Record earnings for a Financial company that is not an exchange? Survey says...only a handful...however Federated Investors (FII) is headed in that direction. With the diversification of the business into industry leading equity (and a few fixed income products) that are back stopping the challenged money fund business, the firm is a prime beneficiary of a "not too hot but not too cold" environment. That said, the firm's core business is about to get another shot in the arm and the positioning is nicely paired off. If the Fed hikes rates into the back half of the year, the $260 billion in money fund assets at FII gets more profitable. Another +25 basis point increase takes operating income up $8 million annually or +$0.08 in annual EPS. If the economy slows and investors rush back to cash, then the company increases that $260 billion cash balance substantially. If the Fed hikes into a slowdown (drum roll please), then FII increases BOTH pricing and volume. The company is a late cycle stock either way having put up record earnings in 2008 of $2.23 per share with a stock price that increased throughout both the Tech Wreck in 2000 and also the Financial crisis of 2007. The latest ICI annual FactBook outlines that 2015 was the biggest inflow into cash products (+$21 billion) since 2008.
Investment Company Institute Mutual Fund Data and ETF Money Flow:
International equity mutual funds missed a 3 week winning streak, with a -$1.0 billion outflow in the 5-day period ending May 25th. What has not been volatile however is domestic equity mutual funds which have been consistently soft, giving up -$5.2 billion this week alone with a -$3.0 billion weekly redemption thus far in '16. In fixed income, high yield and global mutual funds experienced -$321 million and -$1.8 billion in drawdowns while investment grade, other, and muni bonds brought in +$1.9 billion, +$2.2 billion, and +$1.5 billion respectively. Municipal bonds are leading the pack in fixed income, with the best start on record for the 21 weeks of 2016. ETF flows were fairly flat this week with equity funds bringing in +$280 million and bond funds gathering +$522 million. Finally, investors shored up a resounding +$14 billion in money funds/cash last week, the 3rd biggest weekly cash build of 2016.
In the most recent 5-day period ending May 25th, total equity mutual funds put up net outflows of -$6.3 billion, trailing the year-to-date weekly average outflow of -$2.3 billion and the 2015 average outflow of -$1.6 billion.
Fixed income mutual funds put up net inflows of +$3.5 billion, outpacing the year-to-date weekly average inflow of +$2.4 billion and the 2015 average outflow of -$475 million.
Equity ETFs had net subscriptions of +$280 million, outpacing the year-to-date weekly average outflow of -$1.4 billion but trailing the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$522 million, trailing the year-to-date weekly average inflow of +$1.5 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 contributed +$117 million or +5% to the materials XLB 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.
The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$10.0 billion spread for the week (-$6.0 billion of total equity outflow net of the +$4.0 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 -$2.0 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.)
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:
Jonathan Casteleyn, CFA, CMT
Joshua Steiner, CFA