a 3-Month or more duration) remain something to fade until we can see more follow-through that growth is trending more positively (second-derivative positive).

TLT

Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Inflation readings for January are #SLOWING. We saw deceleration in CPI year-over-year at +0.8% vs. +1.3% prior and month-over-month at -0.4% vs. -0.3% prior. Growth is still #SLOWING with Real GDP growth decelerating at -20 basis points to +2.5% year-over-year for Q4 2014.The GDP deflator decelerated -40 basis points to +1.2% year-over-year.

HOLX

Hologic (HOLX), at this stage in their product cycle and in the current stage of the economic cycle, has some very impactful tailwinds emerging to their revenue growth and the implied growth in the future. A stock generally will perform really well when doubt about future growth turns to optimism while the most recent data confirms the optimism. So far, we have a little bit of both; recent positive data like the December 2014 quarter upside and consensus estimates and ratings starting to move off of multi-year lows. A less-worse trend in Pap testing and rising patient volume can combine to get us close to flat for HOX’s Cytology (Pap) business. As the growth in Cytology improves and is less of a drag, the 3D Mammography growth can flow through. We think the outlook is bright, and with a few more data points, we think a lot more investors will agree with us.

Three for the Road

TWEET OF THE DAY

The Dr (Copper -0.3% to $2.53/lb) continues to get us paid on the short side, in #Deflation terms

@KeithMcCullough

QUOTE OF THE DAY

My only plan is to keep coming to work

-Henry Singleton

STAT OF THE DAY

The market cap of the largest publicly traded U.S. company Apple is for the first time in 30 years more than twice the size of the market cap of the runner up (Exxon Mobil Corp.). Apple’s cap is $765 billion, Exxon’s is $374 billion.


GET THE HEDGEYE MARKET BRIEF FREE

Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

CHART OF THE DAY: Most Ridiculous Economic Forecast of the Day Award

CHART OF THE DAY: Most Ridiculous Economic Forecast of the Day Award - 02.24.15 chart

 

Editor's note: This is an excerpt from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here to become a subscriber.

 

But, have no fear, the San Francisco Fed’s John Williams is here! Being a lifer at the Federal Reserve is not a compliment. John has been there since 1994 and, alongside Janet, missed some large predictions about risk (2000, 2008, to name a few) along the way.

 

Not to be confused with one of the best American composer’s in US history (The John Williams of Jaws, ET, Star Wars, etc. film score fame), this Williams is more like Brian – a storyteller, but with less NBC Nightly pizzazz.

 

In assessing the US economy yesterday, Williams said two things in particular that caught my attention:

 

  1. Employment – he called the jobs market “remarkable” (as in booming, strong, etc.)
  2. Oil – he called the recent #Deflation “transitory” (as in oil is going higher, not lower)

 

Yes, in case you didn’t know – now you know. Some of the worst forecasters in our profession now have forecasts for everything.

 

Notwithstanding simple things like long-term mean reversions, price history (Oil averaged sub $20/barrel during both the 1983-1989 and 1993-1999 real US economic demand booms), etc., this storytelling from Fed heads is becoming a massive risk to the economy.


Steering The Boat

“My only plan is to keep coming to work…”

-Henry Singleton

 

I had a lot of encouraging feedback about the book I cited yesterday, The Outsiders, where William Thorndike analyzes the best practices and processes of some of the best CEOs in US history.

 

Henry Singleton, of Teledyne fame, tops the list and had some fantastic day-to-day leadership advice as a follow-on to the aforementioned quote:

 

“... I like to steer the boat each day rather than plan ahead way into the future… I know a lot of people have a lot of strong and definite plans that they’ve worked out… but we’re subject to a tremendous number of outside influences and the vast majority of them cannot be predicted. So my idea is to stay flexible.” (pg 53)

 

If only our un-elected-central-planners of everything from markets to economic gravity embraced that risk management #process and humility…

 

Back to the Global Macro Grind

 

#Flexibility and “data dependence” be damned. Today our almighty overlordess of market expectations (not to be confused with economic realities), Janet Yellen, will predict the parting of the heavens and the smoothing of the seas.

Steering The Boat - Fed cartoon 02.23.2015

Since Mr. Macro Market tends to front-run inside information fairly efficiently, it will be interesting to see if yesterday’s move (lower) in US interest rates will get a love-tap from the Janet’s testimony.

 

But be careful not to mistake the “rates” trade with the US Dollar #Deflation one. I’ve been on the road telling investors from CA to MA in the last week that while these are not mutually exclusive macro moves, they are moving on different catalysts.

 

Here’s what that looked like yesterday:

 

A)     #StrongDollar (+0.5% on the day) > Oil Down -2.8% > CRB Index -1.2% > Energy Stocks (XOP) -0.9%

B)      #RatesDown (10yr -5bps intraday) > Long Bond (TLT) +0.9% > REITS (VNQ) +0.7% > Healthcare (XLV) +0.7%

 

Healthcare stocks (XLV) have positive quarter-over-quarter performance (returns) in both USD up/down and Rates up/down scenarios (we call those macro environments Quad1 and Quad4), so that’s the easiest S&P Sector to be long (you win both ways).

 

What’s not easy is being long Energy stocks when the USD ramps and/or REITS when Long-term Rates ramp (i.e. neither work). So this puts a lot of pressure on immediate-term monthly performance chasers as neither A) nor B) are cooperating week-to-week!

 

Another obvious observation here is how A) and B) are linked on the intermediate-term TREND duration:

 

  1. USD up + Rates Down > Global #Deflation… and
  2. #Deflation > Junk Debt Risk > Emerging Market Risk > Corporate Earnings Risk

 

But, have no fear, the San Francisco Fed’s John Williams is here! Being a lifer at the Federal Reserve is not a compliment. John has been there since 1994 and, alongside Janet, missed some large predictions about risk (2000, 2008, to name a few) along the way.

 

Not to be confused with one of the best American composer’s in US history (The John Williams of Jaws, ET, Star Wars, etc. film score fame), this Williams is more like Brian – a storyteller, but with less NBC Nightly pizzazz.

 

In assessing the US economy yesterday, Williams said two things in particular that caught my attention:

 

  1. Employment – he called the jobs market “remarkable” (as in booming, strong, etc.)
  2. Oil – he called the recent #Deflation “transitory” (as in oil is going higher, not lower)

 

Yes, in case you didn’t know – now you know. Some of the worst forecasters in our profession now have forecasts for everything.

 

Notwithstanding simple things like long-term mean reversions, price history (Oil averaged sub $20/barrel during both the 1 and 1 real US economic demand booms), etc., this storytelling from Fed heads is becoming a massive risk to the economy.

 

Why? Well, let’s start with where Henry Singleton would… and ask ourselves what is the risk that A) Williams is wrong (Oil remains #deflated, and jobs are at a late-cycle peak) and B) Yellen makes a policy mistake based on these Williams’ forecasts?

 

I don’t have answers to how all of this plays out. But I do have advice: keep both hands on the wheel and life preservers in the boat.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.85-2.16%

SPX 2066-2123
USD 93.79-95.36
Oil (WTI) 48.42-51.26
Gold 1185-1215
Copper 2.52-2.61

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Steering The Boat - 02.24.15 chart


February 24, 2015

February 24, 2015 - Slide1

 

BULLISH TRENDS

February 24, 2015 - Slide2

February 24, 2015 - Slide3

February 24, 2015 - Slide4

February 24, 2015 - Slide5

 

 

BEARISH TRENDS

February 24, 2015 - Slide6

February 24, 2015 - Slide7

February 24, 2015 - Slide8

February 24, 2015 - Slide9

February 24, 2015 - Slide10

February 24, 2015 - Slide11
February 24, 2015 - Slide12

February 24, 2015 - Slide13

 


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

next