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[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition

Takeaway: Total equity products are averaging a weekly redemption of -$3.4 billion versus fixed income which is bringing in +$3.9 billion per week.

Editor's Note: Below is a complimentary research note originally published June 16, 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:

In the 5-day period ending June 8th, Large Cap and Emerging Markets were the only active equity categories to have net contributions. Large Cap took in meager +$346 million and Emerging Markets gained +$130 million, however losses in the other categories brought total equity mutual fund flows to -$3.8 billion. Meanwhile, active fixed income flows came in strongly at +$5.0 billion. Global bonds, with a -$755 million outflow, was the only fixed income category to experience a net withdrawal. In passive ETFs, bond inflows of +$2.9 billion slightly outpaced equity ETF contributions of +$2.3 billion. The year-to-date scorecard is telling with total equity products (including ETFs) shedding -$3.4 billion versus all fixed income product which is averaging +3.9 billion in subscriptions (lead by tax-free munis with a +1.2 billion weekly average inflow).

 


[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI1

 

In the most recent 5-day period ending June 8th, total equity mutual funds put up net outflows of -$3.8 billion, trailing the year-to-date weekly average outflow of -$2.5 billion and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net inflows of +$5.0 billion, outpacing the year-to-date weekly average inflow of +$2.5 billion and the 2015 average outflow of -$475 million.

 

Equity ETFs had net subscriptions of +$2.3 billion, outpacing the year-to-date weekly average outflow of -$895 million but trailing the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$2.9 billion, outpacing 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 | Hallmarks of a Phase Transition - ICI2

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI3

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI4

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI5

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - 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 | Hallmarks of a Phase Transition - ICI12

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI13

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI14

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI15

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - 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 | Hallmarks of a Phase Transition - ICI7

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors contributed +$537 million or +4% to the health care XLV ETF and +$331 million or +4% to the long treasury TLT ETF.

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - 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 | Hallmarks of a Phase Transition - ICI17

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$9.4 billion spread for the week (-$1.5 billion of total equity outflow net of the +$7.9 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 -$2.4 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 | Hallmarks of a Phase Transition - ICI10 2

 


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 | Hallmarks of a Phase Transition - ICI11 


Daily Market Data Dump: Monday

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: Monday - equity markets 6 20

 

Daily Market Data Dump: Monday - sector performance 6 20

 

Daily Market Data Dump: Monday - volume 6 20

 

Daily Market Data Dump: Monday - rates and spreads 6 20

 

Daily Market Data Dump: Monday - currencies 6 20


MONDAY MORNING RISK MONITOR | BREXIT FIXATION

Takeaway: The market is fixated on Brexit. Today, the market is positive. Last week, the story was fear. The overall takeaway: volatility.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM11

 

Key Takeaway:

Although markets are reacting positively this morning to a poll showing the UK is more likely to stay in the EU, fear prevailed last week, and risk measures flashed mostly red. The overall takeaway is that the upcoming Brexit vote on Thursday is creating volatility on both sides of the dial. CDS widened globally last week, even in the US where the resilience of recent weeks gave way and the median bank swap widened by 10 bps to 99. Additionally, the high yield YTM jumped by 15 bps to 7.26%, and the CDOR-OIS spread, a measure of counterparty risk in Canada, widened by 1 bps to 40.

Risk measures in our heat map below are mostly negative across all durations.

 

Current Ideas:
MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Negative / 2 of 13 improved / 6 out of 13 worsened / 5 of 13 unchanged
• Intermediate-term(WoW): Negative / 1 of 13 improved / 7 out of 13 worsened / 5 of 13 unchanged
• Long-term(WoW): Negative / 2 of 13 improved / 3 out of 13 worsened / 8 of 13 unchanged

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM15


1. U.S. Financial CDS
– With investors worrying about the domestic implications of a Brexit, all domestic financials swaps widened last week. Moneycenters were most heavily affected, widening by an average 10 bps.

Widened the least WoW: AON, GNW, ALL
Widened the most WoW: MS, GS, C
Widened the least WoW: AON, RDN, SLM
Widened the most MoM: MS, GS, WFC

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM1

 

2. European Financial CDS – With Thursday's Brexit vote approaching, Financials swaps mostly widened in Europe last week. The median CDS widened by 9 bps to 131.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM2

 

3. Asian Financial CDS – Chinese bank swaps all widened, in part due to MSCI deferring the addition of China's A shares to the EM Index. That deferral delays an expected capital inflow to the country of tens of billions of dollars. In India, 2 of 3 financials swaps widened.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM17

 

4. Sovereign CDS – Sovereign swaps mostly widened over last week. Portuguese swaps stood out, widening by 33 bps to 316.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM18

 

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM3


5. Emerging Market Sovereign CDS – Emerging market swaps mostly widened last week. Russian sovereign swaps widened the most, by 15 bps to 264. Meanwhile, with Rio de Janeiro declaring a state of financial disaster so that it can more easily manage the government's scant resources, Brazilian swaps tightened by -2 bps to 341.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM16

6. High Yield (YTM) Monitor – High Yield rates rose 15 bps last week, ending the week at 7.26% versus 7.11% the prior week.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index fell 9.0 points last week, ending at 1901.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM6

8. TED Spread Monitor  – The TED spread fell 2 bps last week, ending the week at 39 bps this week versus last week’s print of 41 bps.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM7

9. CRB Commodity Price Index – The CRB index fell -1.8%, ending the week at 192 versus 196 the prior week. As compared with the prior month, commodity prices have increased 4.4%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM8

10. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was unchanged at 9 bps.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index rose 1 basis point last week, ending the week at 2.01% versus last week’s print of 2.00%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM10

12. Chinese Steel – Steel prices in China rose 0.1% last week, or 3 yuan/ton, to 2339 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM12

13. Chinese Non-Performing Loans – Chinese non-performing loans amount to 1,392 billion Yuan as of March 31, 2016, which is up +41.7% year over year. Given the growing focus on China's debt growth and the potential fallout, we've decided to begin tracking loan quality. Note: this data is only updated quarterly.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM4

14. Chinese Credit Outstanding – Chinese credit outstanding amounts to 149.5 trillion RMB as of May 31, 2016 (data released 6/15/2016), which is up +15.5 trillion RMB or +11.5% year over year. Month-over-month, credit is up +553 billion RMB or +0.4%. Note: this data is only updated monthly.


MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM20

15. 2-10 Spread – Last week the 2-10 spread was unchanged last week at 91 bps. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM13

16. CDOR-OIS Spread – The CDOR-OIS spread is the Canadian equivalent of the Euribor-OIS spread. It is the difference between the Canadian interbank lending rate and overnight indexed swaps, and it measures bank counterparty risk in Canada. The CDOR-OIS spread widened by 1 bps to 40 bps.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT

 

Patrick Staudt, CFA



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A Closer Look At Brexit, European Equities, & Pound Vs. USD

A Closer Look At Brexit, European Equities, & Pound Vs. USD - pound 6 20

 

"Thank goodness for no Brexit - we were running out of global equity bull market catalysts!" Hedgeye CEO Keith McCullough wrote in a note to subscribers this morning.

 

European equity markets surged on the news that Brexit polling showed a "resurgence" of the "Remain" camp. Here's the latest from MarketWatch:

 

"An opinion poll by Survation for newspaper the Mail on Sunday showed 45% in favor of remaining and 42% in favor of leaving. That telephone poll was conducted Friday and Saturday, after the killing of British politician Jo Cox. It shows a swing back to “remain,” as a previous survey conducted on Thursday by Survation had put Brexit in the lead by 3 points."

 

A Closer Look At Brexit, European Equities, & Pound Vs. USD - european equities 6 20 16

 

But take a look at the latest aggregate polling below, which shows "stay or leave" odds at essentially a coin toss (with 11% of the electorate undecided heading into Thursday's vote):

 

A Closer Look At Brexit, European Equities, & Pound Vs. USD - polling brexit

 

Here's additional Brexit analysis from McCullough:

 

"FTSE: +2.6% (DAX +3.3%) in a straight line to 6172 with intermediate-term TREND line up at 6335; anything that isn’t closed in Global Equity markets doing the same so they better not Brexit!"

 

 

"Big pop for Pound vs. USD of +1.8% taking it right back to where it’s been twice now (1.46-1.47) in both April and May; can it hold? Sure. Can it do this every day? Doubt it. Everything reflation should love it today regardless (Dollar Down)"

 

 

Finally, take a look at today's Chart of the Day, which shows the Pound/U.S. Dollar fluctuations tightly tracking Brexit "Remain" odds.

 

A Closer Look At Brexit, European Equities, & Pound Vs. USD - 06.20.16 Chart

 

More to come.


Thank goodness for no Brexit!

Client Talking Points

Pound

Big pop for Pound vs. USD of +1.8% taking it right back to where it’s been twice now (1.46-1.47) in both April and May; can it hold? Sure. Can it do this every day? Doubt it. Everything reflation should love it today regardless (Dollar Down).

FTSE

+2.6% (DAX +3.3%) in a straight line to 6172 with intermediate-term TREND line up at 6335; anything that isn’t closed in Global Equity markets doing the same so they better not Brexit!

UST 10YR

UST 10yr Yield +5bps to 1.66% on the potential of no-Brexit news or were bond yields oversold on #GrowthSlowing realities in US employment data. Shouldn’t take macro markets long to differentiate between the two once we get through today; 10yr Gilt +6bps to 1.21% vs. Spanish 10yr down -8bps to 1.43%.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/19/16 66% 2% 0% 8% 20% 4%
6/20/16 64% 4% 0% 10% 18% 4%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/19/16 66% 6% 0% 24% 61% 12%
6/20/16 64% 12% 0% 30% 55% 12%
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
TLT

No matter what side of the reflation/deflation trade you’re on, the growth in global demand continues to decelerate on a trending basis. The debate is no longer whether or not growth is slowing. The real debate centers on the policy response and the market reaction to that policy response. While that question presents us with “open the envelope” risk, #GrowthSlowing will continue to be the bull catalyst for U.S. Treasuries whatever the policy response as the slow march to zero yields globally goes on. 

GLD

To sum things up, stay away from the guessing game and stick to what is empirically evident. A stronger USD over the longer term is a probable scenario in our book. We expect the Fed, and all central banks for that matter, will try to combat deflation. That said, global currencies all burning at the same time makes a compelling case for GLD, as gold knows no currency. You can sell it in local currency all over the world. Scary but true.

MCD

There have been rumblings in the news that McDonald's (MCD) 2Q comps have slowed due to the temporary replacement of the 2 for $5 value platform for Monopoly. This has clearly been reflected in the stock as of late, as MCD has underperformed the S&P 500 over the last month.

Despite this near term headwind, we still strongly believe in the long-term story for MCD and remain confident that once they get their value platform right nationally, they will be just fine. In the short to intermediate term, as we wait for a solidified value platform, this recent underperformance represents a great buying opportunity. We remain LONG MCD.

Three for the Road

TWEET OF THE DAY

Capital Brief: Donald Under Duress? ... & #Rubio Reconsiders app.hedgeye.com/insights/51791… via @HedgeyePotomac #Trump pic.twitter.com/ZDOwrgzjz1

@Hedgeye

QUOTE OF THE DAY

“Never tell your problems to anyone…20% don’t care and the other 80% are glad you have them.”

 -Lou Holtz

STAT OF THE DAY

Lebron James scored 27 points in last nights Game 7 win.


CHART OF THE DAY: The Volatile Brexit Crapshoot

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.

 

"... So if they the British don’t exit… and:

 

  1. The British Pound ramps right back to where it’s been multiple times this year ($1.46-1.47)
  2. The FTSE rips right back to intermediate-term @Hedgeye TREND resistance of 6335
  3. All equity markets worldwide go straight up …

 

What could possibly go wrong?

 

Nothing, obviously. Until the causal factor (worldwide cyclical and secular #GrowthSlowing) on why most things political that are American, Chinese, European, Japanese, etc. aren’t dying starts to get reported again, that is…"

 

CHART OF THE DAY: The Volatile Brexit Crapshoot - 06.20.16 Chart


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