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Takeaway: Fixed income flows remain weak in anticipation of the Fed increasing rates. Also, investors continue to flee active domestic equity.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Investors withdrew -$2.9 billion from taxable bond funds in the 5-day period ending July 8th. They also withdrew -$287 million from tax-free bond funds. Aside from a massive defensive move into fixed income in the week ending June 24th, bond fund flows have been consistently negative since early June. This is likely due to anticipation of the Federal Reserve raising rates within the next year.

Additionally, as we continue to point out the disaster in active domestic equity flows, investors withdrew -$2.4 billion from that asset class last week. Investors have now made domestic equity withdrawals for 19 consecutive weeks, leading to -$63.7 billion of cumulative year-do-date outflows. We maintain our Short/Avoid recommendations on the most impacted domestic equity managers, T. Rowe Price (TROW) and Janus Capital (JNS).


ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI1

In the most recent 5-day period ending July 8th, total equity mutual funds put up net inflows of +$2.2 billion, outpacing the year-to-date weekly average inflow of +$448 million and the 2014 average inflow of +$620 million. The inflow was composed of international stock fund contributions of +$4.6 billion and domestic stock fund withdrawals of -$2.4 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 outflows of -$3.2 billion, trailing the year-to-date weekly average inflow of +$2.0 billion and the 2014 average inflow of +$929 million. The outflow was composed of tax-free or municipal bond funds withdrawals of -$287 million and taxable bond funds withdrawals of -$2.9 billion.

Equity ETFs had net subscriptions of +$9.2 billion, outpacing the year-to-date weekly average inflow of +$2.3 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$246 million, trailing the year-to-date weekly average inflow of +$844 million 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 | Fixed Income Flows Weakening - ICI2

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Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI12

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI13

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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 | Fixed Income Flows Weakening - ICI7

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI8

Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the financials XLF ETF experienced strong inflows of +11% or +$2.1 billion last week. Flows to that fund are now flat for the year to date. On the other end of the spectrum, investors continued to flee the industrials XLI, withdrawing -5% or -$390 million. For the year to date, the XLI has experienced one of the worst outflows on a percentage basis of -24% or -$2.1 billion.

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI9

Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI17

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI18

Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a positive +$14.3 billion spread for the week (+$11.3 billion of total equity inflow net of the -$3.0 billion outflow from fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is +$1.6 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 -$18.1 billion (negative numbers imply more positive money flow to bonds for the week.)

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI10

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 | Fixed Income Flows Weakening - ICI11 

Jonathan Casteleyn, CFA, CMT 

 

 

Joshua Steiner, CFA