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Takeaway: Domestic equity mutual funds go into net redemption for 2015; Equity ETFs have a banner week.

This note was originally published March 26, 2015 at 08:38 in Financials

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Domestic equity mutual fund flows exhibited accelerating weakness with a -$1.8 billion outflow for the 5 day period ending March 18th.  This now wipes out the slight running year-to-date gain that had marked the first 10 weeks of '15 when including the latest data. In comparison, the first 11 weeks of 2014 totaled a +$15.0 billion inflow displaying the stark differences setting up for domestic equity fund managers this year, with now a -$933 million total for the first 11 weeks of 2015. We continue to flag that shares of T. Rowe Price will bear the brunt of these weak equity domestic fund trends, and the stock remains on our Best Ideas list as a Short/Avoid.  (See our latest TROW research.)

[UNLOCKED] ICI Fund Flow Survey | Domestic Equity Flows Go Into Net Redemption for 2015 - chart of the week

Another recent theme making itself especially apparent, is favoritism for passive products over active management.  While total equity and bond mutual funds took in +$1.9 billion and +$449 million respectively last week, passive equity ETFs had their biggest week of the year with +$21.9 billion in inflows, and passive bond ETFs took in a healthy +$2.8 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. Repeating last year's behavior, both stocks year-to-date have out performed the S&P asset management index with BLK returning +3.8% and IVZ up +4.2%. The asset management group is down -0.2% thus far in 2015.

[UNLOCKED] ICI Fund Flow Survey | Domestic Equity Flows Go Into Net Redemption for 2015 - ICI 1

In the most recent 5 day period ending March 18th, total equity mutual funds put up net inflows of +$1.95 billion according to the Investment Company Institute, exceeding the year-to-date weekly average inflow of +$1.84 billion and the 2014 average inflow of +$620 million. The inflow was composed of international stock fund contributions of +$3.7 billion and domestic stock fund withdrawals of -$1.8 billion.  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 +$449 million, trailing their year-to-date weekly average inflow of +$2.8 billion and their 2014 average inflow of +$929 million. The inflow was composed of +$259 million of contributions to taxable funds and +$190 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 took in +$21.9 billion, outpacing the year-to-date weekly average inflow of +$2.1 billion and the 2014 weekly average inflow of +$3.2 billion. Fixed income ETFs took in +$2.8 billion, trailing the year-to-date weekly average inflow of +$1.4 billion and 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:

[UNLOCKED] ICI Fund Flow Survey | Domestic Equity Flows Go Into Net Redemption for 2015 - ICI 2

[UNLOCKED] ICI Fund Flow Survey | Domestic Equity Flows Go Into Net Redemption for 2015 - ICI 3

[UNLOCKED] ICI Fund Flow Survey | Domestic Equity Flows Go Into Net Redemption for 2015 - ICI 4

[UNLOCKED] ICI Fund Flow Survey | Domestic Equity Flows Go Into Net Redemption for 2015 - ICI 5

[UNLOCKED] ICI Fund Flow Survey | Domestic Equity Flows Go Into Net Redemption for 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:

[UNLOCKED] ICI Fund Flow Survey | Domestic Equity Flows Go Into Net Redemption for 2015 - ICI 7

[UNLOCKED] ICI Fund Flow Survey | Domestic Equity Flows Go Into Net Redemption for 2015 - ICI 8

Sector and Asset Class Weekly ETF and Year-to-Date Results: Sector SPDR flows were mixed last week.  The consumer staples XLP ETF experienced the largest percentage outflow (-4%, -$331 million) while utilities, via the XLU, experienced the largest percentage inflow (+4%, +$238 million).

[UNLOCKED] ICI Fund Flow Survey | Domestic Equity Flows Go Into Net Redemption for 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 positive +$20.6 billion spread for the week (+$23.8 billion of total equity inflow net of the +$3.3 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 is +$1.4 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).

[UNLOCKED] ICI Fund Flow Survey | Domestic Equity Flows Go Into Net Redemption for 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:

 

[UNLOCKED] ICI Fund Flow Survey | Domestic Equity Flows Go Into Net Redemption for 2015 - ICI 11 

Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com