[UNLOCKED] Fund Flow Survey | DOL To Put Active Strategies DOA

Editor's Note: This is a complimentary research note originally published March 24, 2016 by our Financials team. If you would like more info on how you can access our institutional research please email sales@hedgeye.com.

*  *  *  *

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending March 16th, three of five active equity mutual fund categories lost funds with large cap equity and emerging market funds seeing the biggest redemptions losing  -$1.3 billion and -$1.0 billion respectively. Meanwhile equity ETFs continued their market share advance during the week with +$3.5 billion in contributions. Fixed income allocations snapped back with total bond mutual funds and ETFs collecting +$7.3 billion as investors rebalanced from the 5 week long stock rally.

As if the active business didn't have enough challenges competing with passive ETFs to begin with, the forming Department of Labor Fiduciary rule is decidedly skewed to driving incremental growth into index products. The DOL outlines "conflicted advice" as an active mutual fund distributed by a third party (a broker dealer for example not associated with the fund family) and if those 3rd party funds underperform their benchmark then the new rule gives retail investors (in the retirement channel) the ability to pursue class action law suits against the distributors. Thus, passive ETFs or index funds stand to benefit as a way to circumvent the guidelines, as by definition they can't "underperform." Our Speaker Series call this week with Bob Litan laid out a framework for understanding this policy (see Speaker Series replay HERE). 

In the most recent 5-day period ending March 16th, total equity mutual funds put up net outflows of -$2.1 billion, trailing the year-to-date weekly average outflow of -$302 million and the 2015 average outflow of -$1.6 billion.

Fixed income mutual funds put up net inflows of +$4.9 billion, outpacing the year-to-date weekly average inflow of +$793 million and the 2015 average outflow of -$475 million.

Equity ETFs had net subscriptions of +$3.5 billion, outpacing the year-to-date weekly average outflow of -$2.6 billion and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$2.4 billion, outpacing the year-to-date weekly average inflow of +$2.3 billion and 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:

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.

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:

Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors withdrew -$411 million or -5% from the utilities XLU ETF last week.

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.

Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$5.9 billion spread for the week (+$1.4 billion of total equity inflow net of the +$7.3 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 -$541 million (negative numbers imply more positive money flow to bonds for the week) with a 52-week high of +$20.2 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.)

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: