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Fund Flows | The Best Offense is a Good Defense

Takeaway: Widespread withdrawals in the 5 days ending September 9th erased last week's inflow into equity funds with stock ETFs also losing.

This note was originally published September 17, 2015. If you would like more information on how you can subscribe to our institutional research please email sales@hedgeye.com.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

China's downward revised GDP and consternation over the upcoming FOMC meeting contributed to defensive reallocations in the 5-day period ending September 9th. Investors allocated +$3.3 billion to fixed income ETFs while withdrawing funds from all other asset classes. The spread between total fixed income products and total equity products was highly defensive with an $18.7 billion skew to fixed income, well below the average +$1.6 billion 52-week average benefiting equities. In specific ETF callouts, the S&P 500 SPDR SPY lost -$10.1 billion or a -5% net redemption while the long Treasury TLT gained +$255 million or +4% NAV gain.

 

Finally, defensive posturing continues to hurt domestic equity funds. The asset class lost -$3.0 billion to redemptions last week, erasing the prior week's inflow and bringing the year-to-date outflow to -$109.2 billion. T. Rowe Price (TROW) stock continues to be our Short/Avoid proxy on these trends. (See our TROW report HERE.)


Fund Flows | The Best Offense is a Good Defense - z cast 1


In the most recent 5-day period ending September 9th, total equity mutual funds put up net outflows of -$3.2 billion, trailing the year-to-date weekly average outflow of -$273 million and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund withdrawals of -$237 million and domestic stock fund withdrawals of -$3.0 billion. International equity funds have had positive flows in 46 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 -$2.4 billion, trailing the year-to-date weekly average inflow of +$551 million and the 2014 average inflow of +$926 million. The outflow was composed of tax-free or municipal bond funds withdrawals of -$191 million and taxable bond funds withdrawals of -$2.2 billion.


Equity ETFs had net redemptions of -$14.7 billion, trailing the year-to-date weekly average inflow of +$1.5 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$3.3 billion, outpacing the year-to-date weekly average inflow of +$1.1 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:


Fund Flows | The Best Offense is a Good Defense - ICI2


Fund Flows | The Best Offense is a Good Defense - ICI3


Fund Flows | The Best Offense is a Good Defense - ICI4


Fund Flows | The Best Offense is a Good Defense - ICI5


Fund Flows | The Best Offense is a Good Defense - 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.

 

Fund Flows | The Best Offense is a Good Defense - ICI12


Fund Flows | The Best Offense is a Good Defense - ICI13


Fund Flows | The Best Offense is a Good Defense - ICI14


Fund Flows | The Best Offense is a Good Defense - ICI15


Fund Flows | The Best Offense is a Good Defense - 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:


Fund Flows | The Best Offense is a Good Defense - ICI7


Fund Flows | The Best Offense is a Good Defense - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In a defensive move, investors withdrew -$10.1 billion or -5% from the S&P 500 SPY ETF and contributed +$255 million or +4% to the long treasury TLT.


Fund Flows | The Best Offense is a Good Defense - 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.


Fund Flows | The Best Offense is a Good Defense - ICI17


Fund Flows | The Best Offense is a Good Defense - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$18.7 billion spread for the week (-$17.9 billion of total equity outflow net of the +$854 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 +$1.6 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 -$18.7 billion (negative numbers imply more positive money flow to bonds for the week.)

  

Fund Flows | The Best Offense is a Good Defense - 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:


Fund Flows | The Best Offense is a Good Defense - ICI11 



Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 


Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com







Monday Mashup

Monday Mashup - CHART 1

 

Consumer Staples Best Ideas List Adjustments

JJSF: We are removing J&J Snack Foods (JJSF) from our SHORT bench. The stock hasn’t developed how we were expecting and we don’t anticipate anything happening in the near future that would entice us to make a definitive call. We will continue to watch the name from the sidelines.

 

RECENT NOTES

9/16/15 UNFI | LOVE THE LONG THESIS

9/15/15 K | NICE MOVE, BUT NOT ENOUGH

9/11/15 REPLAY | GOING LONG UNFI BLACK BOOK

9/04/15 GIS | Sends the Jolly Green Giant Packing

9/02/15 HSY | THE CURRENT SET UP IS LEANING LONG

 

UPCOMING EARNINGS

GENERAL MILLS (GIS)

General Mills is reporting 1Q16 numbers tomorrow before the open, with a call at 8:30am ET. We are expecting to see sequential improvements in the business, especially within cereal. Moving past the sale of Green Giant, we are hoping to hear commentary surrounding M&A activity. Yogurt, grain snacks, and natural & organic will hopefully show strong growth and slight market share pickup. We are staying LONG into the quarterly earnings announcement, as General Mills remains one of our Best Ideas in the consumer staples sector. We will report back to you with a more robust note after their announcement.

 

SECTOR PERFORMANCE

Food and organic stocks that we follow outperformed the XLP last week. The XLP was up +0.2% last week, the top performers on a relative basis from our list were Dean Foods (DF) and Amira Natural Foods (ANFI) posting increases of +7.4% and +3.8%, respectively. The worst performing company on a relative basis on our list was Treehouse (THS), which was down -1.7%.

Monday Mashup - CHART 2

 

XLP VERSUS THE MARKET

The XLP has fared better than most other sectors in the YTD time period and as of late especially. In the last five trading days while the SPX was down -0.2% the XLP was actually up +0.2%, outperformed only by XLV (Healthcare) and XLU (Utilities).

Monday Mashup - CHART 3

 

QUANTITATIVE SETUP

From a quantitative perspective, the XLP is bearish on a TRADE and TREND duration.

Monday Mashup - CHART 4

 

Food and Organic Companies

Monday Mashup - CHART 5

Monday Mashup - CHART 6

Monday Mashup - CHART 7

Monday Mashup - CHART 8

 

Keith’s Three Morning Bullets

Dovish Fed = Oil, Gold, EM all up last wk; Rate Sensitive Stocks (Utes, REITS) outperformed big time too:

 

  1. DAX – the Fed’s Dollar Devaluation (EUR/USD +2.5% m/m) thing isn’t appreciated by either the DAX or Draghi (he testifies to European Parliament Wed); DAX down another -0.6% w/ keeping the crash (-20.4% since APR) in play, but signals immediate-term oversold here, for a trade
  2. OIL – Gold and Oil were +3.2% and +0.7%, respectively last week (vs. SPX -0.2%) and WTI is up another +1.5% to $45.34 this morning taking it to +5.7% in the last month (vs. SPX -6.6%) – is the new perma bull US stock market catalyst “higher gas prices”?
  3. YEN – signaled immediate-term TRADE overbought on Friday as the USD was signaling oversold (and Gold immediate-term overbought); the risk ranges in all of these big FICC trades (USD, Rates, Oil) are narrowing now (leading indicator for lower highs in volatility)

 

SPX immediate-term risk range = 1; UST 10yr Yield 2.11-2.21%

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


RTA Live: September 21, 2015

 

 


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EVENT – P & Web IV: What You Need to Know

Takeaway: Join us Thursday, September 24th at 12pm and 2pm EDT for a two-part event on the implications of Web IV on P.

The Web IV decision will be a pivotal event for P, with the potential to derail its business model.  The decision will be issued no later than December 15th, and we may get an early read this week in the Register's response to the CRB Judges' questions.  

 

We will be hosting a two-part event on Thursday, September 24th at 12pm and 2pm EDT to discuss both the bull and bear cases.

  1. P: Webcaster IV = Powder Keg (12pm EDT) – Our bearish thesis discussing the implications of the Web IV outcome on P’s business model.
  2. Speaker Series: David Oxenford, Counsel to Webcasting Companies (2pm EDT) – Fire-Side Chat on the relevant Web IV statutes and the Services' arguments.

 

KEY TOPICS WILL INCLUDE

 

P: Webcaster IV = Powder Keg (12pm EDT)

  • Challenging Business Model: Limited operational leverage despite operating under lower Pureplay rates
  • Pandora vs. SoundExchange: A review of the Web IV proceeding, the key tenets of each of their arguments, and why P is losing the key debate
  • Powder Keg: We’ll detail a range of potential outcomes, and the limited wiggle room P has without having to restructure its business model
  • Web IV Catalyst Calendar: The Register’s response is a near-term risk for both bulls/bears, but is not a binary event; it’s tilted against P (i.e. treading water vs. drowning)

 

Speaker Series: David Oxenford, Counsel to Webcasting Companies regarding CRB proceedings (2pm EDT)

  • Introductory Discussion: Explanation of the relevant statutes regarding the Web IV proceeding (including where may be wrong)
  • Services vs. SoundExchange: Discussion regarding the Services’ primary arguments in the Web IV proceeding
  • Anonymous Q&A: 30-minute session to field your questions

 

Dialing instructions will be provided Thursday morning.  Let us know if you have any questions beforehand.   

 

Hesham Shaaban, CFA


@HedgeyeInternet 

 


MONDAY MORNING RISK MONITOR | RISK IS GROWING

Takeaway: High yield rates and the TED Spread are both signaling that risk is rising despite the Fed's decision to remain at bay.

Key Takeaway:

While equities were broadly weak on the Fed's decision to keep rates unchanged, CDS tightened around the globe. That said, counterparty risk, as measured by the TED spread, rose notably last week on the Fed's decision. The TED Spread increased by +5 bps to 36 bps. Additionally, High Yield rates increased by +21 bps to 7.30%. 


Current Ideas:


MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Negative / 3 of 12 improved / 3 out of 12 worsened / 6 of 12 unchanged
• Intermediate-term(WoW): Negative / 4 of 12 improved / 5 out of 12 worsened / 3 of 12 unchanged
• Long-term(WoW): Negative / 1 of 12 improved / 2 out of 12 worsened / 9 of 12 unchanged

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM15

 

1. U.S. Financial CDS – While the stock market fell following the Fed's meeting, the perceived risk of default for domestic financial institutions declined last week. Swaps tightened for 18 out of 27 domestic financial institutions.

Tightened the most WoW: HIG, WFC, CB
Widened the most WoW: MMC, LNC, GNW
Tightened the most WoW: CB, AGO, ALL
Widened the most MoM: SLM, MMC, LNC

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM1

 

2. European Financial CDS – Similar to the U.S., European equities fell last week. However, CDS mostly tightened with an average change of -8 bps.

 

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM2

 

3. Asian Financial CDS – Bank swaps tightened broadly in the Asian region, especially in China and India. Chinese banks' CDS all tightened by -11 bps, Indian banks' CDS between -6 and -7 bps.

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM17

 

4. Sovereign CDS – Sovereign swaps mostly tightened over last week. Portuguese sovereign swaps tightened the most, by -11 bps to 160.

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM18

 

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM3

 

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM4


5. Emerging Market Sovereign CDS – Emerging market swaps tightened last week. During the week, Indonesian swaps tightened the most, by -32 bps to 213. Also, Russian swaps tightened by -18 bps last week. That brings Russian CDS' month-over-month change to -68 bps, likely due in part to oil prices sustaining a slight rise over that period.

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM16

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM20

6. High Yield (YTM) Monitor – High Yield rates rose 21 bps last week, ending the week at 7.30% versus 7.09% the prior week.

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM5

 

7. Leveraged Loan Index Monitor – The Leveraged Loan Index fell 3.0 points last week, ending at 1867.

 

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM6

 

8. TED Spread Monitor – The TED spread rose 5 basis points last week, ending the week at 36 bps this week versus last week’s print of 31 bps.

 

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM7

 

9. CRB Commodity Price Index – The CRB index fell -0.8%, ending the week at 194 versus 196 the prior week. As compared with the prior month, commodity prices have increased 1.5%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM8

 

10. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 10 bps.

 

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM9

 

11. Chinese Interbank Rate (Shifon Index) –  The Shifon Index was unchanged last week at 1.90%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM10

 

12. Chinese Steel – Steel prices in China fell 0.8% last week, or 18 yuan/ton, to 2207 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM12

 

13. 2-10 Spread – Last week the 2-10 spread tightened to 145 bps, -3 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 4.1% upside to TRADE resistance and 2.6% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR | RISK IS GROWING - RM14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 


CHART OF THE DAY: Performance Lessons of the Last 3 Months

Editor's Note: The chart and brief excerpt below are from today's Early Look written by Hedgeye CEO Keith McCullough. Click here if you're tired of lousy, consensus research and want to stay a step or two ahead of the macro herd.

 

CHART OF THE DAY: Performance Lessons of the Last 3 Months - zz chart day 09.21.15 chart

 

...That’s why, from a Style Factoring perspective, if all you’ve done in the last 3 months is downshift your portfolio’s Equity Beta (i.e. sell your cyclical and chart chasing betas), you’ve beaten most of your competition.

 

Here’s how “Low-Beta” (mean performance of the Top Quartile in the SP500 vs. the Bottom Quartile) has performed:

 

  1. One-week duration = +1.1% (vs. High Beta -0.6%)
  2. One-month duration = -4.7% (vs. High Beta -6.0%)
  3. Three-month duration = -2.3% (vs. High Beta -13.7%)

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%
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