[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).

 

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:

 

 

 

 

 

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.

 

 

 

 

 

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:

 

 

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.

 

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.

 

 

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.)

 

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:

 

 

Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com