[UNLOCKED] Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown

Editor's Note: Below is a complimentary research note which was originally published November 12, 2015 by our Financials team. If you would like more info on how you can access our institutional research please email sales@hedgeye.com.

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.

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.

 

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, 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.

 

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 -$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.)

 

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: