ICI Fund Flow Survey | Bear Market in Taxable Bonds

Takeaway: Taxable bond funds are on the verge of setting new cyclical lows as fear spreads in corporate credit.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

The ICI taxable bond category is a broad bucket which includes both government and corporate fixed income however what is undeniable is the continued and dramatic slough off in taxable bond fund flows in concert with the decline in demand for U.S. high yield credit. The 4-week moving average of ICI taxable bonds is threatening to set new cycle lows as non-investment grade bond performance threatens to take out 2008 price levels. 

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Net fund flows to bonds continued in the 5 days ending January 20th according to ICI with a -$6.6 billion outflow from equity mutual funds and ETFs and a +$1.4 billion inflow to net bond products making for a -$8.0 billion spread between equities and fixed income (negative numbers imply inflow into bonds). Interest in bonds this week was relegated solely to municipals with a +$1.0 billion subscription into the tax-free category and a +$3.2 billion inflow into fixed income ETFs (in continuation of a vehicle shift from mutual funds into passive ETFs in bonds). Taxable bonds lost another -$2.9 billion this week as investors avoided credit. Within equities, outflow continued in domestic mutual funds with another -$4.9 billion redemption this week, bringing the cumulative losses in the current streak of outflows to -$188.6 billion. With volatility remaining elevated, we expect these defensive trends to continue.

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In the most recent 5-day period ending January 20th, total equity mutual funds put up net outflows of -$3.8 billion, trailing the year-to-date weekly average outflow of -$2.6 billion and the 2015 average outflow of -$1.5 billion. The net redemption was composed of international stock fund contributions of +$1.1 billion offset by domestic stock fund withdrawals of -$4.9 billion. International equity funds have had positive flows in 41 of the last 52 weeks while domestic equity funds have had only 7 weeks of positive flows over the past year.

 

Fixed income mutual funds put up net outflows of -$1.9 billion, trailing the year-to-date weekly average outflow of -$807 million and the 2015 average outflow of -$463 million. The outflow was composed of tax-free or municipal bond funds contributions of +$1.0 billion and taxable bond funds withdrawals of -$2.9 billion.

 

Equity ETFs had net redemptions of -$2.8 billion, outpacing the year-to-date weekly average outflow of -$7.0 billion but trailing the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$3.3 billion, outpacing the year-to-date weekly average inflow of +$1.9 billion and the 2015 average inflow of +$1.0 billion.

 

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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:

 

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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.

 

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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:

 

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Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors seeking safety poured +$817 million or 11% into the long treasury TLT ETF.

 

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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.

 

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Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$8.0 billion spread for the week (-$6.6 billion of total equity outflow net of the +$1.4 billion 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 +$549 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.)

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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:

 

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Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA