prev

ICI Fund Flow Survey | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks

This note was originally published August 13, 2015. If you're interested in learning more about how you can subscribe to our institutional research email sales@hedgeye.com

Investment Company Institute Mutual Fund Data and ETF Money Flow:
Investors continued to pull money from financial markets last week. All asset classes experienced redemptions except for international equity funds, which took in +$3.5 billion, and equity ETFs which were only slightly above break-even at +$85 million in contributions. While an exodus from domestic equity has been in progress since 2014, a newer trend of fixed income outflows has developed. So far this year, domestic equity mutual funds have lost a cumulative -$90.8 billion in withdrawals, including a massive -$7.3 billion outflow last week (the worst start to the first 31 weeks to any year this cycle running at over -$18.0 billion worse than 2012, the prior softest start to an annual period). Meanwhile, total fixed income mutual funds and ETFs have experienced negative flows in 7 of the last 9 weeks, including a -$5.0 billion outflow last week.

 

Investors appear to be using a significant portion of domestic equity withdrawals for their contributions to international equity funds, as international equity has experienced an almost mirror inflow of +$92.0 billion. Additionally, the chart below displays the generally inverse relationship between domestic stock outflows and international equity inflows. Our preferred proxy for these growing domestic redemptions is shorting T. Rowe Price (TROW) stock with over 60% of its assets-under-management in mutual funds (see our TROW report HERE).


ICI Fund Flow Survey | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI20

 


In the most recent 5-day period ending August 5th, total equity mutual funds put up net outflows of -$3.8 billion, trailing the year-to-date weekly average inflow of +$36 million and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund contributions of +$3.5 billion and domestic stock fund withdrawals of -$7.3 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 -$4.4 billion, trailing the year-to-date weekly average inflow of +$1.5 billion and the 2014 average inflow of +$929 million. The outflow was composed of tax-free or municipal bond funds withdrawals of -$106 million and taxable bond funds withdrawals of -$4.3 billion.


Equity ETFs had net subscriptions of +$85 million, trailing 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 outflows of -$582 million, trailing the year-to-date weekly average inflow of +$868 million and the 2014 average inflow of +$1.0 billion.

 

ICI Fund Flow Survey | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI1


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 | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI2


ICI Fund Flow Survey | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI3


ICI Fund Flow Survey | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI4


ICI Fund Flow Survey | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI5


ICI Fund Flow Survey | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI6



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 | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI12


ICI Fund Flow Survey | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI13


ICI Fund Flow Survey | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI14


ICI Fund Flow Survey | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI15


ICI Fund Flow Survey | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI16



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 | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI7


ICI Fund Flow Survey | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors continued to make significant withdrawals from the long treasury TLT ETF given worries over a possible rate hike by the Fed. The TLT lost -$365 million or -7% in redemptions last week. Meanwhile, the XLB materials ETF experienced the largest inflow last week on both a percentage and dollar basis. Investors contributed +$122 million or +5% to the XLB.


ICI Fund Flow Survey | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - 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 | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI17


ICI Fund Flow Survey | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a positive +$1.2 billion spread for the week (-$3.8 billion of total equity outflow net of the -$5.0 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 +$1.9 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 | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - 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 | What's $7 Billion Among Friends? Another Massive Outflow in Domestic Stocks - ICI11 



Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 


Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com







Federated Investors FII | The Dog Days of Summer are a Saint Bernard - Best Idea Long

Takeaway: Money fund yields are making their most buoyant move all year, already up 5 basis points or +38% over 2Q15 averages.

  • Money funds yields are putting in their fastest ascent in 2015 with an already 5 basis point or +38% increase thus far in 3Q from the second quarter. Our short yield tracker of LIBOR, 3 Month Treasuries, and Reverse Repos registered 18.0 basis points over night, closing in on close to a +40% move higher from the 13.0 basis point average of 2Q15. Simply put, the market is not waiting for the long waited announcement of the plight of the Fed Funds rate and is instead moving higher quickly.
  • We calculate that for every basis point increase in our short yield proxy that Federated nets an additional penny or $0.01 per share in quarter earnings. While most of Federated's biggest money fund portfolios have 40 days of duration within their holdings, the blend to higher yielding portfolios is underway. Longer term we see Federated normalized earnings opportunity at between $2.43-$2.63 per share and with the Street at $2.22 for 2016/2017, we continue to see positive risk/reward.
  • In combination with improved profitability as yields move higher, we remind investors that money fund balances should also increase into the back half of the year. With tax season now out of the way which historically has pulled down money fund balances in the first and second quarters, money funds are soon to be entering the fourth quarter which has averaged a +3.7% increase sequentially since 2008. Federated stock is one of only two asset management stocks up for the year (Wisdom Tree is up +57% in '15 with Federated up +4.0%, with the rest of the sector now down year-to-date). FII stock still screens as one of the lowest rated in our proprietary Sentiment Monitor (see latest report HERE) with 8.9% short interest and low sell side sentiment. With a 2.9% dividend yield and improving fundamentals in the money fund business, the stock continues on our Best Ideas list as a Long position. We estimate fair value at $42 per share.

Not waiting one Minute (Fed). Money fund yields are bolting substantially higher in 3Q already up 5 basis points or +38% from 2Q averages:

 

Federated Investors FII | The Dog Days of Summer are a Saint Bernard - Best Idea Long - chart 1 yields

Federated Investors FII | The Dog Days of Summer are a Saint Bernard - Best Idea Long - final proxy chart

 

While investors will have to wait for current spot rates to blend into quarterly averages, duration is very short in these portfolios. Within 39 days, higher spot yields will blend into quarterly averages:

 

Federated Investors FII | The Dog Days of Summer are a Saint Bernard - Best Idea Long - chart 3 duration

 

We calculate that every 1 basis point of average increase in yields is $0.01 or a penny per share in incremental quarterly earnings:


Federated Investors FII | The Dog Days of Summer are a Saint Bernard - Best Idea Long - EPS sensitivity

 

Our short rate proxy and FII's money fund fee waivers continue to maintain a very robust R-squared at 0.89:

 

Federated Investors FII | The Dog Days of Summer are a Saint Bernard - Best Idea Long - chart 4 regression

 

In addition to rising yields, money funds are now out of the seasonally weak tax season and onto the back half of the year where historically balances have grown for the industry. Thus the company will enjoy the double leverage of improving profitability and higher fund balances:

 

Federated Investors FII | The Dog Days of Summer are a Saint Bernard - Best Idea Long - chart 6 seasonality

 

 

Money Fund Yields are Yellin'

Bearishness Starting To Thaw

FII - Hedgeye Knows a Hockey Stick When it Sees One

Baby Steps But Headed in the Right Direction

Federated - Hedgeye Best Ideas Long Black Book

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 

 


China, #Deflation, UST 10YR

Client Talking Points

China

After telling the world “volatility in the Chinese stock market is over”, central planners got tagged with a -6.2% drop in the Shanghai Comp overnight – rest of Asia slowing, faster, too – in the last month: Taiwan -9.6%, Singapore -8.8%, Thailand -8.3%

#Deflation

Reflation (and high beta, high leverage, style factors) helped US equities bounce off last Wednesday’s lows, but were right back in the soup this morning with both WTI and Copper making fresh 3-month lows – and the Fed is going to “hike” into this? 

UST 10YR

With a yield of 2.14% this morning does the round trip and then some – so what the market is telling you is that even if the Fed does hike into a slowdown, probability is rising that growth and inflation slow at a faster pace – I remain bullish on the Long Bond.

Asset Allocation

CASH 59% US EQUITIES 3%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 25% INTL CURRENCIES 7%

Top Long Ideas

Company Ticker Sector Duration
MCD

"We are very bullish on McDonald’s," says Restaurants Sector Head Howard Penney. "We like where this company is going. We like the new CEO and the changes they’re making."

 

Penney notes that there are a lot of things going on inside the company which we can’t see that are extremely meaningful to where this company will be in 12-18 months.

 

"I’ve said this a dozen times recently, but 2015 will be the last year McDonald’s trades at an average price below $100," he says. 

PENN

"As we predicted, regional gaming revenues surged in July which gives us confidence in our Q3 EPS estimate of $0.23, which is $0.04 above the Street," writes Hedgeye Gaming, Lodging & Leisure Sector Head Todd Jordan. "We continue to like Penn National Gaming here due to stable regional gaming trends, better than expected quarterly and annual earnings, and the Plainridge and Jamul contribution to PENN’s two-year growth story."

TLT

The set-up for the September FOMC meeting is as follows:

  1. The Fed runs the risk of tightening into a late-cycle slowdown which could ultimately flatten the yield curve (BULLISH for TLT, EDV, VNQ).
  2. Slower growth and deflationary headwinds are acknowledged and the can is kicked on a rate hike which should also be good for bonds. Until growth inflects positively, you’ll see TLT in our investment conclusions as the yield curve is the best proxy for forward looking growth expectations. 

Three for the Road

TWEET OF THE DAY

Reminder: the @Hedgeye Macro Show is being moved to 9am today-Thurs of this week to accomodate @KeithMcCullough's apprearce on @FoxBusiness

@HedgeyeDDale

QUOTE OF THE DAY

“I didn’t get over 1300 walks without knowing the strike zone.”

           -Wade Boggs

STAT OF THE DAY

With a 719–477–45 record as of the conclusion of the 2014 football season, West Virginia University ranks 14th in victories among NCAA FBS programs, as well as the most victories among those programs that never claimed nor won a National Championship.


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

CHART OF THE DAY: Consensus Is Bear'd Up On Stocks

Editor's Note: The chart below was featured in this morning's Early Look written by Hedgeye CEO Keith McCullough. Click here for more information on how you can become a subscriber.  

 

CHART OF THE DAY: Consensus Is Bear'd Up On Stocks - z darius Chart of the Day


Messy Process

“It’s a messy process that involves doing a few things at once.”

-Patrick Lencioni

 

That was a solid leadership quote from a popular book I’m flipping through called The Advantage – “Why Organizational Health Trumps Everything In Business.”

 

Cheesy? Yes. Hence the flipping! But with the summer of 2015 coming to an end, I’m clearing my book shelf for what should be a scintillating September. Infrequently in my career have both complacency and short interest been so high.

 

Complacency: yesterday’s Total US Equity Market Volume (including dark pool) continued to crash (-26% vs. its 1yr average). Short Interest? I’ll get into how I look at that in the grind.

Messy Process - Volume cartoon 08.12.2014

 

Back to the Global Macro Grind

 

But first, since I’m getting back into the swing of things this morning, allow me to review a few critical #process points that make my risk management conclusions less messy:

 

  1. VOLUME – when price is rising on A) decelerating volume and B) rising volatility, that’s bearish
  2. OPTIONS – one key way we measure “short interest” is via non-commercial futures and options contracts

 

It’s taken me almost 17 years to refine the price/volume/volatility signal – and while I continue to refine it (and will until I retire), I feel as good as I’ve ever felt about our ability to #FadeBeta.

 

“Fading beta” means (sometimes) taking the opposite side of a market’s daily direction. This typically happens (in Real-Time Alerts) when PRICE is hitting either the low or high end of my immediate-term TRADE risk range.

 

You can also “fade options” activity by measuring the z-score of Global Macro positions. What I mean by that is buying/covering a market when A) PRICE = low-end of the range and B) the net SHORT position = high end of its range.

 

If you did that in US Equities (at last week’s lows), well done. Here’s how the net SHORT positions piled up:

 

  1. SP500 (index + Emini) net SHORT position was -146,132 contracts (that’s a 1yr z-score of -1.79x)
  2. Russell 2000 net SHORT position was -38,214 contracts (that’s a 1yr z-score of -0.47x)

 

In other words, after growth, inflation, revenue/earnings, etc. data slowed (at an accelerating rate both locally and globally) in July, US stocks corrected, and Consensus Macro players got shorter, lower, instead of getting longer.

 

Then, the no-volume (squeeze) bounce. And voila!

 

Inclusive of the Russell 2000 bouncing +1.6% off that 1205 AUG low last week (it was -7% from its YTD high prior to the bounce), last week’s US stock market bounce featured Style Factors that had been leading the market lower for a month:

 

  1. LEVERAGE – High Debt/Enterprise Value Stocks were +1.2% after being -3.6% in the month prior
  2. BETA – High Beta Stocks (another style factor) were +1.0% after being -5.6% in the month prior

 

And you saw some no-volume follow through on the same yesterday as well with High Beta Biotech (IBB) Stocks leading the day at +2.1% as the Russell 2000 added 1.0% to that bounce from 1205 to 1225.

 

But what’s next?

 

Well, if high-debt-leverage to commodity #Deflation and high-beta levered to too-high-growth-expectations got Consensus Macro run over after chasing their May-June 2015 highs, I think we have to ask ourselves what’s changed this morning?

 

In perpetually monitoring that, the Top 3 Things in my notebook this morning are as follows:

 

  1. CHINA – after telling the world “volatility in the Chinese stock market is over”, central planners got tagged with a -6.2% drop in the Shanghai Comp overnight – while mainstream isn’t on this, the rest of Asia is slowing, faster, too – in the last month: Taiwan -9.6%, Singapore -8.8%, Thailand -8.3%, Indonesia -7.0%, South Korea -5.8%
  2. #DEFLATION – “reflation” (and high beta, high leverage, style factors) helped stocks bounce off last Wednesday’s lows, but are right back in the soup this morning with both WTI (Oil) and Copper making fresh 3-month lows
  3. UST 10YR – yield of 2.14% this morning does the round trip (from June) – so what Mr. Macro Market is telling you is that even if the Fed does hike into a Q3 slowdown, probability is rising that growth and inflation slows faster in Q4!

 

Yes, my #process involves doing more than a few things at once. It’s taken me a long time and a lot of mistakes to get it to where it is now. No, it’s not perfect. But it sure beats the messy macro “process” of chasing charts (i.e. last price).

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.10-2.20%

SPX 2071-2109
RUT 1198-1231
Oil (WTI) 41.04-43.58
Copper 2.28-2.38

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Messy Process - z darius Chart of the Day


The Macro Show Replay | August 18, 2015

 


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.

next