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[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense

Takeaway: This marks the 14th straight week in which total bond flows outpaced total equity flows. Equities lost -$7.6 B while bonds gained +$4.7 B.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Investors' allocations were again net defensive in the 5-day period ending May 11th; total equity mutual fund and ETF flows came in at -$7.6 billion, -$12.3 billion below the +$4.7 billion inflow to total bond mutual funds and ETFs. This marks the 14th straight week in which total bond flows outpaced total equity flows.

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - ICI1 large 5 24

 

Domestic equity mutual funds continued their losing streak, giving up -$4.9 billion and even equity ETFs, which investors have favored in recent years, lost -$3.1 billion. However, international equity mutual funds broke their 8-week losing streak, bringing in +$430 million in contributions. Within bond funds, most categories experienced contributions last week, bringing total fixed income mutual fund flows to +$4.1 billion and bond ETF flows to +$603 million. Finally, investors shored up +$6 billion of cash in money market funds last week.

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - ICI19

 

In the most recent 5-day period ending May 11th, total equity mutual funds put up net outflows of -$4.4 billion, trailing the year-to-date weekly average outflow of -$2.1 billion and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net inflows of +$4.1 billion, outpacing the year-to-date weekly average inflow of +$2.3 billion and the 2015 average outflow of -$475 million.

 

Equity ETFs had net redemptions of -$3.1 billion, trailing the year-to-date weekly average outflow of -$1.4 billion and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$603 million, trailing the year-to-date weekly average inflow of +$1.6 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:

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - ICI2

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - ICI3

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - ICI4

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - ICI5

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - 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.

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - ICI12 2

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - ICI13 2

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - ICI14 2

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - ICI15 2

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - ICI16 2



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 | 14 Weeks of Defense - ICI7

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors pulled -$444 million or -5% from the utilities XLU ETF last week.

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - 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.

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - ICI17 2

 

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - ICI18 2



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$12.3 billion spread for the week (-$7.6 billion of total equity outflow net of the +$4.7 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 -$1.6 billion (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.)

  

[UNLOCKED] Fund Flow Survey | 14 Weeks of Defense - 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 | 14 Weeks of Defense - ICI11


Crash! Boom! Bang! (Asia Getting Whacked)

Crash! Boom! Bang! (Asia Getting Whacked) - China crash cartoon 08.25.2015

 

Amazing.

 

Not one Old Wall Media channel is discussing what happened in Asian Equity markets overnight. In Japan, the Nikkei fell another -0.9% and has officially moved back into crash mode. It’s down -21% from July's Equity #Bubble High of 2015. (Nikkei actually DOWN on Yen DOWN – that’s new.)

 

Then there’s China. Take a look at what’s going on there below.

 

Crickets.

 


Daily Market Data Dump: Tuesday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Tuesday - equity markets 5 24

 

Daily Market Data Dump: Tuesday - sector performance 5 24

 

Daily Market Data Dump: Tuesday - volume 5 24

 

Daily Market Data Dump: Tuesday - rates   spreads 5 24


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.

China, Japan and USD

Client Talking Points

CHINA

Literal collapse (limit down) in rebar, iron ore, etc. yesterday and the Chinese Stock Market (Shanghai) loses another -0.9%, taking its loss in the last month alone to -4.7%, and the year-over-year crash to -39% (vs. today last year) – bottoming?

JAPAN

The Nikkei was actually DOWN on Yen DOWN – that’s new, The Nikkei was -0.9% overnight taking it’s crash from the Global Equity #Bubble peak of 2015 to -21% (note: Japan’s economy has not “bottomed”); KOSPI continues to break-down alongside Copper.

USD

Now here’s something that may have bottomed! As it always does when we re-enter #Quad4 Deflation – i.e. when you deflate the short-term reflation, the USD working on its 4th straight up week as U.S. Equities debate having more than 1 up week in the last 6.

 

*Tune into The Macro Show with Darius Dale live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
5/23/16 50% 6% 0% 8% 30% 6%
5/24/16 52% 6% 0% 8% 28% 6%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
5/23/16 50% 18% 0% 24% 91% 18%
5/24/16 52% 18% 0% 24% 85% 18%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
GLD

When Janet does have to acknowledge the deterioration in U.S. growth, we expect the policy shift to be dollar bearish on the margin. And, to the contrary, if the Fed RAISES RATES (June) into this slow-down, they’ll be the catalyst for DEFLATION (down yields) again anyway. And there’s nothing Gold (GLD) likes more than a falling dollar and falling interest rates which is why we added it to the long-side of Investing Ideas this week. Remember, this is the same week various Fed members were in public calling for a rate hike with the worst jobless claims print since 2012. #GoodLuck.

MCD

McDonald's (MCD) continues to evolve. The company's latest step is testing never frozen burgers at 14 units in the Dallas, TX area. This initiative could give them the ability to compete with better burger concepts such as Shake Shack, In-N-Out and Five Guys.

 

Meanwhile, there has been chatter about the lack of identity for their value platform in 2Q16. MCD is truly still in the testing phase as to what their national value message will be. We can appreciate the fact that they are testing multiple formats before fully committing.

 

In the meantime, the tailwind from all-day breakfast will continue to propel growth going forward, until lapping this initiative in 4Q16. We continue to favor MCD as one of the best LONGs in the market right now, due to actual growth and style factors that are friendly in volatile markets.

TLT

If you haven’t yet, you got another chance to buy long-term Treasuries at lower highs this week. If you’re already long of Long Bonds (TLT, ZROZ), stick with it. None of the relevant data released this past week suggests that growth could inflect and trend positive:

  • Thursday’s Jobless Claims Report was the worst print, in Y/Y rate of change terms, since 2012, and it was the fourth consecutive week of increasing jobless claims
  • Industrial Production declined -1.1% Y/Y for April, marking the 8th consecutive month of Y/Y contraction: #IndustrialRecession

Tying together a continued deceleration in growth with policy expectations, the most important callout is that our expectation for growth in Q2 is well below consensus and Fed expectations (which have been horribly inaccurate). 

Three for the Road

TWEET OF THE DAY

**NEW VIDEO

What The Yield Spread Reveals About Growth https://app.hedgeye.com/insights/51144-what-the-yield-spread-reveals-about-growth?type=video… via @HedgeyeDDale @KeithMcCullough

@Hedgeye

QUOTE OF THE DAY

It’s a helluva start, being able to recognize what makes you happy.

Lucille Ball

STAT OF THE DAY

The temp sector has shed some 27,400 jobs since December.


CHART OF THE DAY: What Gives Us Confidence In Our Bearish Growth Forecast?

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Senior Macro analyst Darius Dale. Click here to learn more.

 

CHART OF THE DAY: What Gives Us Confidence In Our Bearish Growth Forecast? - chart of the day image 5 24

 

CHART OF THE DAY: What Gives Us Confidence In Our Bearish Growth Forecast? - Chart of the Day 5 24


About Right

“… over the rest of the year, say, two or maybe three rate increases this year, maybe one or two more next year, so three or four next year, I think that’s still about right.”

-John C. Williams, President of the San Francisco Fed

 

Wait, what? The Fed is going to hike rates 4-7 times by the end of calendar 2017? Seems ambitious…

 

About Right - rate hike cartoon 10.15.2015

 

Back to the Global Macro Grind… 

 

I don’t know about you, but it’s becoming a real grind keeping up with the torrent of forward-looking commentary out of regional Fed heads.

 

If you include the aforementioned speech which Williams delivered over the weekend at an event hosted by the Council on Foreign Relations, as well as Boston Fed President Eric Rosengren’s comments to the FT on Sunday evening, yesterday saw three different Fed heads pipe up with [hawkish] commentary regarding the outlook for domestic monetary policy:

 

  • Rosengren (voter): “I want to be sensitive to how the data comes in, but I would say that most of the conditions [needed to justify a June rate hike] that were laid out in the minutes, as of right now, seem to be… on the verge of broadly being met.”
  • Philadelphia Fed President Patrick T. Harker (non-voter): “Although I cannot give you a definitive path for how policy will evolve, I can easily see the possibility of two or three rate hikes over the remainder of the year.”

 

Having to react to the increasingly well-publicized opinions of the various regional Fed heads has become a daily occurrence. In fact, having to incorporate 2-3 such views into one’s investment mosaic on any given day has effectively become par for the course.

 

Part of me thinks this current spate of hawkish commentary is all part of a sinister plan to float hawkish trial balloons into the market, just so that they can be counteracted via dovish rhetoric – likely from Federal Reserve chairwoman Janet Yellen herself. This would effectively amount to monetary easing, on the margin, as expectations for near-term tightening are diminished.

 

Another part of me thinks they honestly have no idea what they are doing. And I don’t mean that in a disrespectful manner; these are obviously all very brilliant economists who are all at/near the top of their profession. Rather, I honestly think there’s just a lot of uncertainty associated with forecasting economic activity and pinpointing where we are within #TheCycle itself.

 

Moreover, the confluence of said uncertainty and their insistence upon thinking out loud becomes quite the intoxicating concoction when spiked with a dose of “modeling to desired (as opposed to probable) outcomes”. While we were pleased to see one of our chief competitors follow in our Superforecasting footsteps yesterday, we can rest assured that the models employed by the Fed remain as linear as they come.

 

Do the economic outlooks expressed by each of the aforementioned Fed heads and their counterparts incorporate some degree of hopium? Of course they do – almost by default. While it’s sad that the world’s most important economic policymaking institution has a zero percent lifetime batting average in forecasting cyclical downturns, I’m definitely of the view that they really can’t afford to.

 

Imagine if the Janet Yellen dropped the “r-word” during a prepared speech at a $10,000 chicken dinner, specifically suggesting that her model(s) was forecasting one to commence within 3-6 months? The reflexive impact that would have on investor, consumer and business confidence would likely and perfectly perpetuate that outcome. As such, it makes sense why the Fed is serially overly optimistic in their forecasts for both growth and inflation – they don’t really have a choice.

 

But just because they don’t have a choice doesn’t mean their forecasts are going to be proven accurate on an intermediate-term basis. On growth specifically, each year of this expansion has seen the FOMC’s intra-year forecasts for annual real GDP growth surprised to the downside, with an average maximum intra-year tracking error of 92bps (on a number that has ranged from +1.5% to +2.5%, nonetheless).

 

Moreover, according to our model, 2016E is shaping up to be not much different. Their +2.2% forecast compares to our current estimate of +1.5%, effectively implying 70bps of downside surprise risk to their number if our estimate is proven accurate. For reference, Bloomberg consensus is splitting the distance at +1.8%, which itself is down from +2.5% at the start of the year.

 

What gives us such confidence in having a growth forecast that divergent from the perceived wisdoms of macroeconomics?

 

For starters, the data itself helps:

 

  • 16 of the 23 key categories of monthly high-frequency growth data that we incorporate into our predictive tracking algorithm are showing trending deceleration.
  • The deterioration in the respective growth rates of real PCE and real disposable personal income is most noteworthy at this stage of the economic cycle. What’s really significant about these dour trends is that we have yet to lap peak base effects, which, for consumption growth specifically, occurs over the next 2-3 quarters.
  • Of the seven indicators that are showing trending acceleration, four all slowed sequentially per the latest data and each remains in contraction territory on a YoY basis (i.e. durable goods orders, factory orders, housing starts and exports).
  • One of the remaining three indicators showing trending acceleration (i.e. the personal savings rate) is technically a negative signal for growth.
  • Of the two remaining indicators showing trending acceleration, one is wildly incongruent with both market prices and the preponderance of related company commentary (i.e. retail sales) and the other has historically peaked within 4-5 months of recession (i.e. nominal wage growth).

 

The market continues to back our bear case as well on a trending basis:

 

  • Within equities, the defensive style factors we like are up 5-11% YTD, while the broader market is effectively flat and the #LateCycle sectors we don’t like are down 3-6% YTD: low beta (USMV) +4.6%, safe yield (DVY) +7.6% and utilities (XLU) +10.6% vs. the SPY +0.7%, financials (XLF) -2.7%, healthcare (XLV) -3.6% and retailers (XRT) -5.5%.
  • Within fixed income, high-yield credit (JNK +3.2% YTD) continues to lag our most preferred factor exposure in all of global macro: the long bond (TLT +8.2% YTD, EDV +12.7% YTD and ZROZ +12.9% YTD). This performance divergence is not what you want to see if you’re bullish on growth – especially with the Treasury yield spread (10s-2s) continuing to narrow. The latter has compressed by another -14bps MoM, closing at a new cycle-low of 94bps yesterday.

 

All told, we think investors will continue to do well to fade what we view as inappropriately hawkish commentary out of various Federal Reserve officials. Fight the Fed by tactically taking advantage of intermittent back-ups in rates and sharp sell-offs in defensive style factors to increase your allocation to these [winning] factor exposures.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.68-1.87% (bearish)

SPX 2029-2058 (bearish)
RUT 1090-1120 (bearish)

NASDAQ 4 (bearish)

Nikkei 16311-16795 (bearish)

DAX 9 (bearish)

VIX 14.16-16.94 (bullish)
USD 94.04-95.98 (bullish)
EUR/USD 1.11-1.13 (bearish)
YEN 108.01-110.55 (bullish)
Oil (WTI) 46.23-49.91 (bullish)

Gold 1 (bullish)
Copper 2.02-2.10 (bearish)

 

Keep your head on a swivel,

 

DD

 

Darius Dale

Director

 

About Right - Chart of the Day 5 24


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