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[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds

 

Editor's Note: This is an unlocked research note written last week by our Financials team. If you'd like more information on how you can subscribe to our institutional research please send an email to sales@hedgeye.com.

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Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending October 7th, investors continued to make withdrawals from risk assets including domestic equity and taxable bond funds. Domestic stock mutual funds lost -$1.3 billion, with a more substantial -$6.3 billion being redeemed in taxable bonds funds. Domestic equity funds have now lost a total of -$121.1 billion in withdrawals during 2015, which remains the worst year on record for domestic equity fund flows. Meanwhile, the only risk asset working is fixed income ETFs (exhibited by the +30% organic growth in BlackRock's fixed income iShares in its quarter yesterday), which saw +$5.4 billion of new subscriptions in the ICI survey this week. However, another emerging trend is the safety of cash, with money funds gaining +$20 billion in contributions in the 5 days ending October 14th. Investors are starting to rebuild cash on the sidelines with this week's substantial inflow to start the 4th quarter following the +$54 billion build in money funds in 3Q.

 

With investors continuing to seek safety, the current market environment supports our Long recommendation on money fund manager Federated Investors (see FII report) and our Short recommendations on equity managers Janus Capital and T. Rowe Price (See JNS and TROW reports).


[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI1

 

In the most recent 5-day period ending October 7th, total equity mutual funds put up net inflows of +$326 million, outpacing the year-to-date weekly average outflow of -$377 million but trailing the 2014 average inflow of +$620 million. The inflow was composed of international stock fund contributions of +$1.6 billion and domestic stock fund withdrawals of -$1.3 billion. International equity funds have had positive flows in 46 of the last 52 weeks while domestic equity funds have had only 11 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up net outflows of -$5.8 billion, trailing the year-to-date weekly average outflow of -$20 million and the 2014 average inflow of +$926 million. The outflow was composed of tax-free or municipal bond funds contributions of +$558 million and taxable bond funds withdrawals of -$6.3 billion.

 

Equity ETFs had net redemptions of -$1.0 billion, trailing the year-to-date weekly average inflow of +$1.8 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$5.4 billion, outpacing the year-to-date weekly average inflow of +$1.2 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:

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI2

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI3

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI4

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI5

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - 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.

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI12

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI13

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI14

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI15

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - 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:

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI7

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the industrials XLI and materials XLB led contributions for the week. The XLI gained +3% or +$185 million in contributions, and the XLB gained +4% or +$77 million.

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - 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.

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI17

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$281 million spread for the week (-$677 million of total equity outflow net of the -$396 million 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 -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)

  

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - 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:

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI11 



Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com







RTA Live: October 20, 2015

 

 


Starts & Permits | Noise-Free Highs

Takeaway: September Housing Starts offer further evidence that Housing continues to trend in the right direction.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

Starts & Permits | Noise-Free Highs - Compendium 102015 

 

 

Today’s Focus:  September Housing Starts & Permits

With the residual distortion in the July/Aug Starts data following the NY tax exemption pull-forward in May/June now rearview, this morning’s data for September provides the first (largely) noise-free read on the underlying trend in new resi construction activity in 5-months. 

 

Total Starts rose +6.5% month-over-month and accelerated to +18% year-over-year with activity rebounding back to the 8-year highs recorded in June.  Multi-family activity led the advance, rising +18.3% month-over-month (not overly surprising given the post-pull forward hangover) and +28% year-over-year.  MF permits, which have been exceedingly volatile on a month-to-month basis, dropped -12.1% sequentially while retreating to +1% YoY.  

 

The gain in single-family starts was more muted with activity rising just +0.3% sequentially with year-over-year growth holding at +12%.   SF activity continues to hold near post-crisis highs, growing +11% YoY on average YTD and flirting with 700K in average starts annually for the first time since 2007.

 

The crawling but continued rise in new resi construction activity continues to accord with the ongoing advance in Builder Confidence which made another new 10-year high in yesterday’s HMI print for October (HERE).  With ~38% upside left to LT average levels of SF construction and 250% upside to the prior peak, the MT/LT mean reversion and cycle opportunity for the sector remains conspicuous.   

 

 

Starts & Permits | Noise-Free Highs - Total Starts LT

 

Starts & Permits | Noise-Free Highs - Total   SF Starts 2Y

 

Starts & Permits | Noise-Free Highs - MF Starts   Permits LT

 

Starts & Permits | Noise-Free Highs - MFF Starts   Permits TTM

 

Starts & Permits | Noise-Free Highs - SF Starts   Permits LT 

 

Starts & Permits | Noise-Free Highs - SF Starts   Permits TTM

 

 

About Housing Starts & Permits:

The US Census Bureau records the number of new housing units that have obtained permits for construction and those that have begun construction. This data includes new buildings intended primarily as residential units. The US Census Bureau defines a start as, “Start of construction occurs when excavation begins for the footings or foundation of a building.” 

 

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


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SONC | NOT INSPIRING BUT COVERING

We are taking Sonic (SONC) off the Hedgeye Restaurants Best Ideas list as a SHORT and moving it to the SHORT bench. 

 

Current trends are tracking better than expected.  Depending on how the trends play out, we will look to re-short it.  We still expect MCD to make life difficult for a number of players in the space.

 

Yesterday after the close SONC reported 4Q15 earnings. Same-store sales (SSS) results were no surprise given they already released this information back on September 14th (see our note HERE). These results show an initial decent from SONC’s recent strong performance, and comps are not getting easier. As they head into the 1H of 2016 they will face an 8.5% comp in 1Q16 and an 11.5% comp in 2Q16, not an easy mountain to climb in an increasingly competitive environment.

SONC | NOT INSPIRING BUT COVERING   - CHART 1 SSS

 

4Q15 RESULTS

This quarter represents the calm before the storm in our opinion. SONC reported revenue of $175.3mm which was in line with consensus street expectations. They reported SSS of 4.9% marginally beating consensus estimates of 4.8%. The comp consisted of a 4.9% SSS increase at franchise drive-ins and an increase of 4.5% at company drive-ins. SONC beat bottom line expectations as well, reporting EPS ex-items of $0.43 versus consensus estimates of $0.42.

 

FISCAL YEAR 2016 OUTLOOK

The biggest news today arguably was the acceleration of share repurchases due to favorable market conditions. Due in large part to this acceleration the company now expects EPS to grow 16% to 20% in FY2016 as compared to the previous outlook of 14% to 18%. The remainder of the guidance is as follows:

  • 2% to 4% same-store sales growth for the system
  • 50 to 60 new franchise drive-in openings
  • Drive-in-level margin improvement between 75 to 125 basis points
  • Capital expenditures of $35M to $40M
  • Free cash flow of $70M to $75M
  • The planned repurchase of $126M of stock across the fiscal year, with a higher concentration of share repurchases in 1H of the fiscal year

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 

 

 


Earnings, Euro and Housing

Client Talking Points

#EARNINGSRECESSION

Are we entering an earnings recession? After a Q2 where S&P 500 earnings declined -2.1% in aggregate, earnings growth thus far in Q3 is down -9% after 15% of companies have reported. Consumer Discretionary is the only sector that has registered positive earnings growth thus far. It’s early, but don’t get roped in from the bull-market storytelling. As we outline in our Q4 macro deck, earnings recessions have preceded  economic recessions in the last 3 cycles.   

EURO

The ECB meets this Thursday for an interest rate decision. The cross is down 11% year-over-year…look for it to dive lower if ECB President Mario Draghi issues incremental QE (easing), a real prospect as inflation at -0.1% is ways away from its 2.0% target. The immediate-term risk range for the EUR/USD is 1.11-1.14. 

HOUSING

This morning’s Housing Starts & Permits data for Sept. is likely to reflect continued crawling improvement as we hold near post-crisis highs in new, single-family residential construction activity.  Looking forward, the Implementation of TRID  (TILA-RESPA INTEGRATED DISCLOSURE) regulations on Oct. 3rd is likely to continue to drive excessive chop in the high frequency data (weekly Purchase Applications) over the next few weeks as lenders go live with implementation and purchase agents attempt to risk manage any early bottle-necks.  Moreover, the demand pull-forward we saw to close out September will likely serve to juice both the New and Pending Home Sales figures for September as the bolus of pre-TRID demand flows through the reported volume figures. We’ll get the New and Pending Homes Sales data on 10/26 and 10/29, respectively.  

 

**Tune into The Macro Show at 9:00AM ET - CLICK HERE

 

Asset Allocation

CASH 63% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 31% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

McDonald’s reports 3Q15 earnings Thursday, October 22nd before the market opens, with a conference call at 11:00am ET. We are expecting strong sequential improvement in performance globally. We look forward to giving you an update on the company’s performance next week, but this week we wanted to focus on the ‘Looming Crash in Beef.'

 

On Thursday, October 15th, we held a thought-leader call regarding the declining price of beef and how long it will continue. Prices have sky rocketed in recent years and are now standing at more than two standard deviations above the 30 year average. We believe a 50% decline down to historical averages is well within the realm of possibilities. Declining beef prices will be a major tailwind for McDonald’s as they navigate their turnaround.

RH

Restoration Hardware opened its new Full Line Design Gallery at the Cherry Creek Shopping Center in Denver this week.  This is another anchor property -- using 53,000 feet of the 90,000 left vacant by Saks at Cherry Creek.

 

RH is taking up the size of its stores from an average of 8,000 square feet to about 40,000+ for its new stores – and productivity rates on these new assets are headed higher. In the old stores, RH could only show 10% of its assortment, while in the newer format stores, the company is showcasing better than 75%. Consumers can’t (and don’t) buy what they don’t see.

TLT

The #SlowerForLonger theme from Hedgeye Macro has been consistent and straightforward. Our pivot in advance of the most recent jobs report to get long of gold and stay out of the way short-side on commodities turned out to be a good position.

 

Growth expectations have been correctly revised, but there’s still a good amount of room between Hedgeye estimates and consensus. We are expecting GDP in a range of 0.1%-1.5% for Q3 and another 1-handle in Q4. If that proves accurate, flatter goes the Treasury curve (TLT, EDV), wider goes high yield spreads (bad for JNK), and down goes the USD (GLD).

Three for the Road

TWEET OF THE DAY

VIDEO (2mins) The Most Important Thing I Learned In California Last Week https://app.hedgeye.com/insights/46978-the-most-important-thing-i-learned-in-california-last-week?type=video… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Along with success comes a reputation for wisdom.

Euripides

STAT OF THE DAY

75% of the world’s supply of maple syrup that comes from Quebec.


CHART OF THE DAY: A Middle Finger Salute North of the Border

Editor's Note: Below is a chart and brief excerpt from this morning's Early Look written by Hedgeye Director of Research Daryl Jones. Click here if you'd like more information on how you can subscribe.

 

CHART OF THE DAY: A Middle Finger Salute North of the Border - zzz COD 10.20.15 chart

 

"For those of you not familiar with Canadian political history, the "Trudeau salute" was a middle-fingered gesture former Canadian Prime Minister Pierre Trudeau gave to protestors in Western Canada in the early 1980s.  To Western Canadians at the time, it was symbolic of years of policy that undermined their commodity laden economies. 

 

...it is difficult to see in the short run how Trudeau will have a positive impact on the Canadian dollar or economy.   In part, of course, the Canadian dollar has front run this and is down about 11% over the last year, but with a deficit that is likely to expand, the floor has probably not been established for the Loonie.


Early Look

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