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Join Hedgeye For Holiday Cocktails & Appetizers

'Tis the Season…. We hope you can join us at La Biblioteca (622 3rd Avenue at 40th Street – located inside Zengo restaurant) on Wednesday December 9th, from 5-9pm for some holiday cheer!

 

Please RSVP to Kerrie at  if you can join.

 

We look forward to seeing you!

 

Join Hedgeye For Holiday Cocktails & Appetizers - he client holiday party DEC2015


Join Hedgeye For Holiday Cocktails & Appetizers

'Tis the Season…. We hope you can join us at La Biblioteca (622 3rd Avenue at 40th Street – located inside Zengo restaurant) on Wednesday December 9th, from 5-9pm for some holiday cheer!

 

Please RSVP to Kerrie at  if you can join.

 

We look forward to seeing you!

 

Join Hedgeye For Holiday Cocktails & Appetizers - he client holiday party DEC2015


Whoops! Epic Fail For Financial Times On ECB Decision

What an epic fail for financial journalism today.

 

The Financial Times leaked incorrect coverage ahead of the ECB's major policy announcement at 7:38am. (The actual announcement wasn't due until 7:45am).

 

Here is the FT's Twitter stream and the recanting of that original misinformation.

 

Whoops! Epic Fail For Financial Times On ECB Decision - ft mistake

 

Here's what actually happened:

  • The ECB announced that it would cut the deposit facility rate to -0.3% from -0.2%.
  • ECB Head Mario Draghi also said that the ECB would extended the asset purchase programme to the end of March 2017, "or beyond, if necessary."
  • The ECB would also reinvest all principal payments on the securities purchased under the asset purchase program as they mature, as long as necessary

The markets seemed underwhelmed with a selloff in European equity markets... 

 

Whoops! Epic Fail For Financial Times On ECB Decision - ecb cowbell

 

 


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ICI Fund Flow Survey | Ongoing Rotation to ETFs

Takeaway: Almost all active categories had withdrawals last week, including -$3.5 B from domestic equity funds. Meanwhile, equity ETFs gained +$8.0 B.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Fund flows in the 5-day period ending November 25th were similar to the week prior. Investors again pulled funds from almost all actively managed risk categories, as the rotation into passive products continued. Total equity mutual funds lost -$3.9 billion with total fixed income mutual funds shedding -$2.7 billion for the week. Meanwhile, investors contributed +$8.0 billion and +$670 million to equity and fixed income ETFs, respectively.

 

A broader look at the ongoing damage from passives against the active industry outlines the continued growth trajectory of ETFs. Passive ETFs have garnered 55% of cumulative investment flow since 2007 taking in over $1.4 trillion versus all long-term mutual fund products of $1.1 trillion (both stock and bond funds). The damage on the equity side specifically is most notable with international and domestic equity funds having lost -$281 billion since '07 versus the over $1.0 trillion inflow for equity ETFs over the same time frame. The divergence this year is running near another +$150 billion for passives with active equity outflows at -$39 billion (running domestic equity fund flows for '15 are -$147 billion netted against international funds with a +$107 billion contribution) and equity ETFs taking in +$109 billion in the first 11 months of the year. With only 13% total market share against total fund products, the ETF structure has plenty of additional share to gain.  

 

ICI Fund Flow Survey | Ongoing Rotation to ETFs - WETF chart

 

 

In the most recent 5-day period ending November 25th, total equity mutual funds put up net outflows of -$3.9 billion, trailing the year-to-date weekly average outflow of -$840 million and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund withdrawals of -$369 million and domestic stock fund withdrawals of -$3.5 billion. International equity funds have had positive flows in 43 of the last 52 weeks while domestic equity funds have had only 8 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up net outflows of -$2.7 billion, trailing the year-to-date weekly average inflow of +$100 million and the 2014 average inflow of +$926 million. The outflow was composed of tax-free or municipal bond funds contributions of +$642 million and taxable bond funds withdrawals of -$3.3 billion.

 

Equity ETFs had net subscriptions of +$8.0 billion, outpacing the year-to-date weekly average inflow of +$2.3 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$670 million, trailing the year-to-date weekly average inflow of +$1.1 billion and the 2014 average inflow of +$1.0 billion.

 

ICI Fund Flow Survey | Ongoing Rotation to ETFs - 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 | Ongoing Rotation to ETFs - ICI2

 

ICI Fund Flow Survey | Ongoing Rotation to ETFs - ICI3

 

ICI Fund Flow Survey | Ongoing Rotation to ETFs - ICI4

 

ICI Fund Flow Survey | Ongoing Rotation to ETFs - ICI5

 

ICI Fund Flow Survey | Ongoing Rotation to ETFs - 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 | Ongoing Rotation to ETFs - ICI12

 

ICI Fund Flow Survey | Ongoing Rotation to ETFs - ICI13

 

ICI Fund Flow Survey | Ongoing Rotation to ETFs - ICI14

 

ICI Fund Flow Survey | Ongoing Rotation to ETFs - ICI15

 

ICI Fund Flow Survey | Ongoing Rotation to ETFs - 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 | Ongoing Rotation to ETFs - ICI7

 

ICI Fund Flow Survey | Ongoing Rotation to ETFs - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors contributed +$135 million or +6% to the materials XLB ETF, more than replacing the prior week's -$94 million withdrawal.

 

ICI Fund Flow Survey | Ongoing Rotation to ETFs - 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 | Ongoing Rotation to ETFs - ICI17

 

ICI Fund Flow Survey | Ongoing Rotation to ETFs - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a positive +$6.2 billion spread for the week (+$4.2 billion of total equity inflow net of the -$2.0 billion 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 +$968 million (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 | Ongoing Rotation to ETFs - 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 | Ongoing Rotation to ETFs - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA







Inflation Expectations, OPEC and China

Client Talking Points

INFLATION EXPECTATIONS

As Janet Yellen jawboned the dollar higher yesterday, all things inflation expectations and dollar settled commodities headed south: Oil = -4.4%, XLE = -3.1%, Gold = -1.5%, Copper = -1.8%, 5YR Breakevens = -1.7 bps, etc.  While energy price comps will ease beginning in late 1Q16, a sustained attempt at domestic policy “normalization” will only perpetuate strong dollar disinflationary pressure at home and continue to pressure currencies and growth expectations abroad, particularly across EM, developing and commodity economies.   

OPEC

OPEC members with the highest production costs and fiscal break-evens are creating quite a bit of noise around production cuts ahead of tomorrow’s meeting. Saudi Arabia has changed its tone in a sense from last year after oil has been cut 45% from the last meeting in saying that it would consider a cut if those within OPEC (namely Iraq), and those outside of OPEC (namely Russia) are willing to cut production. Russia has already said it has no interest in complying or attending the meeting. Stick with the relative monetary catalysts (ECB today) and Jobs Report tomorrow for direction on the USD and commodities. 1 and 3-month correlations between the USD and WTI are tightening up again at -.68 and .79 for WTI (r-squared).  

CHINA

Mainland Chinese markets strengthened on Thursday with the Shanghai rising +1.35% and the Shenzhen adding +2.50% with banks and property developers were among the leading gainers amid expectations of more stimulus following a spate of November PMI data that confirmed an ongoing contraction in China’s manufacturing industry – most notably with the official National Federation of Logistics and Purchasing Managers index falling to 49.6 (the lowest since August 2012). On the stimulus front, the PBoC injected CNY30B in liquidity during regular open market operations today, bringing the net liquidity injection in the week-to-date to CNY50B. This marked the largest weekly injection since early September. With key structural headwinds intact and various high-frequency indicators continuing to slow on a trending basis across a variety of key metrics, we continue to caution against anticipating a recovery in Chinese economic growth over the intermediate-term TREND or long-term TAIL.

 

*Tune into The Macro Show with Macro analyst Darius Dale and Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 69% US EQUITIES 3%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 14% INTL CURRENCIES 8%

Top Long Ideas

Company Ticker Sector Duration
MCD

We added McDonald's to Investing Ideas on August 11th. Since then shares of McDonald's have risen over 16% compared to a 0.2% return for the S&P 500.

 

As Restaurants Sector Head Howard Penney wrote right around the time we added McDonald's (MCD), "We continue to get more bullish every time we talk to the company, franchisees and/or customers which we have polled via conducting surveys. We are going to be looking at a much different company 1-3 years from now. Urgency has been instilled from the top down by new CEO Steve Easterbrook," according to Penney. "This ship is in gear and headed north. 2015 will be the last time this stock is below $100."

RH

We believe that RH is to Home Furnishings what Ralph Lauren is to Apparel and what Nike is to Athletic Shoes. That’s a meaningful statement given that RH has only 3% share of a $140 billion relevant market.

 

RH is the preeminent brand in the space. We think that RH is in second inning of a game that may ultimately prove to be a double header. We believe the company will add $3 billion in sales over 3-years and climb to $11 in EPS. The earnings growth and cash flow characteristics to get to that kind of number would support a 30+ multiple. In the end, we see a stock in excess of $300.

TLT

The consumption side of the economy is arguably the most important, as its 69% of U.S. GDP. From a rate-of-change perspective, consumption growth decelerated in October, and consumer confidence is waning along-side it. That's why we would like to reiterate our Growth Slowing=Long TLT call.

 

To be clear, the consumption side of the economy had been a point of strength over the last several months. We’re not calling for a crash in household consumption, but the comps (comparison vs. prior reporting period) are important in rate-of-change analysis. The next four quarters of comps for Real PCE growth are the most difficult since Q3 2008 while the next four quarters of comps for CPI are the easiest since the four quarters ended in 4Q11. Simply put, both are headwinds for the consumer and we expect that the consumption component of the economic equation will continue to decelerate.

Three for the Road

TWEET OF THE DAY

NEW VIDEO (3 mins) | The Astonishing Audacity of Central Planners https://app.hedgeye.com/insights/47850-mccullough-the-astonishing-audacity-of-central-planners… via @KeithMcCullough #ECB #Draghi #Fed $FX #Yellen

@Hedgeye

QUOTE OF THE DAY

Obvious thinking commonly leads to wrong judgments and wrong conclusions.

Humphrey B. Neil

STAT OF THE DAY

Drake was the most-streamed artist of 2015 on Spotify, according to the company, with 1.8 billion streams. Justin Bieber (another fellow Canadian) took the record for the most streams in a single day, with 36 million on November 13. 


The Macro Show Replay | December 3, 2015

 


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