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ICI Fund Flow Survey | Bottom Fishing

Takeaway: Investors made more aggressive allocations last week with domestic equity having its first inflow in 19 weeks.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending February 3rd, investors made more aggressive allocations than they have in recent periods, drawing down -$4 billion of cash and making contributions to domestic and international equity mutual funds. Domestic equity funds experienced their first inflow in 19 weeks with investors contributing +$2.3 billion to U.S. stock funds. Additionally, international equity funds took in +$5.7 billion, their largest weekly subscription since April 2015. Passives continue to be a source of funds however with equity ETFs losing another -$8.8 billion (over $3.0 billion of this redemption was in the S&P 500 SPDR this week). In fixed income, fear abounds with taxable bond funds having its worst week in 5 with -$5.5 billion being withdrawn. Municipal bonds continued their winning streak, taking in +$1.2 billion, making it 18 straight weeks of tax-free inflows. Fixed income ETFs gained +$1.9 billion.


ICI Fund Flow Survey | Bottom Fishing - ICI1

 

In the most recent 5-day period ending February 3rd, total equity mutual funds put up net inflows of +$8.1 billion, outpacing the year-to-date weekly average outflow of -$917 million and the 2015 average outflow of -$1.5 billion. The inflow was composed of international stock fund contributions of +$5.7 billion and domestic stock fund contributions of +$2.3 billion. International equity funds have had positive flows in 41 of the last 52 weeks while domestic equity funds have had only 6 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up net outflows of -$4.3 billion, trailing the year-to-date weekly average outflow of -$1.6 billion and the 2015 average outflow of -$463 million. The outflow was composed of tax-free or municipal bond funds contributions of +$1.2 billion and taxable bond funds withdrawals of -$5.5 billion.

 

Equity ETFs had net redemptions of -$8.8 billion, trailing the year-to-date weekly average outflow of -$5.6 billion and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$1.9 billion, trailing the year-to-date weekly average inflow of +$2.6 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 | Bottom Fishing - ICI2

 

ICI Fund Flow Survey | Bottom Fishing - ICI3

 

ICI Fund Flow Survey | Bottom Fishing - ICI4

 

ICI Fund Flow Survey | Bottom Fishing - ICI5

 

ICI Fund Flow Survey | Bottom Fishing - 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 | Bottom Fishing - ICI12

 

ICI Fund Flow Survey | Bottom Fishing - ICI13

 

ICI Fund Flow Survey | Bottom Fishing - ICI14

 

ICI Fund Flow Survey | Bottom Fishing - ICI15

 

ICI Fund Flow Survey | Bottom Fishing - 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 | Bottom Fishing - ICI7

 

ICI Fund Flow Survey | Bottom Fishing - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors made large withdrawals from industrials and materials. The industrial XLY ETF lost -$277 million or -5% to redemptions. The materials XLB lost -$113 million or -6%.

 

ICI Fund Flow Survey | Bottom Fishing - ICI9 2



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 | Bottom Fishing - ICI17

 

ICI Fund Flow Survey | Bottom Fishing - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a positive +$1.6 billion spread for the week (-$774 million of total equity outflow net of the -$2.4 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 +$724 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 | Bottom Fishing - 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 | Bottom Fishing - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA







Markets Are Crashing And Wall Street Should Be Ashamed

Takeaway: As equity markets crash, Wall Street credibility is at an all-time low.

Markets Are Crashing And Wall Street Should Be Ashamed - bull drinking 01.08.2016

 

If you're following Old Wall and its media, you're getting smoked this year. If you're following the non-consensus macro team here at Hedgeye you're not. We called it. That's the reality.

 

Perma-bull Wall Street credibility is crashing just about as hard as global equity markets...

 

 

Meanwhile, back at home, the Russell 2000 is a certified train wreck.

 

 

We called all of this back in July. 

 

So while Wall Street flounders, we've nailed a number of huge macro calls in 2016, like long Utilities (XLU), short Financials (XLF). XLF is down -14.9% versus XLU up +7.5%.

 

 

We have been for some time now, the most bullish firm on Wall Street on Long Bonds (TLT). Since we added TLT to Investing Ideas in August 2014, TLT has beat S&P 500 by a wide margin. It's up +16% versus down -4% for the S&P 500.

 

Talk about alpha.

 

 

The market is slowly but surely pricing in the increasingly likely probability of a U.S. recession. That's been our Macro call since the beginning of this year. Until a few weeks ago, no Old Wall economist had even muttered the "R" word, especially from those mainline labor economists at the Fed. That's slowly changing.

 

One final point on Wall Street. Lying to people about the economy for your own compensation purposes is fundamentally un-American.

 

Stick with us. This thing Is just getting started.


The Macro Show Replay | February 11, 2016

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%

TWTR | Bad Guide, Better Story (4Q15)

Takeaway: Weak print and worse 1Q guide, but much improved mgmt narrative on a bombed-out stock. Our short is likely played out.

KEY POINTS

  1. 4Q15 = LACKLUSTER: We were expecting a decent beat on what appeared to be a sandbagged 4Q guide.  However TWTR only produced inline revenue; largely due to a sharp sequential surge in Data Licensing revenue.  Ad revenues missed consensus estimates, with growth decelerating to 48% y/y from 60% in 3Q15.  Auto-play may also be emerging as more of headwind than tailwind since surging ad engagements are coming at the expense of a sharp deceleration in CPE, and potentially user retention since auto-play's lower CPE also means TWTR needs to introduce a disproportionately higher number of ads into the users' feed to drive a comparable level of revenue growth vs. its legacy ad products.
  2. BAD GUIDE, BETTER STORY: TWTR guided light for 1Q16, but it actually looks much worse if we break it down by segment.  If we assume 1Q16 Data Licensing is flat q/q in 1Q16, then the 1Q guide implies ad revenue decelerating to ~37%, which is below the rate that consensus was assuming for any quarter in 2016, particularly 1Q16 (50%).  However, mgmt didn’t provide annual guidance, and the sell-side didn't press them on it since mgmt improved its narrative by shifting the focus almost entirely toward prioritizing the user.  We believe this would be the smarter move since its long-term prospects are currently limited given its heightened cumulative user churn (see 2nd note below for detail).
  3. SHORT LIKELY PLAYED OUT: We were looking at this print as somewhat of a binary event since mgmt's approach to 2016 guidance was going to determine how much longer we were going to stick with the short.  However, mgmt essentially removed that catalyst.  The stock is holding up after hours despite the light 1Q guide, which we suspect is partly due to mgmt’s improved narrative, but also because of bombed out sentiment, especially following LNKD's print.  We’ll be monitoring where consensus 2016 estimates trend from here, but more likely that not, our short has run its course. 

TWTR | Bad Guide, Better Story (4Q15) - TWTR   Auction 4Q15

TWTR | Bad Guide, Better Story (4Q15) - TWTR   Ad Engagement vs. Pricing 4Q15 

 

See notes below for supporting analysis and recent thoughts.  Let us know if you have any questions, or would like to discuss in more detail.

 

Hesham Shaaban, CFA


@HedgeyeInternet 

 

 

TWTR | Thesis Refresh (2016)

01/26/16 08:11 AM EST

[click here]

 

TWTR: The Crossroads  (User Survey: n=7,500)
08/25/15 07:48 AM EDT
[click here

 

TWTR: What the Street is Missing
05/19/14 09:09 AM EDT
[click here]

 


CHART OF THE DAY | Fed Can't Arrest Economic Gravity: New Lows For Inflation Expectations

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. 

 

"... Now with:

  • Inflation expectations making lower lows (5Y Breakevens = 0.94% last, lowest since May 2009) … and the trend similar across the major sovereigns
  • 10Y Yields:  Down another -5pbs this morning to  1.61% (lowest since the 2012 all-time lows)
  • Yield Spread (10’s-2’s):  98bps last and breaching 1.0% to the downside for the 1st time since 2007
  • U.S. High Yield Yields and Spreads making higher highs
  • Investment grade spreads making higher highs
  • High Yield Energy Debt making higher highs (yielding 20.21% as of yesterday’s higher high)
  • Lending Standards tightening and domestic Loan Demand falling  (latest Senior Loan Officer Survey)
  • Eurodollar futures are now pricing the probability of negative rates in the U.S. by 2017 at 17% (up from 2% at the start of the year)"

 

CHART OF THE DAY | Fed Can't Arrest Economic Gravity: New Lows For Inflation Expectations - inflation expectations


All Koch'd Up!

“Going negative is daring but appropriate monetary policy”

-Narayana Kocherlakota

 

We don’t operate in a silo @Hedegeye and we don’t claim to have a monopoly on good ideas. 

 

As proof, sometime circa 2010, we introduced our proprietary Hedgeye Orb rating scale. 

 

Back then – and before we got all stuffy and corporate - the blue orb was our calling card of sorts and we used the scale to infrequently rate non-Hedgeye generated analysis, central banker prowess, effective use of South Park and 90’s hip hop references, cheesy Canada jokes and so on.

 

If you’re unfamiliar, a 1-orb rating conveys inaccuracy, unoriginality, negative alpha and/or overall  lameness. In contrast, the coveted & rarified 4-orb rating is issued for the conveyance of thoughtfulness, originality, &/or general non-consensus ballsiness.

 

With central bankers back-tracking, equities on the brink and credit & Fx markets balking, let’s bring back the truth serum orb for a guest appearance: 

 

  • $7T in negatively yielding debt globally: 1-orb, totally lame
  • Central Banks, globally, announcing (again) more or what hasn’t worked ….. on groundhog day:  1.5 orbs (+0.5 orbs for amusingly ironic timing)
  • Gundlach’s use of the “mission accomplished” banner as a metaphor for the fed rate hike (the allusion being to George W. Bush on the Aircraft carrier and the pre-mature and retrospectively misguided victory lap): Original & Accurate: 3-orbs  

All Koch'd Up! - Abenomics cartoon 02.10.2016

 

Back to the Global Negative Rate Grind …..

 

Kocherlakota – outgoing Minneapolis Fed President/FOMC member and widely suspected owner of the infamous negative blue dot in the Fed’s September Dot Plot – has been chirping Team Janet from the bleachers from the minute he left the field. 

 

Now with …

 

  • Inflation expectations making lower lows (5Y Breakevens = 0.94% last, lowest since May 2009) … and the trend similar across the major sovereigns
  • 10Y Yields:  Down another -5pbs this morning to  1.61% (lowest since the 2012 all-time lows)
  • Yield Spread (10’s-2’s):  98bps last and breaching 1.0% to the downside for the 1st time since 2007
  • U.S. High Yield Yields and Spreads making higher highs
  • Investment grade spreads making higher highs
  • High Yield Energy Debt making higher highs (yielding 20.21% as of yesterday’s higher high)
  • Lending Standards tightening and domestic Loan Demand falling  (latest Senior Loan Officer Survey)
  • Eurodollar futures are now pricing the probability of negative rates in the U.S. by 2017 at 17% (up from 2% at the start of the year)

 

And with futures red and global equity & energy commodity markets continuing in crash mode overnight, the carnage score is currently (% chg off of 52wk high):

 

  • Brazil: -31.1%
  • China: -46.6%
  • France: -25.5%
  • Germany: -28.9%
  • Greece: -54.9%
  • India: -23.6%
  • Italy: -33.9%
  • Japan: -25%
  • Russia: -38.6%
  • Spain: -33.7%
  • USA (Russell 2k): -25.7%

 

…. Collectively, the active policy maker contingent, is now getting Koch’d up: 

 

  • Fischer:  “[Negative Rates] its been better than we thought … working more than I can say I expected”
  • Bernanke:  “it’s a go to” …“I think negative rates are something the Fed will and probably should consider if the situation arises,”
  • Dudley: “if the economy were to unexpectedly weaken dramatically, and we decided that we needed to use a full array of monetary policy tools to provide stimulus, it’s something that we would contemplate as a potential action,"
  • Fed (2016 Bank Stress test):  “include negative yields on short-term rates in your stress test” (1st time including this) and  …. "This scenario does not represent a forecast of the Federal Reserve,"  
  • Yellen (yesterday):  “We will look at it, and should look at it”

 

Conventional thinking has held that 0% on nominal rates represented the lower bound, mostly because nominal returns on cash aren’t <0%.  Theoretically true …. until you add the costs to store institutional sized levels of cash, insure it, protect it ,etc.  

 

You don’t have $7T in negative yielding debt because everything is awesome and you don’t field a chorus of “will you go negative?” questions when the data is conspicuously supporting a hawkish lean. 

 

Janet held the policy normalization line in her testimony yesterday but for a Fed pre-occupied with ‘communication tooling’ and pro-actively leading markets via carefully crafted rhetorical gradualism, that seems like a lot of verbal table setting  

 

Switching gears, Initial Jobless Claims and Retail Sales (Jan data) will round out this week’s domestic macro data flow. 

 

Jobless Claims:  At 285K, rolling initial claims are at their highest point since April of last year and we’re coming up on the anniversary of the trough level in claims recorded last year - meaning that the best they can do going forward is not get any worse.   Think of it as if it was a company at full earnings power/potential and the best it could do is not see earnings decline going forward.  What would that be worth … or what macro multiple would you put on that setup?

 

Retail Sales:  The further decline in gas prices in January will weigh on the headline (recall, Retail Sales represents spending on Goods and are reported in nominal dollars) while the +1.4% MoM rise in auto sales (autos = ~21% of total) will serve as a positive offset.  Further, base effects (i.e. a positive comp setup) stemming from the severe weather in the Dec-Feb period last year will provide a modest support to reported growth.  More broadly, the trend in Retail Sales growth remains one of deceleration.  In fact, growth has been slowing steadily since 2011 as demographics, urbanization, “collaborative” and “conspicuous” consumption and the end of the LT interest rate cycle have all driven spending towards services and experience (a topic for another Early Look).

 

In short, this week’s fundamental data will not be the #GrowthSlowing foil the Fed is stalking. 

 

Yesterday, my 5-yr old son won a jiu-jitsu tournament as the youngest kid in his class - then, an hour later, his 3-yr old sister made him tear-up and tap out:  4-orbs

 

Economic gravity has markets and policy makers in an arm-bar.  With volatility in bullish formation, risk ranges open on the downside and confidence in central planning breaking down, the capitulatory tap-out probably hasn’t been realized yet. 

 

As the saying goes, “Everyone has a plan until they get punched in the face...” 

 

Our (7-month old) plan = Don’t get punched in the face ... Long Bonds and bond proxies remains the rope-a-dope strategy

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.57-1.85%

SPX 1
RUT 940-995

Nikkei 159

VIX 23.02-28.98

EUR/USD 1.07-1.14
Oil (WTI) 25.83-30.27

 

Good luck out there today.

 

Christian B. Drake

U.S. Macro Analyst

 

All Koch'd Up! - inflation expectations


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