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[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008

Takeaway: ICI's recently published annual Factbook shows 2015 as the biggest annual inflow for money markets since 2008. FII printed record EPS in '08

Editor's Note: Below is a complimentary research note originally published June 2, 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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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.  

 

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - Cover chart

 

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - Cover II

 

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.


[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - ICI19

 

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:

 

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - ICI2

 

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - ICI3

 

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - ICI4

 

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - ICI5

 

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - 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 | The Biggest Inflow Into Cash Products Since 2008 - ICI12

 

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - ICI13

 

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - ICI14

 

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - ICI15

 

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - 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:

 

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - ICI7

 

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - ICI8

 

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 | The Biggest Inflow Into Cash Products Since 2008 - ICI17

 

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - ICI18



Net Results:

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.)

  

[UNLOCKED] Fund Flow Survey | The Biggest Inflow Into Cash Products Since 2008 - 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 | The Biggest Inflow Into Cash Products Since 2008 - ICI11 


Daily Market Data Dump: Wednesday

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: Wednesday - equity markets 6 8

 

Daily Market Data Dump: Wednesday - sector performance 6 8

 

Daily Market Data Dump: Wednesday - volume 6 8

 

Daily Market Data Dump: Wednesday - rates and spreads 6 8

 

Daily Market Data Dump: Wednesday - currencies 6 8


The Macro Show with Darius Dale Replay | June 8, 2016

CLICK HERE to access the associated slides.

 

An audio-only replay of today's show is available here.


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Down Dollar Reflation

Client Talking Points

Energy

1st time we've registered this signal in my Top 3 Things, but literally every equity expression of Oil/Energy is signaling immediate-term TRADE overbought this morning (XLE, XOP, OIH, Russian Stocks, etc.); reminder that what was TREND resistance for WTI ($47.07/barrel) is now support. Q: can they keep USD Down, Oil Up throughout the summer?

Russia

Forget Chinese demand continuing to slow (see this morning’s Export numbers for details), the real alpha out there next to being long real world #GrowthSlowing and Bond Proxies is in anything that looks like a commodity, including countries – that’s not a new story; that’s simply reflating the deflation (RTSI up another +0.8% this morning and +5% m/m).

UST 10YR

If reflation was real growth, the 10yr wouldn’t be setting itself up for all-time lows – but you already know that. Risk Range on UST 10yr is now 1.64-1.79% after barely trying to bounce yesterday from its jobs day bomb.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/7/16 74% 0% 0% 4% 14% 8%
6/8/16 74% 0% 0% 4% 14% 8%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/7/16 74% 0% 0% 12% 42% 24%
6/8/16 74% 0% 0% 12% 42% 24%
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
MCD

McDonald's (MCD) is testing fresh beef in 14 Dallas-area restaurants in an attempt to become a modern progressive burger company and better compete with smaller, premium chains. Part of the reason they haven’t done this in the past is because there hasn’t been enough supply of fresh beef for their demand.

 

The initiative will expand further to more markets over the course of the year to test both consumer perception and their supply chains ability. This could be a big move for MCD that will undoubtedly improve food quality and consumer perception of the company.

 

Also in the news over the last couple of weeks is MCD’s plan to move its HQ from Oak Brook to downtown Chicago. Although not important from an operational perspective immediately, it will help the company attract and retain top talent which will be beneficial overtime. MCD remains one of our top ideas in the Restaurant space.

TLT

Friday’s jobs report represented a complete shift to any renewed expectations of a June/July hike. The yield spread ended the week pinned near the bottom of the cycle low at 92 basis points (10yr-2yr yield %). And, looking at real-time rate hike expectations, the bid-yield of December 2016 Federal Funds Futures Contracts dipped 8 basis points day-over-day, implying the market’s expectations for the first rate hike is now in 2017!

GLD

That was the commentary that closed out a deflationary month of May – USD +3.1% with Gold -6.3% and the long end of the Treasury curve and the S&P roughly flat. Fast forward a week. Gold, the Treasury market, and Federal Fund futures don’t buy the hawkish rhetoric for a second.

 

We’ve shown our chart of the Y/Y% change in Non-Farm Payrolls numerous times, so Friday’s Jobs report was no surprise to us. Consumption and labor market strength are classic late-cycle indicators, but eventually these indicators peak and roll-over in rate-of change terms. Here's the Jobs Report breakdown:

Non-Farm payroll additions totaled +38K in May vs. +160K est. and +160K prior. While the number was a bomb for those who follow the month-to-month sequential change (which is useless), we expected the weakness. To be clear, history paints a very clear picture. NFP additions peaked in Q1 of 2015 and have since rolled over. It’s part of #TheCycle.  

Three for the Road

TWEET OF THE DAY

At 1.71% UST 10yr Yield the @Hedgeye call for all-time lows as growth slows remains firmly intact pic.twitter.com/flGE3O413e

@KeithMcCullough

QUOTE OF THE DAY

"If you treat every situation as a life and death matter, you'll die a lot of times."

-Dean Smith

STAT OF THE DAY

Chipper Jones had 2499 at bats for the Atlanta Braves, he had 2726 hits.


CHART OF THE DAY | Neck & Neck: Trump vs. Clinton

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Director of Research Daryl Jones. Click here to learn more.

 

"... Settings aside something coming from left field (or an errant email server), this race is down to The Donald versus Hillary. As of this morning and as you can see in the Chart of the Day, the pollsters are basically showing it to be a statistical tie. To the chagrin of many, the Donald is in it to win it and has a real chance to do so. The next 5 months may have to be the grittiest and most determined of Hillary Clinton’s political life."

 

CHART OF THE DAY | Neck & Neck: Trump vs. Clinton - 06.08.16 EL Chart


Grinding It Out

“Superlative performance is really a confluence of dozens of small skills or activities, each one learned or stumbled upon, which have been carefully drilled into habit and then are fitted together in a synthesized whole.”

-Dan Chambliss from “The Mundanity of Excellence”

 

We’ve been enjoying reading a book recently called, “Grit: The Power of Passion and Perseverance”, which analyzes the roots of success. As you guessed from the title, the book postulates that the single most important factor in determining whether an individual will be successful is whether they are “gritty”.

 

For those of you that have been subscribing to Hedgeye, you know full well this idea of grit is basically our mantra.. We are pretty comfortable that we aren’t the smartest or most talented in the room, but we think we can be the hardest working and most passionate.

 

The author of the aforementioned book, Angela Duckworth, attempts to quantify grit and in doing so has shown it predicts very effectively which cadets at West Points will succeed or fail, what inner city high school students will go on to higher academic levels, and what elementary school students will win spelling bees, among other things.

 

Interestingly, and apropos to today, the author also discusses Bill and Hillary Clinton and pans this idea that he is a natural and gifted politician and she will never be his equal. Setting aside your view of her politics, it is very difficult to disagree with the idea that she is one of the grittiest of modern political figures. These traits have rewarded her with many political victories and finally she has become her party’s nominee for President.

 

Settings aside something coming from left field (or an errant email server), this race is down to The Donald versus Hillary. As of this morning and as you can see in the Chart of the Day, the pollsters are basically showing it to be a statistical tie. To the chagrin of many, the Donald is in it to win it and has a real chance to do so. The next 5 months may have to be the grittiest and most determined of Hillary Clinton’s political life.

 

Back to the Global Macro Grind

 

Yesterday in the Early Look, Keith wrote that subscribers he is speaking to on the road are extolling the fact that the SP500 is now back to flat on the year. In fact, as of this morning, over the last year the SP500 is up +1.58%. If you were able to get positive absolute equity alpha in the last 12-months, congrats on the grinding! It hasn’t been easy.

 

In Europe this morning, the central bankers are persevering with their dovishness and the ECB’s corporate bond buying program kicks off. According to reports, the buying will be broad based with a focus on utility, insurance and telecom bonds. Someone should let Draghi know we have some “great” MLP paper he can buy in the U.S...

 

Grinding It Out - Brexit cartoon 06.07.2016

 

The implementation of corporate bond purchasing this morning dovetails with the latest poll from Pew ahead of the June 23rd Brexit vote. According to the poll, Europe, not surprisingly, is very much split with 47% of nations holding an unfavorable view of the EU and 51% in favor. Not surprising, support for the EU is lowest in these nations – Greek at 27%, France at 38%, UK at 44%, and Spain at 47%. Meanwhile, majorities in all countries except Germany and Poland also disapproved of the EU’s handling of the economy.

 

On the topic of Brexit, we will be doing a call this morning with Alexander Nicoll from the International Institute for Strategic Studies. He will be joined by Hedgeye Potomac’s Managing Director JT Taylor and our Senior Defense Policy Analyst Lt. General Emo Gardner. In a nutshell, the view is that we think Brexit will not occur and we’ll present the framework for why we believe this is the case. The call will occur today at 11am ET, please email for details.

 

Employment data from Britain this morning reinforces the view that Brexit is unlikely to occur. According to data from the Recruitment and Employment Confederation, UK firms increased staff numbers at the lowest rate in eight months due to “worries about the EU referendum”. Ironically, many UK firms are seeing candidate shortages, but due to the economic uncertainty around the referendum are unwilling to make hiring decisions. The economy still does matter, stupid.

 

Speaking of grinding, the PBOC ground out some new economic projections this morning. The Chinese central bank kept GDP unchanged at +6.8%, revised up CPI to +2.4%, revised up fixed asset investment growth to +11.0%, and revised down export growth to -1%. The World Bank also offered a new global growth projection that reduced growth to +2.4% for 2016, which was a 0.5% reduction from January.

 

Hmmm, global growth rates reduced by 20% and exports and the world’s second largest economy turning negative? Maybe those muckers and grinders at Hedgeye are on to something with their #GrowthSlowing view.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.64-1.79%

SPX 2080-2116

VIX 13.01-16.80
USD 93.34-95.25
Oil (WTI) 47.59-51.09

Gold 1

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Grinding It Out - 06.08.16 EL Chart


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