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The X Factor: ‘Ex-Everything, Financial Markets Look Really Good’

 

In this excerpt of The Macro Show this morning, Hedgeye CEO Keith McCullough pulled up charts of crashing equity markets around the world and took Wall Street to task for its nonsensical bullish stock market thesis that “Ex-Energy the stock market looks good.”

 

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[UNLOCKED] 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.  

 

[UNLOCKED] 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.

 

[UNLOCKED] Fund Flow Survey | Ongoing Rotation to ETFs - ICI1 large 12 8

  

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] Fund Flow Survey | Ongoing Rotation to ETFs - ICI2

 

[UNLOCKED] Fund Flow Survey | Ongoing Rotation to ETFs - ICI3

 

[UNLOCKED] Fund Flow Survey | Ongoing Rotation to ETFs - ICI4

 

[UNLOCKED] Fund Flow Survey | Ongoing Rotation to ETFs - ICI5

 

[UNLOCKED] 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.

 

[UNLOCKED] Fund Flow Survey | Ongoing Rotation to ETFs - ICI12

 

[UNLOCKED] Fund Flow Survey | Ongoing Rotation to ETFs - ICI13

 

[UNLOCKED] Fund Flow Survey | Ongoing Rotation to ETFs - ICI14

 

[UNLOCKED] Fund Flow Survey | Ongoing Rotation to ETFs - ICI15

 

[UNLOCKED] 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:

 

[UNLOCKED] Fund Flow Survey | Ongoing Rotation to ETFs - ICI7

 

[UNLOCKED] 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.

 

[UNLOCKED] 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.

 

[UNLOCKED] Fund Flow Survey | Ongoing Rotation to ETFs - ICI17

 

[UNLOCKED] 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.)

  

[UNLOCKED] 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:

 

[UNLOCKED] Fund Flow Survey | Ongoing Rotation to ETFs - ICI11 


Crash, Boom, Bang! The Russell 2000 Enters Correction Territory (Again)

Takeaway: We've been repeatedly warning about style factor risk to small cap stocks.

Crash, Boom, Bang! The Russell 2000 Enters Correction Territory (Again) - russell 2000

 

The Russell 2000 took another beating yesterday. It was the most recent fallout in an already tough year. The small-cap index is down 3% year-to-date but is in correction mode from its 2015 high.

 

The Russell’s poor performance in 2015 is worth probing because it's crash actually exemplifies much of what Hedgeye has warned subscribers about all year. In yesterday’s Chart of the Day, Hedgeye CEO Keith McCullough walked readers through the style factors that have worked so far in 2015.

  1. Good Balance Sheets: Low Debt = +3.6% YTD
  2. Quality: Low Beta and Low Short Interest +1.7% and +3.0% YTD, respectively
  3. Organic Sales Growth: Top 25% Sales Growers in the SP500 = +7.3% YTD

 

Crash, Boom, Bang! The Russell 2000 Enters Correction Territory (Again) - 12.07.15 EL chart

 

Style factors also explain why Russell 2000 stocks are crashing from their 2015 highs. Here’s McCullough’s analysis from a note sent to subscribers this morning:

 

“The Russell 2000 moved back into double-digit correction mode yesterday (-10.1% since July’s all-time #Bubble high) as small cap, leverage, and high beta continue to some of the worst Style Factors to be long during a #LateCycle slow-down that’s driven by #Deflation expectations.”

 

Crash, Boom, Bang! The Russell 2000 Enters Correction Territory (Again) - russell 2000 down

 

Watch out.


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The Macro Show Replay | December 8, 2015

 


December 8, 2015

Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, with our intermediate-term (TREND) view and the previous day's closing price for each name.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.32 2.14 2.23
SPX
S&P 500
2,049 2,109 2,077
RUT
Russell 2000
1,152 1,178 1,164
COMPQ
NASDAQ Composite
5,039 5,175 5,101
NIKK
Nikkei 225 Index
19,461 20,030 19,698
DAX
German DAX Composite
10,651 11,106 10,886
VIX
Volatility Index
14.01 18.69 15.84
DXY
U.S. Dollar Index
97.54 99.46 98.67
EURUSD
Euro
1.04 1.09 1.08
USDJPY
Japanese Yen
122.18 123.56 123.35
WTIC
Light Crude Oil Spot Price
36.64 39.98 37.63
NATGAS
Natural Gas Spot Price
2.01 2.21 2.07
GOLD
Gold Spot Price
1,052 1,086 1,070
COPPER
Copper Spot Price
1.98 2.09 2.05
AAPL
Apple Inc.
115 120 118
AMZN
Amazon.com Inc.
650 680 669
PCLN
Priceline.com Inc.
1,220 1,306 1302
VRX
Valeant Pharmaceuticals International, Inc.
79.37 98.99 92.24
MCD
McDonald's Corp.
113 117 116
KMI
Kinder Morgan Inc.
15.06 20.03 16.42

 

 


CHART OF THE DAY: The Epic Crash In Commodities

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.

 

"... Reflation (per Wikipedia) “is the act of stimulating the economy by increasing the money supply… seeking to bring the economy (specifically price level) back up to the long-term trend.”

 

That, my friends, is central-planning-cheerleading 101. So whoever’s research you are reading that continues to cheer on “600 rate cuts globally” being the elixir for perma-asset-price-inflation is still looking for Waldo (i.e. demand accelerating).

 

Here’s how “reflation” looked in commodity portfolios."

 

CHART OF THE DAY: The Epic Crash In Commodities - 12.08.15 EL chart


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