The Economic Data calendar for the week of the 28th of December through the 1st of January is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.
Takeaway: Domestic equity is set to finish its worst year on record. Meanwhile, investors seeking safety continue to make contributions to money funds
Investment Company Institute Mutual Fund Data and ETF Money Flow:
As 2015 comes to a close, domestic equity mutual funds continues to lose capital, ceding another -$7.4 billion to redemptions in the 5-day period ending December 16th. That brings the year-to-date total outflow to -$167.7 billion, $69.8 billion greater than the mean -$97.9 billion annual redemption in all data since 2007. With only a week left in the year, domestic equity mutual funds are maintaining pace in 2015 for their worst year on record.
Despite the aversion to domestic equity funds in 2015, investors favored international equity funds and passive equity ETFs. The former took in +$102 billion in 2015 (above the long term mean), the latter +$128.6 billion (essentially in line with the annual adoption to ETFs).
The rotation into passive products also affected fixed income mandates in 2015, with taxable bond mutual funds putting in a rare annual redemption of -$27.7 billion, well below the average annual subscription since 2007 of +$117.5 billion. Fixed income ETFs continued to gain share adding +$51.8 billion to assets-under-management, +$17.2 billion more than the +$34.6 billion annual average.
Finally, with investors seeking safety, especially in the latter half of the year, money market funds are set to end the year in positive territory, currently at +$1.0 billion in YTD subscriptions versus their -$52.2 billion average annual redemption since 2007, feeding the rise in risk assets. Money funds assets had annual inflows in 1999 and also 2005, preceding risk aversion in 2000 and 2006-2007 in front of the past two Bear Markets..
In the most recent 5-day period ending December 16th, total equity mutual funds put up net outflows of -$11.1 billion, trailing the year-to-date weekly average outflow of -$1.3 billion and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund withdrawals of -$3.6 billion and domestic stock fund withdrawals of -$7.4 billion. International equity funds have had positive flows in 41 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 -$12.0 billion, trailing the year-to-date weekly average outflow of -$297 million and the 2014 average inflow of +$926 million. The outflow was composed of tax-free or municipal bond funds contributions of +$647 million and taxable bond funds withdrawals of -$12.6 billion.
Equity ETFs had net subscriptions of +$8.8 billion, outpacing the year-to-date weekly average inflow of +$2.6 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 +$1.0 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 poured +$1.3 billion or +12% into the energy XLE ETF.
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.
The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a positive +$10.9 billion spread for the week (-$2.2 billion of total equity outflow net of the -$13.2 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 +$1.2 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
Joshua Steiner, CFA
Takeaway: As energy companies' hedges expire, jobless claims in energy heavy states are blowing out versus the country as a whole.
While total U.S. initial unemployment claims remained a healthy 267k in the latest week, the big callout continues to be what's happening in the energy states. The chart below shows the growing chasm between indexed initial claims in our 8-state energy basket vs the country as a whole. As energy companies step up cuts into YE2015 hedge expiration, the spread between energy state claims and total US claims rose from 51 to 59 in the latest week. That marks a new all-time wide since the inception of our tracker back in mid-2014.
Prior to revision, initial jobless claims fell 4k to 267k from 271k WoW, as the prior week's number was revised up by 1k to 272k.
The headline (unrevised) number shows claims were lower by 5k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 1.75k WoW to 272.5k.
The 4-week rolling average of NSA claims, another way of evaluating the data, was -5.3% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -7.5%
The 2-10 spread fell -2 basis points WoW to 127 bps. 4Q15TD, the 2-10 spread is averaging 137 bps, which is lower by -16 bps relative to 3Q15.
Joshua Steiner, CFA
Jonathan Casteleyn, CFA, CMT
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Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye U.S. Macro analyst Christian Drake. Click here to learn more.
"... Aggregate wage and salary income remains a particularly pronounced driver of consumption in the present cycle with credit growth remaining modest and the long-term capacity for consumer re-levering to drive incremental consumption growth remaining constrained.
Both disposable personal income and aggregate Salary and Wage Income growth decelerated on a 1Y and 2Y basis in November as employment and comp dynamics continue to define the 2nd derivative trend. Aggregate income growth will remain positive over the nearer-term but will continue to slow against steepening comps."
This decision has come not from fear, but from a clarity of judgement – free from the cloud of terror that surrounds us and obscures our view. I can say only one thing to Columbians in this time of peril. There will be a future!
-Cesar Gaviria, Narcos (s1, e5)
Cesar delivers that line as part of an epic speech supporting extradition of drug traffickers in Colombia – a landmark decision which would indelibly shape the future of Colombia and ensure his own attempted assassination.
The decision was born of objective mental clarity, moral conviction … and cojones.
If you haven’t yet watched the series (Narcos, Netflix original), I’d recommend it.
The downtime around holidays provides a natural opportunity for introspection and life-contemplation – this year, perhaps more than ever, as peril and serial terror attempt to obscure our national and global history of humanism and acceptance with a cloud of fear and knee-jerk protectionism.
Immigration and refugee policy is invariably complex and wrought with competing interests and compelling intellectual, emotional and ideological arguments.
We're largely politically agnostic @Hedgeye but our process is rooted in objective analysis and common sense – and I’m fairly certain we can do better than a “cold shoulder” policy prescription.
The world our children will inherent is not static and sterilized and everyone doesn’t get a trophy just for showing up.
Collectively, we need to be the change we want to see and an aspirational model for the first generation of a flat world.
Don’t wait for it to come. Be-come it.
Back to the Global Macro Grind …
The change (as in rate-of-change) panglossian equity optimists want to see in the domestic data flow is not what Mother Macro delivered yesterday.
Alongside detailing yesterday’s deluge of Income, Spending, Industrial and Confidence data, let's quickly review the 2nd derivative (i.e. slope of the line) state of some key macro metrics.
We highlighted these in an institutional note yesterday, but they’re helpful in contextualizing the cyclical slowdown currently characterizing our late-cycle reality. So, to recapitulate:
Cycles cycle and our current cyclical march is one of deceleration. There will be a future filled with positive inflections and accelerations but between here and there exists a stocking full of P&L to risk manage.
We’re looking forward to chasing the peri-holiday gluttony with some rest then helping you chase down some early, non-consensus new year alpha.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.12-2.32%
Oil (WTI) 34.94-38.08
Merry Christmas and Happy Holidays to you and your loved ones,
Christian B. Drake
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