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ICI Fund Flow Survey | Exodus from Domestic Equity Funds

Takeaway: Active domestic equity managers continued to bleed assets while active international mandates continue to see solid subscriptions.

This note was originally published April 30, 2015 at 12:23 in Financials. For more information on how you can subscribe to our various products click here.

ICI Fund Flow Survey | Exodus from Domestic Equity Funds - z exit

Investment Company Institute Mutual Fund Data and ETF Money Flow:

The exodus from active domestic equity managers shows no sign of abating. In the past 2 weeks, the active domestic equity category experienced its biggest net withdrawal of 2015 (of -$5.7 billion last week), which has been followed by another substantial withdrawal in the most recent week (in the 5 days ending April 22nd) of -$3.4 billion. The first 16 weeks of 2015 have now tallied -$19.1 billion in redemptions in the active domestic equity category compared to +$20.0 billion in the first 4 months of 2014. We remain cautious on the active equity manager space and maintain our short/avoid recommendation on Janus Capital and T Rowe Price. Conversely, investors have used at least a portion of their domestic equity redemptions to make contributions to international equity funds, which had their largest inflow in 119 weeks of +$6.5 billion this week.


ICI Fund Flow Survey | Exodus from Domestic Equity Funds - z steiner

 

In the most recent 5-day period ending April 22nd, total equity mutual funds put up net inflows of +$3.1 billion, outpacing the year-to-date weekly average inflow of +$1.2 billion and the 2014 average inflow of +$620 million. The inflow was composed of international stock fund contributions of +$6.5 billion and domestic stock fund withdrawals of -$3.4 billion. International equity funds have had positive flows in 48 of the last 52 weeks while domestic equity funds have had only 10 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up net inflows of +$3.8 billion, outpacing the year-to-date weekly average inflow of +$2.3 billion and the 2014 average inflow of +$929 million. The inflow was composed of tax-free or municipal bond funds contributions of +$683 million and taxable bond funds contributions of +$3.1 billion.

 

Equity ETFs had net subscriptions of +$3.2 billion, outpacing the year-to-date weekly average inflow of +$1.8 billion and matching the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$2.2 billion, outpacing the year-to-date weekly average inflow of +$1.6 billion and the 2014 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 year-to-date average for 2015:

 

ICI Fund Flow Survey | Exodus from Domestic Equity Funds - ICI 2 2

 

ICI Fund Flow Survey | Exodus from Domestic Equity Funds - ICI 3

 

ICI Fund Flow Survey | Exodus from Domestic Equity Funds - ICI 4

 

ICI Fund Flow Survey | Exodus from Domestic Equity Funds - ICI 5

 

ICI Fund Flow Survey | Exodus from 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 year-to-date average for 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 | Exodus from Domestic Equity Funds - ICI 7 2

 

ICI Fund Flow Survey | Exodus from Domestic Equity Funds - ICI 8

 

Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors withdrew -$714 million or -4% from the XLF Financials ETF. Conversely, investors contributed +$662 million or +5% to the XLE Energy ETF on expectations for an energy price rebound.

 

ICI Fund Flow Survey | Exodus from 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 positive +$290 million spread for the week (+$6.3 billion of total equity inflow net of the +$6.0 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 +$1.1 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 | Exodus from 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:

 

ICI Fund Flow Survey | Exodus from Domestic Equity Funds - ICI 11 

 

 

Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com

 

 

 

 

 


Keith's Macro Notebook 5/6: Asia | Oil | Russell

 

Hedgeye Senior Macro Analyst Darius Dale shares the top three things in CEO Keith McCullough's macro notebook this morning.


FLASHBACK: Noodles & Co: Going In Short | $NDLS

Editor's Note: This note was originally published on February 18, 2015 at 12:22. Shares of NDLS are down 36% since.

FLASHBACK: Noodles & Co: Going In Short | $NDLS - Z NDLS

Last week we elevated a number of troubled growth stocks to our Investment Ideas list as shorts.  Among these was NDLS, a name we see approximately 35-45% downside in with a fair value of $14-16 per share.

 

NDLS is a small cap stock that has been the recipient of an unwarranted premium growth multiple.  With only ~440 Noodles & Company restaurants system-wide, management maintains that they have a tremendous runway of growth ahead of them that calls for “at least” 2,500 restaurants nationwide.  This is a lofty goal, by any measure, particularly when considering the recent surge of competitors claiming similar domestic growth profiles.  We’ve already seen signs of how difficult this will be to achieve in NDLS’ infancy as a public company.  As the company has accelerated unit growth and ventured into new markets, system-wide sales and margins have suffered.

 

While this is to be expected, the company believes it is facing a brand awareness issue and thinks it will solve this issue through increased marketing spend and its catering initiative.  In our view, NDLS' brand awareness problem shouldn’t be management’s top priority.  In fact, elevating brand awareness will not be the panacea most hope.  Execution and site selection are the real deterrents to the business, and these can’t simply be fixed by plowing more cash into advertising.

 

Despite bullish consensus estimates, we believe NDLS is facing a difficult 2015 for the following reasons:

  • Cost of sales inflation: management is only estimating 2% food inflation, but durum wheat prices are under pressure and food cost estimates could head higher as we move into the back half of the year
  • Geographic concentration: the company has a notable number of stores in the DC metro area, which is an extremely competitive market
  • Rising labor costs: 52% of company operated restaurants are in markets that are facing minimum wage increases in 2015 or 2016 (or both), the majority of which are coming this year
  • The Affordable Care Act: will add about 30-50 bps of pressure on margins in 2H15
  • Estimates are high: the street is looking for 27% EPS growth in 2015, after an essentially flat year in 2014

Management is currently guiding to between 20-25% EPS growth in 2015.  With very little flow through from same-store sales, NDLS needs to drive 3-4% comp growth in order to keep margins flat versus last year – a task we feel will be difficult to achieve. 

 

The biggest factor working against us on the short side is the amount of short interest in the name (~25%).  The analyst community is rather divided, with a 60%/40% split on buys vs holds, respectively.

 

Consensus Estimates for 4Q14 Look Aggressive As Well

As a part of our process we continually monitor consensus estimates for each of the major line items on the P&L for the vast majority of companies in our space.

 

In regards to NDLS, we have a difficult time understanding the rationale behind the street's estimates for COGS and, subsequently, restaurant level margins in 4Q14.  

 

Consensus expects cost of sales to decrease 41 bps on a YoY basis in the quarter, after increasing 51, 67, and 64 bps in 1Q14, 2Q14, and 3Q14, respectively. We've tried, numerous ways, to reconcile the extent of this sudden reversal - but to no avail.  Predictably, this leverage is expected to flow through to restaurant level margins which consensus expects to be down 36 bps YoY, after decreasing 127, 200, and 230 bps in 1Q14, 2Q14, and 3Q14, respectively.  

 

We think there is a material disconnect here which will become readily apparent if NDLS does not put up a well-above consensus comp.

 

FLASHBACK: Noodles & Co: Going In Short | $NDLS - z howard penney chart 1

FLASHBACK: Noodles & Co: Going In Short | $NDLS - 2

Data: Company Filings, Consensus Metrix Estimates

 

FLASHBACK: Noodles & Co: Going In Short | $NDLS - 3


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Retail Callouts (5/6): KATE, M, TJX, JWN, CROX

Takeaway: KATE- We Feel Good About The Print. Macy's growth avenues=poor outlook on dept store space. Backstage analysis, head-to-head with TJX & JWN.

EVENTS TO WATCH

Retail Callouts (5/6): KATE, M, TJX, JWN, CROX - 5 5 chart2

 

COMPANY HIGHLIGHTS

 

KATE - To see our full note KATE - We Feel Good About the Print CLICK HERE

 

M - New Growth Strategy, Macy's Backstage

(http://phx.corporate-ir.net/phoenix.zhtml?c=84477&p=irol-newsArticle&ID=2043988)

 

Takeaway: For starters what does it say about the department store industry when the operator who is considered best in class starts exploring alternative avenues to find growth. Blue Mercury, International, and now Macy's Backstage is actually happening. Add to that the fact that M took two top executives away from store centric functions to focus on e-comm and business development. We won't argue that that Macy's bench isn't deep, it is. We think the shift in focus from top talent in the C-suite is telling. If Terry and Karen are staring at the same long term charts we are, the decisions make more sense.

Retail Callouts (5/6): KATE, M, TJX, JWN, CROX - 5 6 15 dept store trend

 

As far as the Backstage concept is concerned. The company is just dipping its toe in the water to test the efficacy of the model. And M chose to stack up the 4 Backstage test concepts against 3 of the best operators in this space (TJ Maxx, Marshalls and JWN Rack), while leveraging the company’s existing brand awareness. The average driving distance to a TJ location - 2.1mi, Marshalls - 0.4mi with two locations in the same strip centers, JWN Rack - 4.0mi, and Macy's - 2.1mi.

Retail Callouts (5/6): KATE, M, TJX, JWN, CROX - 5 6 15 M dist

 

 

OTHER NEWS

 

WWW, COH - Taylor Swift Kicks Off Her 1989 Tour in Stuart Weitzman

(http://footwearnews.com/2015/fn-spy/celebrity-style/taylor-swift-1989-tour-stuart-weitzman-shoes-fashion-27932/)

 

CROX - Crocs eliminating COO Position, Scott Crutchfield leaving

http://www.sec.gov/Archives/edgar/data/1334036/000110465915034346/a15-10858_18k.htm

 

BBY, AMZN, EBAY - Best Buy Canada invites other retailers to its online marketplace

(http://www.theglobeandmail.com/report-on-business/best-buy-canada-plans-to-broaden-online-offerings-even-its-rivals/article24268094/)

 

AMZN - E.U. Commission Opens Antitrust Inquiry Into E-Commerce Sector

(http://www.nytimes.com/2015/05/07/business/international/european-commission-e-commerce-inquiry-american-tech-companies.html?_r=0)

 

ZU - Brian Swartz Appointed Chief Financial Officer for zulily

(http://investor.zulily.com/releasedetail.cfm?ReleaseID=911060)

 

FL - Foot Locker to open big in Times Square with 36,000-sq.-ft. flagship

(http://www.chainstoreage.com/article/foot-locker-open-big-times-square-36000-sq-ft-flagship)

 

KORS - Estée Lauder's Earnings Rise on Product Launches - Strength in Michael Kors Fragrance

(http://www.wsj.com/articles/BT-CO-2015091)

 

W - Wayfair enlists HGTV stars for new campaign

(http://www.retailingtoday.com/article/wayfair-enlists-hgtv-stars-new-campaign)

 

GPS - Gap Set to Launch in India

(http://wwd.com/retail-news/specialty-stores/gap-set-to-launch-in-india-10123560/)

 

Imports Surge in March As Goods Clear Ports

(http://wwd.com/business-news/government-trade/imports-surge-in-march-as-goods-clear-ports-10123825/)

 


MACAU APRIL 2015 DETAIL

Takeaway: April details brings more bad news for Macau stocks

CALL TO ACTION

The April details brought showers and not flowers to the headline 39% GGR decline. The market played lucky over its customers which we estimate contributed 2-5% in YoY GGR growth. In other words, it should’ve been worse. Going forward, May should look better optically. Average daily revenues will climb sequentially, particularly during the first week due to the May holiday. On a YoY basis, the % decline should improve. However, that doesn’t mean the fundamentals are improving.

 

In retrospect, April was a worse month than March which was worse than February, etc. In fact, seasonally adjusted gaming volumes have deteriorated since June. Our focus has been on high margin base mass revenue which has been dropping for only a few months, but at a faster rate than the other segments. The Street hasn’t picked up on it since publicly available base mass data is scant. This is evident from their estimates which remain too high for 2015 and especially 2016, primarily as it relates to margins. We believe it is because their implicit base mass estimates are way too high. While maybe the best positioned Macau operator long term, LVS may have the most to lose over the near and intermediate term.

 

We will be hosting a call on Friday morning at 11am to discuss our Macau outlook and analysis and to provide an in-depth look into the trends between the Shanghai Stock market and Macau GGR.

 

Please see our detailed note: 

http://docs.hedgeye.com/HE_Macau_5.6.15.pdf


*GIS ACTIVIST BLACKBOOK CALL TODAY @11AM

Please join us live today as we step through our General Mills Activist Blackbook. The presentation will be an in-depth look into the GIS business, the competitive landscape, and how their business can return to strong growth.

 

Watch the replay below



 

Call Details:

  • US Toll Free:
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  • Confirmation Number: 39610419
  • Materials: CLICK HERE

*GIS ACTIVIST BLACKBOOK CALL TODAY @11AM - GIS Blackbook Invite

 


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