• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Here

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

Takeaway: 1Q15 domestic equity flows came in lower than 1Q07, 1Q10, 1Q11, 1Q13, and 1Q14. This is a bad sign.

This note was originally published April 09, 2015 at 08:21 in Financials. For more information on our services and how you can subscribe click here.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

The total year-to-date outflow from domestic equity funds increased by nearly two thirds to -$8.8 billion as of April 1st from -$5.4 billion as of March 25th.  This asset class is doing especially poorly this year.  From 2007 through 2014, excluding 2008, domestic equity funds lost -$68.6 billion per year on average. However, even with those outflows, average first-quarter domestic equity flows were neutral.  On the other hand, as we show in the chart below, this year's Q1 flow sits -$8.8 billion below the ex-2008 average of +$26 million.  Post-2006, the only years that had worse domestic equity outflows in the first quarter were 2008 at -$41.0 billion, 2009 at -$27.3 billion, and 2012 at -$19.2 billion.  By the end of those years, investors had pulled -$157.0, -$40.6, and -$167.9 billion, respectively, from domestic equity funds.  Given the asset class' year-to-date outflows in what is usually the best quarter of the year, things do not look so rosy for domestic active managers.  Our most actionable ideas in the asset management group continue to be to avoid or short the equity asset managers Janus Capital and T Rowe Price and also to begin legging into defensive money fund manager Federated Investors (see our deep dive Black Book here).   

[UNLOCKED] ICI Fund Flow Survey | Trending Not Mending - Ugly Start to '15 for Domestic Equity Funds - ICI 12

Other fund flows during the week were also defensive with equity ETFs putting up outflows of -$5.8 billion, including -$10.5 billion in withdrawals from the SPY.  We are still cautious on the domestic equity fund managers especially T. Rowe Price and Janus Capital as these stocks are on our Best Ideas list as Short/Avoid.  Alternatively our recommended Long exposure stands with alternative asset manager Och Ziff (see our OZM research here), a stock which trades without an incentive multiple currently, defensive money fund manager Federated Investors (see our FII research), and defined contribution retirement plan advisor Financial Engines (see our deep dive FNGN Black Book).

Also of note, investors redeemed -$47 billion from money market funds last week, which seems to have been because of seasonal tax payments.

[UNLOCKED] ICI Fund Flow Survey | Trending Not Mending - Ugly Start to '15 for Domestic Equity Funds - ICI 1

In the most recent 5 day period ending April 1st, total equity mutual funds put up net outflows of -$1.6 billion according to the Investment Company Institute, trailing the year-to-date weekly average inflow of +$1.3 million and the 2014 average inflow of +$620 million. The inflow was composed of international stock fund contributions of +$1.8 billion and domestic stock fund withdrawals of -$3.3 billion.  International equity funds have had positive flows in 48 of the last 52 weeks while domestic equity funds have had only 13 weeks of positive flows over the same time period.

Fixed income mutual funds put up outflows of -$1.3 billion, trailing their year-to-date weekly average inflow of +$2.4 billion and their 2014 average inflow of +$929 million. The outflow was composed of +$96 million of contributions to tax-free or municipal bond funds and -$1.4 billion of withdrawals from taxable bond funds.  Munis have had a solid run with subscriptions in 51 of the last 52 weeks.

Equity ETFs experienced redemptions of -$5.8 billion, trailing the year-to-date weekly average inflow of +$1.3 billion and the 2014 weekly average inflow of +$3.2 billion. Fixed income ETFs took in +$1.7 billion, outpacing the year-to-date weekly average inflow of +$1.5 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 | Trending Not Mending - Ugly Start to '15 for Domestic Equity Funds - ICI 2

[UNLOCKED] ICI Fund Flow Survey | Trending Not Mending - Ugly Start to '15 for Domestic Equity Funds - ICI 3

[UNLOCKED] ICI Fund Flow Survey | Trending Not Mending - Ugly Start to '15 for Domestic Equity Funds - ICI 4

[UNLOCKED] ICI Fund Flow Survey | Trending Not Mending - Ugly Start to '15 for Domestic Equity Funds - ICI 5

[UNLOCKED] ICI Fund Flow Survey | Trending Not Mending - Ugly Start to '15 for Domestic Equity Funds - 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 | Trending Not Mending - Ugly Start to '15 for Domestic Equity Funds - ICI 7

[UNLOCKED] ICI Fund Flow Survey | Trending Not Mending - Ugly Start to '15 for Domestic Equity Funds - ICI 8

Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the SPY experienced a significant -$10.5 billion or -5% withdrawal.  Additionally, the consumer staples XLP continued to bleed funds, giving up -$785 million or -9% in redemptions last week.

[UNLOCKED] ICI Fund Flow Survey | Trending Not Mending - Ugly Start to '15 for Domestic Equity Funds - 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 -$7.7 billion spread for the week (-$7.3 billion of total equity outflow net of the +$418 million 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 +$1.2 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 | Trending Not Mending - Ugly Start to '15 for Domestic Equity Funds - 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 | Trending Not Mending - Ugly Start to '15 for Domestic Equity Funds - ICI 11 

Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com