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ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown

Takeaway: Investors slammed domestic equity mutual funds with -$12 billion in redemptions, the worst week for the asset class in over 4 years.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending November 4th, investors slammed domestic equity mutual funds with -$12.1 billion in redemptions, the largest weekly draw down from the asset class in more than 4 years. Domestic equity mutual funds have now lost -$137.5 billion in withdrawals so far this year, worse than 2008 redemptions over the same period, making 2015-to-date the worst year on record for the asset class.

 

Meanwhile, investors favored passive equity mandates, making +$6.1 billion in contributions to equity ETFs. Fixed income ETFs did not fare as well with -$1.2 billion in redemptions. However, fixed income mutual funds more than made up for that redemption with +$2.6 billion in contributions.

 

As we approach a possible rate hike in December, the following chart provides perspective on how the last fed rate hike cycle starting in late June 2004 affected fund flows for investment grade and high yield fixed income mutual funds. As yields rose and attracted investors, IG fixed income experienced net inflows in all but three months between July 2004 and June 2007, taking in a cumulative +$128.9 billion. High yield flows were not as consistent and were in fact negative for a good portion of the 2004-2007 rate-hike cycle. However, with consistently positive inflows after Fed Funds stabIlized, high yield funds came to a cumulative +$3.1 billion inflow for the period of July 2004 through June 2007. If the Fed does hike rates in December, we expect it to be a clear positive for investment grade bond managers as investors should gravitate to the combination of higher yields and relative safety of investment grade issues.

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI20 3

 

In the most recent 5-day period ending November 4th, total equity mutual funds put up net outflows of -$12.5 billion, trailing the year-to-date weekly average outflow of -$688 million and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund withdrawals of -$461 million and domestic stock fund withdrawals of -$12.1 billion. International equity funds have had positive flows in 45 of the last 52 weeks while domestic equity funds have had only 9 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up net inflows of +$2.6 billion, outpacing the year-to-date weekly average inflow of +$251 million and the 2014 average inflow of +$926 million. The inflow was composed of tax-free or municipal bond funds contributions of +$496 million and taxable bond funds contributions of +$2.1 billion.

 

Equity ETFs had net subscriptions of +$6.1 billion, outpacing the year-to-date weekly average inflow of +$2.1 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net outflows of -$1.2 billion, trailing the year-to-date weekly average inflow of +$1.2 billion and the 2014 average inflow of +$1.0 billion.

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - 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 | Active Meltdown...-$12 Billion Drawdown - ICI2

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI3

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI4

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI5

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - 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 | Active Meltdown...-$12 Billion Drawdown - ICI12

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI13

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI14

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI15

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - 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 | Active Meltdown...-$12 Billion Drawdown - ICI7

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors made significant contributions of +$1.3 billion or +7% to the financials XLF ETF. Meanwhile, the utilities XLU ETF lost -$382 million or -6% in redemptions.

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - 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 | Active Meltdown...-$12 Billion Drawdown - ICI17

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$7.8 billion spread for the week (-$6.4 billion of total equity outflow net of the +$1.4 billion 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 +$1.0 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.)

  

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - 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 | Active Meltdown...-$12 Billion Drawdown - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA







[UNLOCKED] Keith's Daily Trading Ranges

Editor's Note: We've made some updates and enhancements to Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. 

 

Subscribers now receive risk ranges for 20 tickers each day -  the last five of which are determined by what's flashing on Keith's screen and by what names subscribers are asking about. Click here to subscribe.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.38 2.09 2.32
SPX
S&P 500
2,054 2,093 2,075
RUT
Russell 2000
1,160 1,204 1,178
COMPQ
NASDAQ Composite
4,999 5,111 5,067
NIKK
Nikkei 225 Index
18,996 19,930 19,691
DAX
German DAX Composite
10,588 11,001 10,908
VIX
Volatility Index
14.17 18.83 16.06
DXY
U.S. Dollar Index
98.05 100.23 99.16
EURUSD
Euro
1.06 1.08 1.07
USDJPY
Japanese Yen
121.33 123.99 122.85
WTIC
Light Crude Oil Spot Price
42.07 45.37 43.07
NATGAS
Natural Gas Spot Price
2.19 2.39 2.27
GOLD
Gold Spot Price
1,065 1,105 1,086
COPPER
Copper Spot Price
2.16 2.27 2.22
AAPL
Apple Inc.
115 120 116
PCLN
Priceline.com Inc.
1,279 1,371 1,330
VRX
Valeant Pharmaceuticals International, Inc.
71.06 92.69 78.90
BABA
Alibaba Group Holding Ltd.
77.98 83.29 79.85
M
Macy's Inc.
38.91 45.27 40.44
KSS
Kohl's Corp.
41.22 46.12 43.16

 

 


Retailers, Draghi and #Deflation

Client Talking Points

U.S. RETAILERS

Smoked by Macy’s CEO talking about that darn #ConsumerCycle slowing theme we’ve been hammering on since July – XRT (our preferred way to be short U.S. Retailers in size) is down -11.2% since the July 15th consumption cycle top and down -7.2% year-to-date.

DRAGHI

After suggesting #Deflation wasn’t a risk and European growth was “encouraging”, our man Mario (ECB President Mario Draghi) pivots to “downside risks are now clearly visible … and inflation dynamics have weakened.” Finally, some #truth – don’t forget that Down Euro = #Deflation via Strong USD.

#DEFLATION

Just an awful November for whoever bought into the “reflation” thing that our competition has been pitching since July. The CRB Index was down another -0.6% yesterday, testing the lows as Copper blows through the lows to $2.18 and levered Energy stocks move down -4% on the day.

 

**Tune into The Macro Show with Macro analysts Christian Drake and Ben Ryan at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 59% US EQUITIES 7%
INTL EQUITIES 3% COMMODITIES 0%
FIXED INCOME 31% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

Post earnings, the next catalyst for McDonald’s (MCD) is going to be next week's November 10th analyst meeting. The meeting will be an opportunity for management to shed more light on the progress of all day breakfast, additional G&A cuts and the potential of doing a REIT.

 

Our Restaurants team remains bullish on the name, and they look forward to giving you some material updates after the meeting.

RH

Restoration Hardware (RH) hit all-time highs this week, but this story is far from over. We think RH will earn close to $11 per share in 3 years, which compares to the consensus estimate of just over $6. We estimate that the stock is worth $300.

 

The square footage component is well known, but we think people are missing…

  1. The productivity and market share that we’re likely to see from each new store,
  2. How scalable this business model is without commensurate capital investment,
  3. The leverage we’re likely to see is below-market real-estate deals being struck today and that should begin to impact the P&L. 
TLT

Current policy makers remain fixated on the jobs market, and this Friday’s report was good on the surface. Here’s the rundown:

  • The U.S. added +271K to non-Farm payrolls in October which blew out the expectation for +185K additions (last month’s awful print was revised even lower to +137K additions). Remember that the estimates are useless as the number is near impossible to predict. Keep that in mind.
  • Unemployment Rate moved lower to 5.0% for October from 5.1% in September
  • Wage growth was a positive surprise as Avg. hourly earnings printed a +2.5% growth rate for October vs. an expectation of +2.3%. The growth rate in September was +2.2%

So, again, on the surface it was a positive report. However, as we’ve emphasized, consumption and labor market strength are staples of an economy that is late cycle.

Growth continues to slow, and a rate hike has the potential to pull-forward a recession and flatten the yield curve. In the event this happens, you’ll be happy you held onto your long-bond position. If you haven’t bought into the #slower-for-longer view, the market is giving you the chance to buy bonds at another lower high… For the 5th time this year.

Three for the Road

TWEET OF THE DAY

Shhh! Macys CEO Just Hinted At Recession | $M

https://app.hedgeye.com/insights/47486-shhh-macy-s-ceo-just-hinted-at-recession… via @HedgeyeRetail @KeithMcCullough #Macys … via @KeithMcCullough #markets $SPY #earnings

@Hedgeye

QUOTE OF THE DAY

You cannot plough a field by turning it over in your mind.

Author Unknown

STAT OF THE DAY

Wal-Mart is projecting that its earnings may fall by as much as 12% during the next fiscal year.


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CHART OF THE DAY: #SuperLateCycle Reality, Meet Mr. Market

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe. 

 

"... The “market” may not be down huge (yet), but if you’re long mainline USA Retailers like Wal-Mart (WMT), Kohl’s (KSS), and Macy’s (M), you are! That’s the thing about telling people stories about the “market” – there’s this thing called what you own within the market.

 

Macy’s (M) was down -14% yesterday after veteran CEO Terry Lundgren explained the concept of “tough comps” (at the end of a 6-7 year cycle) to everyone who was begging for him to “spin” into a REIT."

 

CHART OF THE DAY: #SuperLateCycle Reality, Meet Mr. Market - 11.12.15 EL chart

 

 


Consumer Slowing Stories

“We learn best through stories.”

-Jon Gordon

 

That’s a great quote from an inspirational book called The Carpenter. It comes to mind this morning after we sat down with one of 2015’s best performing hedge fund managers (in Texas) yesterday.

 

He started our meeting with, “tell me a story – how does this play out from here.” So, I told the man a story. And he liked it.

 

Not everyone likes the cyclical story about both US employment and consumption being classic #LateCycle. Consensus preferred the fictional tale that “low gas prices are bullish” for everything Ex-Energy. But the truthful story paid off (again) in spades.

Consumer Slowing Stories - Yellen cartoon 11.11.2015

 

Back to the Global Macro Grind

 

I know. I know. It’s different this time and while US Retail Sales have been slowing in rate of change terms since the cycle peak (NOV 2014 US Retail Sales +4.7% y/y), as long as you own Amazon at 996x trailing earnings and shorted everything else, you’re crushing it.

 

Here are your morning scores, in US Retail Sector ETF (XRT) terms:

  1. XRT is down -11.2% since we introduced it on the bear side in our #ConsumerCycle Slowing deck (July 2015)
  2. XRT is down -7.2% YTD vs. “the market isn’t down huge” narrative

The “market” may not be down huge (yet), but if you’re long mainline USA Retailers like Wal-Mart (WMT), Kohl’s (KSS), and Macy’s (M), you are! That’s the thing about telling people stories about the “market” – there’s this thing called what you own within the market.

 

Macy’s (M) was down -14% yesterday after veteran CEO Terry Lundgren explained the concept of “tough comps” (at the end of a 6-7 year cycle) to everyone who was begging for him to “spin” into a REIT.

 

He, like Hedgeye’s founder (me), models the forward outlook using the base effect of the prior comparative (comps) sales period. If you have a better way to front-run rising probabilities of accelerations or decelerations in a business, let me know.

 

We model the US economy the exact same way.

 

So, Mucker, tell me a story about what happens from here, in US economic terms:

  1. US Employment Growth (non-farm payrolls) peaked in Q1 of 2015 and will continue to slow through at least Q2 of 2016
  2. US Consumption Growth (Real PCE) peaked in Q1 of 2015 and will continue to slow through at least Q2 of 2016
  3. US Profit Cycle Growth (SP500 Earnings) peaked in Q2 of 2015 and will continue to slow through at least Q2 of 2016

And since both the Federal Reserve and the Old Wall consensus storytelling (that has been wrong all year long on both #GrowthSlowing and #Deflation) is calling for the opposite of the aforementioned 3 chapters, we have one heck of an opportunity to earn our 2 & $29.95/mth.

 

But, if we continue to be right on the timing of it all:

  1. Couldn’t the “market” go up as the Fed has to ease on that?
  2. Wouldn’t bad (slowing) news be “good” (because everything is always good)?
  3. What happens when bad is breaking bad (see AUG-SEP 2015 for details)?

So many questions. So many stories to tell at every turn.

 

Catalysts?

  1. DEC 3rd ECB meeting where Draghi doubles down on devaluation? (that’s deflationary in USD terms)
  2. DEC 4th US Jobs report where the Fed is going to have to day trade Fed fund futures within a 20-90% range (probability of hike)
  3. DEC 16th Fed Meeting – to hike, or not to hike, into #Deflation Risk and an economic slow-down, remains The Question

In other words, between now and the 1st week of December, you can either trade the chop or bang your head against the wall. You can tell yourself whatever you want, really. But, in the end, both the US economic data and companies have to report #SuperLateCycle realities.

 

Our immediate-term Global Macro Risk Ranges are now (with intermediate-term TREND research view in brackets):

 

UST 10yr Yield 2.09-2.38% (bearish)

SPX 2054-2093 (bearish)
RUT 1160--1204 (bearish)

NASDAQ 4 (bullish)

Nikkei 180 (bullish)

DAX 101 (neutral)

VIX 14.17-18.83 (bullish)
USD 98.05-100.23 (bullish)
EUR/USD 1.06-1.08 (bearish)
YEN 121.33-123.99 (bearish)
Oil (WTI) 42.07-45.37 (bearish)

Nat Gas 2.19-2.39 (bearish)

Gold 1065-1105 (bearish)
Copper 2.16-2.27 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Consumer Slowing Stories - 11.12.15 EL chart


JACK | THE SHARKS ARE CIRCLING

Jack in the Box (JACK) is on our Hedgeye Restaurants Best Ideas list as a SHORT.

 

JACK reports 4Q15 earnings after market close on November 17th followed by a call on the 18th at 11:30am ET, we are staying SHORT into the print.

 

 

HEDGEYE OPINION

The world is constantly changing. This fact is very apparent in the food space, where consumers can’t make up their mind about what or where to eat their next meal/snack. Hence the need for a quality media plan, coupled with a differentiated experience to drive people to your restaurant versus the other dozen on the same road.

 

Per Restaurant Research, October TV airings momentum diverged, with QSR picking-up momentum while FSR continued to slow.

 

10 national chains increased the number of TV airings by more than +33% y/y including: +120% Arby's (brisket & steak sandwiches), +78% Taco Bell (breakfast & The Boss Wrap), +61% Chick-fil-A ("Eat Mor Chikin" Campaign/Original Chicken Sandwich), +61% Ruby Tuesday's (Garden Bar Lunch Combos Under $10), and +58% Papa John's (Players' Choice Lg. Pizzas $12).

 

Five chains decreased the number of TV airings by more than -33% including: -61% Red Robin, -56% Jack in the Box, -51% Dunkin' Donuts, -41% Buffalo Wild Wings and -41% Cracker Barrel.

 

Given what RRGB, DNKN and BWLD said about October and the market reaction they received, we suspect JACK will say October is soft/choppy as well.

 

CONSENSUS EXPECTATIONS ARE TOO HIGH

On the Jack in the Box stores specifically, consensus estimates are calling for them to post a same-stores sales growth number of 5.7% versus 3.1% a year prior, a 260bps increase. On a two-year trend basis this represents a 40bps sequential slowdown to 4.4%. It is unrealistic to think a company playing in an increasingly competitive market with declining advertising spending is going to see differentiated growth that outpaces the competition.

JACK | THE SHARKS ARE CIRCLING - CHART 1 Replace

 

Moving onto Qdoba, which was highlighted in our recent BURRITO TRACKER, is looking destined for disappointment. All of our Macro Monitor data sets are headed south, and with correlations in the past looking good, we have to stick to our guns on this one. Chipotle suffered during their 3Q15 which they reported a couple of weeks ago, and given their 0.71 correlation to each other it appears that Qdoba is headed in the same direction.

JACK | THE SHARKS ARE CIRCLING - CHART 2

JACK | THE SHARKS ARE CIRCLING - CHART 3

 

 

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 

 


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