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ICI Fund Flow Survey | Unloading Equity

Takeaway: Investors pulled -$10.7 billion from equity mutual funds and ETFs as markets continued their rout.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Investors continued to unload equity from their portfolios in the 5 days ending January 13th as markets continued their rout, although active international mandates held up with a +$3.2 billion inflow. Domestic equity, however, continued its losing streak with another -$4.8 billion outflow. Even passive equity ETFs were hit with a -$9.1 billion outflow, -$4.9 billion of which came from the SPY. Fixed income mandates fared slightly better with a total inflow of +$574 million into mutual funds and ETFs, although the preference was for municipal bonds and passive fixed income ETFs. Lastly, investors shored up +$8 billion of cash in money funds during the week.

 


ICI Fund Flow Survey | Unloading Equity - ICI1

 

In the most recent 5-day period ending January 13th, total equity mutual funds put up net outflows of -$1.6 billion, outpacing the year-to-date weekly average outflow of -$2.0 billion but trailing the 2015 average outflow of -$1.5 billion. The outflow was composed of international stock fund contributions of +$3.2 billion and domestic stock fund withdrawals of -$4.8 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 -$526 million, trailing the year-to-date weekly average outflow of -$236 million and the 2015 average outflow of -$463 million. The outflow was composed of tax-free or municipal bond funds contributions of +$1.3 billion and taxable bond funds withdrawals of -$1.8 billion.

 

Equity ETFs had net redemptions of -$9.1 billion, trailing the year-to-date weekly average outflow of -$9.1 billion and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$1.1 billion, trailing the year-to-date weekly average inflow of +$1.2 billion but outpacing the 2015 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 2015 and the weekly year-to-date average for 2016:

 

ICI Fund Flow Survey | Unloading Equity - ICI2

 

ICI Fund Flow Survey | Unloading Equity - ICI3

 

ICI Fund Flow Survey | Unloading Equity - ICI4

 

ICI Fund Flow Survey | Unloading Equity - ICI5

 

ICI Fund Flow Survey | Unloading Equity - 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 | Unloading Equity - ICI12

 

ICI Fund Flow Survey | Unloading Equity - ICI13

 

ICI Fund Flow Survey | Unloading Equity - ICI14

 

ICI Fund Flow Survey | Unloading Equity - ICI15

 

ICI Fund Flow Survey | Unloading Equity - 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 2015, and the weekly year-to-date average for 2016. 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 | Unloading Equity - ICI7

 

ICI Fund Flow Survey | Unloading Equity - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors pulled -$4.9 billion or -3% from the SPY as investors retreated from the broader domestic equity market.

 

ICI Fund Flow Survey | Unloading Equity - 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 | Unloading Equity - ICI17

 

ICI Fund Flow Survey | Unloading Equity - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$11.3 billion spread for the week (-$10.7 billion of total equity outflow net of the +$574 million 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 +$578 million (more positive money flow to equities) with a 52-week high of +$20.5 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 | Unloading Equity - 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 | Unloading Equity - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA







Call Today | Don Kohn Previews the FOMC Meeting -- 11:00 a.m. ET

Takeaway: Our colleagues at Potomac Research Group will be hosting a call with former Fed Vice Chairman Don Kohn Today, Thurs Jan 21st, at 11am ET.

Please see below for dial in details for a call that our colleagues at Potomac Research Group are holding with former Fed Vice Chairman Don Kohn on Jan. 21st.

 

Call Today | Don Kohn Previews the FOMC Meeting -- 11:00 a.m. ET - prg logo

 

JT Taylor, Managing Director and Senior Analyst
 

 

Don Kohn Previews the FOMC Meeting

Thursday, January 21 at 11:00 a.m. ET

 

Please join us at 11am Today for a call with former Fed Vice Chairman Don Kohn on the January 26-27 FOMC meeting.  Don will offer his outlook on the labor market, manufacturing data, inflation, and other trends that will factor into the Fed's calculus as markets turn bearish.

 

 

Click here to add this to your calendar

 

Dial-In Numbers for Live Call

 

 or 

 

 

Question for Us?

 

If you have a question you would like to ask, send an email before or during the call to 

 

 

For more information on Potomac Research Group and the research services they provide contact sales@hedgeye.com.

 

 

About Potomac Research Group

Potomac Research Group is an independent research firm that provides Washington policy analysis to institutional investors and private equity firms. PRG's actionable, predictive and non-consensus analysis of federal legislative activities and regulatory policies helps clients determine Washington's impact on highly-regulated industry sectors, including health care, defense, finance, technology, and telecommunications.

 

Potomac Research Group Disclosures

Although this report may mention specific companies by name and/or specific industries and industry sectors, the author(s) has not conducted and has not included in this report fundamental or other analysis of the equity securities of the identified companies, industries and/or industry sectors. This report has not been prepared, is not intended, and should not be interpreted as a research report regarding any securities of any company. The views contained herein should not be relied on as investment advice with respect to specific securities mentioned, because investment decisions should be based on numerous factors. Statements concerning economic, financial, political or market trends or government policy decisions are based on current conditions, which may change. Potomac Research Group provides policy research and analysis. We do not recommend individual investments, and we do not conduct detailed security analysis.

 

The information provided in this material has been prepared by Potomac Research Group for institutional investors and is intended strictly for research and informational purposes only. This material is not intended for natural person individual clients and no claim or representation is made thereto. All information contained herein is considered current as of the date listed on the first page of this material. This material has been prepared solely by Potomac Research Group and is provided without warranty of any kind, either expressed or implied. All information, including that used to compile charts, is obtained from sources believed to be reliable, but Potomac Research Group does not guarantee their reliability. The opinions expressed herein are subject to change without notice, and you should always obtain current information. Please refer to Potomac Research Groups' Form ADV Part 2 for other important information.

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Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

It’s Getting Uglier (Faster)

Client Talking Points

VIX

In prior U.S. economic slow-downs, the Fed would A) devalue the Dollar and B) try to smash equity market volatility. It’s impossible to do that when tightening into a slow-down; this perpetuates the liquidity trap. The VIX risk range is 22-31 and that’s why equity bulls are selling every bounce – they need to take down exposure to being wrong.

COMMODITIES

The CRB Index (19 commodities) was hammered to fresh 5 year lows yesterday (-2% to 156). This isn’t “transitory” – its pervasive – and an absolute unwind of Bernanke’s 2011 QE policy to inflate asset prices (i.e. the illusion of growth) via USD Devaluation to a 40 year low (we remain bullish on USD).

FINANCIALS

On the margin we said the U.S. Financials (XLF) were one of the best non-consensus shorts in 2016 as consensus was long them on the “rate hike.” Well, now the UST 10YR is at 1.98% and the XLF led losers again yesterday -2% to -11.9% year-to-date; won’t be long before consensus is begging for no more hikes, and then a rate cut.

 

*Tune into The Macro Show with Macro and Housing analyst Christian Drake live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 66% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 22% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
XLU

We added Utilities (XLU) on the long-side last Friday as the market continued to pummel everything we haven’t liked (high debt, high beta, and small-cap stocks leveraged to inflation expectations) – Utility stocks are low-beta, slow-growth bond proxies which is why they are by far the best relative performer year-to-date.

 

XLU is outperforming the S&P 500 by +7% and remains flat on the year. Friday’s large swath of data echoed what we have been saying for a while now on the deflationary risk of an industrial recession.

GIS

GIS led a $3 million funding round for kale chip maker Rhythm Superfoods. Although this is not a big deal and will most likely never make a strong impact to top or bottom line, it marks a changing in the tide for management thinking. They are making a distinct effort to delve deeper into the natural and organic category which will help them a lot in the long run.

 

Although the overall market has been atrocious year to date, down roughly -8%, GIS with its low beta, big cap, style factors has held in, down just -5%. We continue to like General Mills as a LONG, especially during the tumultuous times in the market.

TLT

With growth continuing to slow and volatility breaking out to the upside across asset classes, we expect the unwinding of a record amount of corporate credit leverage to continue. We’d put that deleveraging in the third or fourth inning currently. Credit spreads will continue to widen. That's why you're long TLT (and short JNK).   

Three for the Road

TWEET OF THE DAY

[REWIND] Early Look: Why Sell? (7/14/15) https://app.hedgeye.com/insights/48654-unlocked-early-look-why-sell… via @KeithMcCullough $SPY #marketselloff $IWM

@Hedgeye

QUOTE OF THE DAY

I failed my way to success.

Thomas Edison

STAT OF THE DAY

Amazon is hiring 1,200 people to staff its new robot-reliant 800,000 square-foot warehouse, these warehouses cost about $100 million each.


CHART OF THE DAY | Don't Make This Big Macro Mistake: 0% Rates = 0% Risk

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.

 

"... From my perspective, here are the big macro mistakes I am not willing to make:

  1. Believe that 0% rates = 0% risk
  2. Believe that #Deflation Risk is “transitory”
  3. Believe that US #GrowthSlowing isn’t as big a risk as #Deflation

The most basic reason why I don’t believe these things is because neither the economic data nor real-time market prices do."

 

CHART OF THE DAY | Don't Make This Big Macro Mistake: 0% Rates = 0% Risk - 01.21.15 EL chart


The Path Forward

“Does the walker choose the path, or the path the walker?”

-Garth Nix

 

Not that everyone cares about how personal this journey building Hedgeye has been, but I just wanted to say that it’s been both a pleasure and a privilege to walk down this path of seeking economic and market truths for the last 8 years.

 

One of the best parts about the trip has been all of the people I’ve met along the way. Before we started the firm, I really didn’t get what other investors did. I didn’t have the time (or get paid) to care. Now I’m overly compensated to learn. That is a blessing.

 

I couldn’t believe the feedback I had yesterday for simply saying that it was time for me to “take a knee.” So I wanted to thank all of you who reached out to me on that. The path forward will not be easy, but it’ll be less hard knowing that I’m not alone.

 

The Path Forward - woods

 

Back to the Global Macro Grind

 

Understanding where you are on the path matters inasmuch as what it took to get you there does. Did you truly understand the causal factors? Did you overcome the obstacles using the right reasoning? Were you lucky? Or are you still making excuses?

 

After spending the entire day meeting with Institutional Investors in New York City yesterday (we’ll do Boston today and tomorrow), one obvious observation is that every investor is in a different place on the path.

 

At the risk of exhausting the metaphor, think of this as a long multi-year race to the top of a performance mountain called Alpha. The path narrows. It steepens. It widens. We’ll all make mistakes traversing it. How long we stay with mistakes keeps us behind.

 

From my perspective, here are the big macro mistakes I am not willing to make:

 

  1. Believe that 0% rates = 0% risk
  2. Believe that #Deflation Risk is “transitory”
  3. Believe that US #GrowthSlowing isn’t as big a risk as #Deflation

 

The most basic reason why I don’t believe these things is because neither the economic data nor real-time market prices do.

 

Again, think about being on a mountain of colliding non-linear risks (wind, rain, animals, grrrr!). If your belief system (or marketing pitch) assumes perpetual sun and compensation fun, you’re definitely going to get wet – and you might get eaten.

 

Let’s get back to the path that we are on in Global Equities (as opposed to the one many would like to be on):

 

  1. JAPAN: Nikkei down another -2.4% overnight, taking its #crash from its July 2015 peak to 23.1%
  2. CHINA: Shanghai Comp Casino ran out of peddled fictions, making lower-lows, -3.2% overnight
  3. SINGAPORE: former “read-through” market, -1.1% overnight taking its crash to -28.4% since April 2015
  4. GERMANY: trying to “bounce” (small), but still in crash mode, -24.1% since peaking in April 2015
  5. RUSSIA: no bounce, down another -2%, crashing within its crash (down -20% in the last month alone)
  6. USA: Russell 2000 and SP500 -22.9% and -12.7% from their all-time #Bubble highs (July of 2015)

 

For 2016 YTD alone (worst start to a US stock market year ever – and ever remains a long time), the Financials (XLF) are already down -11.9% and that’s primarily because Mr. Macro Market reads crashing long-term interest rate expectations as bearish for growth.

 

When GDP growth slows from 3% to 2% to less than 1%, #Recession expectations ramp. You’re seeing that now and that’s a big part of climbing the mountain – calibrating and risk managing expectations.

 

Markets don’t trade on where ideologues or perma bull marketers think they “should be” (from a “multiple” perspective, for example). They rise and fall as the rates of change in future growth and inflation expectations do.

 

As opposed to thinking about this qualitatively, here are two very basic mathematical considerations:

 

  1. SPREAD RISK – when it’s widening, that is bad; when it’s compressing, that is good
  2. VOLATILITY – when it’s breaking out, that is bad; when it’s in a bearish TREND, that is good

 

Bad and good, from the underlying asset price’s perspective, that is.

 

Forget about those wild #Deflation animals (China and Oil) that have attacked you in your sleeping bags (and eaten some of your friends) for a minute and tell me what the path looks like in the US economy from a Spread Risk and Volatility perspective.

 

Until either (or neither) of those two things change, I’ll just take a knee and keep watching our macro call that is cascading down the mountain side play out. We’re going to need to be rested for the final ascent.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.95-2.08%

SPX 1
RUT

NASDAQ 4

VIX 22.34-29.56
USD 98.35-99.88
Oil (WTI) 27.01-30.80

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Path Forward - 01.21.15 EL chart


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