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[UNLOCKED] Fund Flow Survey | More is More

Takeaway: ICI has provided more detail in its weekly survey which will assist investors in pinpointing trends in the asset management sector.

Editor's Note: This is a complimentary research note which was originally published March 3, 2016 by our Financials team. If you would like more info on how you can access our institutional research please email sales@hedgeye.com.

 

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Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

The weekly ICI survey has just become more robust with the Investment Company Institute now providing additional categories within domestic equities, world equities, and taxable bonds in its weekly fund flow information which canvasses 98% of all publlically traded mutual funds. Please let us know if you would like a copy of the underlying information. For example, a fairly general aggregation of international equity flows has now been broken out into Developed versus Emerging Market survey results which are very different in trajectory and magnitude.

 

[UNLOCKED] Fund Flow Survey | More is More - new intro 

 

In the 5-day period ending February 24th, domestic equity funds had their second week of positive inflows in the last 22 weeks; investors contributed a net +$2.1 billion to the asset class with Large Cap (new category) driving the contribution. In fixed income funds, investors resumed withdrawals from the taxable bond category with investment grade outflows (new category) being offset by new risk taking in high yield (new breakout) which had a solid inflow. Meanwhile, tax-free munis continue to be the story for 2016 thus far taking in another +$1.0 billion in contributions (their 21st week of consecutive inflows). Money funds took in a large +$15 billion contribution last week, which is likely due to tax refund receipts and on going risk aversion.


[UNLOCKED] Fund Flow Survey | More is More -  5 ICI1 large 3 8 16

 

In the most recent 5-day period ending February 24th, total equity mutual funds put up net inflows of +$4.4 billion, outpacing the year-to-date weekly average outflow of -$346 million and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net outflows of -$100 million, outpacing the year-to-date weekly average outflow of -$777 million and the 2015 average outflow of -$475 million.

 

Equity ETFs had net redemptions of -$5.0 billion, trailing the year-to-date weekly average outflow of -$4.5 billion and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$2.3 billion, trailing the year-to-date weekly average inflow of +$2.4 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:

 

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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.

 

[UNLOCKED] Fund Flow Survey | More is More - ICI12

 

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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:

 

[UNLOCKED] Fund Flow Survey | More is More - ICI7

 

[UNLOCKED] Fund Flow Survey | More is More - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors flocked to gold last week, contributing +$1.9 billion or +7% to the GLD ETF.

 

[UNLOCKED] Fund Flow Survey | More is More - 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.

 

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[UNLOCKED] Fund Flow Survey | More is More - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$775 million spread for the week (+$1.5 billion of total equity inflow net of the +$2.2 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 +$438 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.)

  

[UNLOCKED] Fund Flow Survey | More is More - 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:

 

[UNLOCKED] Fund Flow Survey | More is More - ICI11 


The Macro Show Replay | March 8, 2016

CLICK HERE for the associated slides.

Click here for audio replay.

 


Squeeze

Client Talking Points

CREDIT & CONFIDENCE

While tightening standards and declining demand currently characterize the corporate credit environment, Consumer Credit growth decelerated to its slowest pace in 23-months in January according to Fed data released yesterday. Small Business Confidence, meanwhile, retreated for a 4th straight month in February according to NFIB data released this morning. Notably, the Hiring Plans, Current Compensation and Compensation Plans Indices all declined sequentially to new 9-month lows.  Small Businesses represent over 99% of total U.S. Employer firms and > 60% of net private sector hiring on a monthly basis – sentiment around the current and forward prospects for business activity are discretely related to hiring activity and labor compensation trends for small businesses and the data has now shown a multi-month trend towards softening.

EURO

Trade the Range: buy it $1.08, sell it at $1.12. As we’ve noted in our Big Bang Theory, we think any “easing” policy announcement at Thursday’s ECB meeting from Mario Draghi could send the EUR/USD to the top end of its range.  

#REFLATIONTADE

We’re pretty confident calling a reflation trade a “squeeze” in a week where high debt, high short-interest, high beta stocks (everything that has gotten crushed) greatly diverge to the upside vs. the rest of the market. That continued yesterday with a +6% move in WTI. Most importantly with regards to the move in commodities, we highlight that a reflation TRADE doesn’t help spark another credit cycle. Corporate credit has gotten some relief in spread and fair value terms, but with lending standards tightening, a return to 2014-15 financing levels is unlikely at best. Looking at high yield energy spreads, credit is still trading at a level +400-500bps over March 2015 spreads. As we highlight in our Q1 themes deck, once the credit cycle begins to roll, any relief has historically been temporary.   

 

*Tune into The Macro Show with Retail Analyst Alec Richards live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 62% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 3%
FIXED INCOME 29% INTL CURRENCIES 6%

Top Long Ideas

Company Ticker Sector Duration
XLU

If you were long energy over utilities last week, nice trade! We'd remind you that Utilities (XLU) are outperforming the S&P 500 by +10% year-to-date. And that’s with the bounce. By contrast, Energy (XLE) was up 6.5% on the week but is up only 1% year-to-date.

GIS

General Mills (GIS) faces some headwinds across their portfolio, and although the 1H of FY16 was a challenge, the company has robust merchandising and consumer plans in the 2H that should improve results.

 

GIS has embarked on a mission to drive their top 450 SKUs, which represent 75-85% of their volume. Calling it their ‘Power 450’, surprisingly these 450 SKUs aren’t even in all retail locations and formats, broadening the distribution footprint of these top SKUs is priority number one for GIS’s sales team. The organization is also looking at the bottom 450, representing 1-2% of volume and making critical decisions on what products can be discontinued.

 

We continue to believe GIS is one of the best positioned consumer packaged foods companies due to its strong brands and best-in-class people and organization.

TLT

We can’t emphasize enough the bigger picture from both a data and top-down market signaling perspective. To contextualize the relief rallies and short squeezes in asset classes and instruments that are counter to our more longer-term view. Here’s what how we think the macro environment plays out from here:

  1. The market is positioned for more rate hikes into 2016
  2. The data continues to deteriorate, and market volatility ensues
  3. The expectation that “all is good” comes off the table and the market increasingly pivots to the view that, throughout 2016, the Fed is going to hike rates in methodical fashion straight into an economic slowdown
  4. The market takes in the growth slowing pivot in real-time (Treasury rates and the dollar both move lower, and inflation-leveraged assets like gold catch a bid)

 

Once the policy catalysts are out of the way in the next few weeks, our expectation is a return to outperformance in growth slowing asset classes (TLT and XLU). If you’re in for the TAIL and the TREND call, focus on the data, not the desperate attempts of central planners to arrest economic gravity. A brief reminder: ECB chief Mario Draghi will attempt to walk on water Thursday.

Three for the Road

TWEET OF THE DAY

Hedgeye CEO @KeithMcCullough on #ECB & "Is this time different"

[UNLOCKED] Big Bang Theory https://app.hedgeye.com/insights/49593-unlocked-big-bang-theory… @Hedgeye

QUOTE OF THE DAY

The best evaluation I can make of a player is to look in their eyes and see how scared they are.      

Michael Jordan                                                  

STAT OF THE DAY

Today in 1817, the New York Stock Exchange was founded.


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: Small Business Compensation Plans Hit 9-Month Lows

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.

 

"... The Data | Ruh-roh? The February data showed the Hiring Plans Index decline -1 pt, the Compensation Index decline -5pts and the Compensation Plans Index decline -3pts; all marking 9 month lows and multiple months of sequential decline (See Chart of the Day above).   

 

The decline off the recent peak and the failure for hourly earnings to accelerate as labor slack has diminished continues as a lead source of consternation for late-cycle labor and Phillips curve economists."

 

CHART OF THE DAY: Small Business Compensation Plans Hit 9-Month Lows - NFIB CoD1


Mix Matters

“What kind of cookies do they sell at the airport? Plain.”

 

Rene Descartes - famed mathematician, creator of the Cartesian plane and bane of 7th grade math classes - enjoyed getting up late, preferring to spend the morning lying in bed thinking.  

 

The story goes that he invented the coordinate plane while lying in bed watching a fly crawl on the ceiling, reasoning that he could describe the exact location of the fly by knowing its distance from two perpendicular walls. 

 

Descartes laid in bed. Socrates engendered philosophical insight strolling the gardens. Einstein intuited and fully conceptualized his theory of relativity “during long walks on the beach” and while “lying down and gazing at the ceiling” before any math entered the equation.   

 

When I was in construction, I had everyone take a week off every six weeks. The path to improved morale and elevated productivity was, ironically, not working. 

 

In athletics (and life in general), an exceedingly effective way to hinder long-term progress and physical/mental adaptation is through over-work. 

 

Workout 2-3 times a day for a couple weeks and your progress will be great. Try to do that for a year straight and performance will invariably go downhill. 

 

A small minority of people have the genetics to sustain 12-14 hr days of focused attention. The vast majority don’t and performance, creativity and mental plasticity start to deteriorate over time under that kind of regimen. 

 

This is basically fact, and it’s interesting that even people who know this (myself included) still succumb to the prevailing Wall Street culture that more hours = more & better productivity.    

 

There is a trade-off to be sure. 

 

Work wins high-frequency battles and grinders generate ideas but #BigIdeas, it seems, are the product of restless but rested minds.

 

Mix Matters - NFIB CoD1

 

Back to the Global Macro Grind

 

A notable takeaway from last Friday’s jobs reports is that with hourly earnings growth decelerating and average hours worked per week declining, aggregate income growth will show further deceleration when the official income and spending data are released for February later this month.   

 

Further, unless credit growth accelerates meaningfully and/or the savings rates declines materially, consumption growth for February should follow income growth lower.

 

This week is light in terms domestic fundamental data flow but we did receive some incremental updates related to both wage and credit trends.

 

Credit | Consumption’s Wild-Card: With household debt still very much elevated and no rope left on lowering debt service costs, the capacity for debt to support consumption growth over the intermediate and longer term remains constrained.  

 

In the shorter-term, however, there exists some runway for accelerating credit growth to help offset slowing income growth in support of consumption. 

 

Yesterday’s consumer credit data for January showed total borrowing rose $10.5B, marking the slowest gain in 27-months. 

 

Non-revolving credit (i.e. auto’s and student loans) rose $11.6B sequentially while decelerating to +6.9% YoY – the slowest pace of growth since July 2012. Revolving credit (i.e. credit cards) dropped for the first time in a year, declining at an annualized rate of -1.4%. On a year-over-year basis, however, growth in credit card debt made a new cycle high at +5.27% YoY. 

 

So, credit growth appears to be moderating but remains a modest, positive support to consumption growth. Not enough to fully compensate for the deceleration in income growth but a positive offset to buttress a slowdown in aggregate consumer spending. 

 

Compensation Plans | Hurry Up & Wait: Keeping with the theme of wage and income growth, we got the NFIB small business confidence data for February this morning and, with it, the sub-indices tracking both actual Compensation trends and Compensation Plans. 

 

Economists and strategists focus on the Small Business Compensation Plans index because, historically, it has presaged actual compensation increases pretty well – typically leading growth in the ECI and reported hourly earnings by ~3 quarters. 

 

Indeed, and as we’ve highlighted, the strong advance in NFIB Compensation Plans over the last 39 months along with more recent strength in the Employment Cost Index (ECI) have backstopped consensus expectations for accelerating wage inflation for the better part of the past two years. 

 

The Data | Ruh-roh? The February data showed the Hiring Plans Index decline -1 pt, the Compensation Index decline -5pts and the Compensation Plans Index decline -3pts; all marking 9 month lows and multiple months of sequential decline (See Chart of the Day above).   

 

The decline off the recent peak and the failure for hourly earnings to accelerate as labor slack has diminished continues as a lead source of consternation for late-cycle labor and Phillips curve economists.

 

Why has the conventional relationship between unemployment and wages failed to materialize?

 

Mix Matters: Yesterday, the San Francisco Fed put some quant around a dynamic we’ve known was impacting the wage growth data but had yet to study intensively. 

 

Specifically, they explored the impacts exerted by labor composition and the flow of workers into and out of the labor force on reported wage inflation. 

 

You can read the note HERE but it’s worth reviewing the key takeaways.

 

Some of the underlying methodology is complex, but the conceptual crux of the analysis is pretty straightforward.

 

The analysis centers on the premise that income is generally an increasing function of age and tenure. That is, wage and salary income typically rises with experience and duration of full-time employment. 

 

Commonsense and empirics side with that presumption.

 

This logic implies that older, continuously employed full-time workers, on balance, make more than part-time or recently employed, younger full-time workers.

 

Now, what would the impact to average wage growth be if labor turnover evolved in an exaggerated barbell type of way that saw older, more highly compensated workers retire and be predominately replaced by new lower-wage entrants?

 

Suppose further that at the same time, and in addition to this secular reality, labor slack and underemployment remain a cyclical overhang on compensation growth – and disproportionately so for new, younger entrants into the labor force. 

 

Hidden In Plain Sight: Does the entry of younger, comparably lower-wage workers to full-time time employment and the exit of a large bolus of higher-wage retirees sound like any (Millennial-Boomer) developed market economy you know?

 

In other words, mix matters and when taking a composition-centric view of the labor force the protracted stagnation in reported average wage growth isn’t particularly surprising.

 

The implications are a few fold. 

 

Labor composition shifts give leash to businesses, in the aggregate, to help manage and minimize labor cost pressure. However, if new entrants are less productive then unit labor costs may actually be rising (even though it wouldn’t be showing up in the headline inflation data, to the Fed’s continued chagrin). 

 

Rising unit labor costs in combination with decelerating demand = incremental margin pressure for a corporate sector collectively past peak in profitability and now on the wrong side of the global growth curve.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.67-1.92%

SPX 1

Nikkei 157

VIX 16.37-23.49
USD 96.44-98.78
YEN 111.70-114.64
Oil (WTI) 29.86-36.98

 

Best of luck out there today,

 

Christian B. Drake

U.S. Macro Analyst

 

Mix Matters - Mix CoD2


Cartoon of the Day: Jaws

Cartoon of the Day: Jaws  - deflation cartoon 03.07.2016

 

Deflation is stalking Europe.


Early Look

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