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ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015

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..

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI19 3

 

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.

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - 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 | Record Domestic Equity Outflows in 2015 - ICI2

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI3

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI4

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI5

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - 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 | Record Domestic Equity Outflows in 2015 - ICI12

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI13

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI14

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI15

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - 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 | Record Domestic Equity Outflows in 2015 - ICI7

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI8



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.

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - 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 | Record Domestic Equity Outflows in 2015 - ICI17

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI18



Net Results:

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.)

  

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - 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 | Record Domestic Equity Outflows in 2015 - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA







INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT

Takeaway: As energy companies' hedges expire, jobless claims in energy heavy states are blowing out versus the country as a whole.

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims1

 

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.

 

 

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims18

 

The Data

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%

 

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims2

 

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims3

 

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims4

 

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims5

 

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims6

 

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims7

 

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims8

 

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims9

 

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims10

 

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims11

 

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims19

Yield Spreads

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.

 

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims15

 

INITIAL JOBLESS CLAIMS | ENERGY STATE BLOWOUT - Claims16

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Cartoon of the Day: Ebenezer Screwed

Cartoon of the Day: Ebenezer Screwed - Recession yet to come cartoon 12.24.2015

 

The warning signs are all there. Hedgeye's Macro team has been highlighting the increasing probability that the U.S. economy tips into a recession during the second half of 2016. 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

CHART OF THE DAY: A Closer Look At Late-Cycle Reality

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."
 

CHART OF THE DAY: A Closer Look At Late-Cycle Reality - Aggregate Salary  Wage Growth


Cojones

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. 

 

Cojones - late cycle

 

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: 

  • Employment:  Employment growth peaked in February 2015 and has been slowing since. Employment growth is hostage to the law of large numbers and will invariably slow alongside tighter labor supply and a growing employment base as an expansion matures.  A negative inflection in employment growth doesn’t herald an imminent recession but, empirically, it’s a one way street as the cycle progresses past peak and onto eventual recession. The labor trend matters insomuch as it’s the principal driver of all things consumption and investment …
  • Income Growth: Income Growth peaked in 4Q14/1Q15 alongside peak acceleration in employment growth and modest gains in earnings.  Absent a material acceleration in credit growth, income growth drives the capacity for and trajectory of consumption growth. Indeed, income growth and the change in the savings rate carrying  >0.95 correlation to household consumption growth across decades of data. 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.
  • Consumption: Consumption growth peaked in 1Q15 alongside the peak in employment and income growth. Again, absent remarkable changes in the savings rate and/or consumer credit growth, consumption growth will follow the slope of aggregate income growth. Indeed, we saw that again in the November consumption data yesterday with household spending growth slowing for a 2nd month as the savings rate held near multi-year highs and income growth decelerated further. Household spending growth will remain “okay” on an absolute basis over the nearer term but will continue to slow alongside slowing income trends and tougher base effects. (Recall – Macro cares about the slope of the line and the 2nd derivative trend will remain negative.)
  • Corporate Profitability: Both Corporate Profitability as a % of GDP and S&P500 operating margins peaked in late 2014 and have retreated since. Past peak profitability, persistent strong dollar deflationary pressures, negative growth/inflation revision trends and a broad expectation for higher labor input costs is not the stuff multiple expansion or lazy long allocations are made of.
  • Confidence: Consumer Confidence across all the primary series (Conference Board, University of Michigan, Bloomberg) peaked in 1H15 and have since backslid.  Confidence peaks late-cycle and, unsurprisingly, peaks alongside the peak in real per capita disposable income growth (i.e. when the most people are realizing their greatest income flow) and Per Capita DPI appears to have peaked in 2Q/3Q15. 
  • Manufacturing: With the ISM printing in contractionary territory and Durable Goods and Capex Orders growth negative for most of the last year, the domestic manufacturing data has been conspicuously recessionary. Under the headline Durable goods numbers yesterday, Core capex-orders recorded negative growth for a 10th consecutive month and Durable Goods Ex-Defense and Aircraft - which represents the stuff the average household actually buys – saw a 7th straight month of negative YoY growth. The collapse over the trailing twelve months, of course, is now the 2016 comp but given further OUS slowing, another step function lower in oil/energy/commodity prices and another wave of investment and labor realignment across the energy and mining spaces, the trend there is likely to get worse before it gets better.    

 

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%

SPX 1 

VIX 14.42-24.89
USD 97.13-99.41
Oil (WTI) 34.94-38.08

 

Merry Christmas and Happy Holidays to you and your loved ones,

 

Christian B. Drake

 

Cojones - Aggregate Salary  Wage Growth


USD, Oil and Japan

Client Talking Points

USD

Down Dollar is what that ole “reflation” hope is built on and you’re seeing some follow through there this morning with the EUR and YEN  up +0.4-0.5% against the USD. But a bullish TREND in the USD remains firmly intact, the risk range is 97.13-99.41.

OIL

Oil up +4.8% in a straight line yesterday led the rally in oversold #Deflation equities – that move does not a bullish TREND make with the immediate-term risk range for WTI now at $34.94-38.08 (sell at the top-end of the range).

JAPAN

Japan doesn’t like this whole up Yen (Down Nikkei for the 5th straight day), so BOJ’s Kuroda opts for the Draghi “whatever it takes” speech overnight saying they’ll even “buy ETFs” (equities!) directly, LOL.

Asset Allocation

CASH 66% US EQUITIES 2%
INTL EQUITIES 3% COMMODITIES 0%
FIXED INCOME 17% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
FII

Federated Investors (FII) profitability got a boost last week as the Fed boosted short term rates for the first time in 7 years. Even the slight 25 basis point hike improves profitability in the firm’s leading money fund business by +30% into the New Year.

 

In essence, the firm rolls 30-day paper throughout the short term fixed income curves and the new higher yields forthcoming into 2016 will allow the company to claw back some of the waived fees it has extended to its client base in money funds. Year-to-date the company has waived over $300 million in fees. With that firmly in the rearview, it becomes an opportunity set as FII gets higher yield from cash products next year.

 

In the financial sector, FII is the most asset sensitive name we cover, meaning it benefits most from even marginal interest rate hikes.

RH

We have to give Restoration Hardware Chairman and CEO Gary Friedman props for his approximately nine minute segment on Cramer last week. Let's face it, him going on what's arguably the most volatile and biased financial media platform, unscripted, is not what we wanted to see. The risk of fireworks was high.

 

But he capped off a successful day RH (CFO and IR) had on the investor conference circuit by focusing on the real value drivers at Restoration Hardware (RH) -- growth in product concepts, and RH's real estate transformation. The appearance was planned well before the earnings release, by the way, coinciding with a business-focused trip to NYC. All-in, it was a positive event for the stock.

TLT

Now that the Fed finally hiked federal funds by 25 basis points into a late-cycle slowdown, the fact that TLT was up 1.8% (Wed-Fri.) on “lift-off” should be concerning to the growth accelerating bulls. After the dovish hike, the U.S. Treasury 10-Year Yield (THE GROWTH EXPECTATION PROXY) was down 10 basis points (2.3% to 2.2%). And yes, the most telegraphed rate hike ever was dovish.

 

Just look at the Fed’s projections and the language in the FOMC's statement. Yellen, essentially, acknowledged what we have said for ~ a year and a half now:

  • “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate”
  • “Market-based measures of inflation expectations remain low; some survey-based measures of longer-term inflation expectations have edged down”
  • “Net exports have been soft”
  • ... And on the Fed’s forward-looking economic projections:
  • The Fed kept 2016 GDP estimates unchanged, and downwardly revised 2017 to 2.0-2.3% from 2.0-2.4%.
  • 2016 PCE Inflation was downwardly revised to 1.2-1.5% from 1.5-1.8%. 

Three for the Road

TWEET OF THE DAY

INSTANT INSIGHT | The Coming #Recession? https://app.hedgeye.com/insights/48235-instant-insight-the-coming-recession… cc @KeithMcCullough $CAT $XLI $WAB #Economy #Yellen

@Hedgeye

QUOTE OF THE DAY

Let your life lightly dance on the edges of time like dew on the tip of a leaf.

Rabindranath Tagore

STAT OF THE DAY

Amazon spent 11.7% of revenue on shipping costs in the third quarter this year.


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