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[UNLOCKED] Fund Flow Survey | Brexit-ing Equity Mutual Funds

Takeaway: Brexit worries prompted investors to pull funds from all but three asset classes last week.

Editor's Note: Below is a complimentary research note originally published June 23, 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 15th, Brexit worries prompted investors to withdraw funds from every asset class but investment grade bonds, municipals, and ICI's other bond category which took in +$469 million, +$1.6 billion, and +$512 million respectively. Total equity mutual fund and ETF flows came in at -$6.0 billion while total bond mutual funds and ETFs were virtually flat with a -$2 million outflow. With the Brexit vote ongoing today, we expect another weak survey next week which will capture more jitters ahead of this volatility event. Year-to-date, Bond ETFs have been the best category with +$3.7 billion in subscriptions on average each week (versus a weekly mean in 2015 of just +$571 million). Municipal bond funds have also been high grossing with +$1.3 billion in subscriptions per week versus just a +$313 million average last year.


[UNLOCKED] Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI19

 

In the most recent 5-day period ending June 15th, total equity mutual funds put up net outflows of -$5.9 billion, trailing the year-to-date weekly average outflow of -$2.7 billion and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net inflows of +$1.5 billion, trailing the year-to-date weekly average inflow of +$2.4 billion but outpacing the 2015 average outflow of -$475 million.

 

Equity ETFs had net redemptions of -$167 million, outpacing the year-to-date weekly average outflow of -$864 million but trailing the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net outflows of -$1.5 billion, trailing the year-to-date weekly average inflow of +$1.4 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 | Brexit-ing Equity Mutual Funds - ICI2

 

[UNLOCKED] Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI3

 

[UNLOCKED] Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI4

 

[UNLOCKED] Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI5

 

[UNLOCKED] Fund Flow Survey | Brexit-ing Equity Mutual Funds - 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 | Brexit-ing Equity Mutual Funds - ICI12

 

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[UNLOCKED] Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI14

 

[UNLOCKED] Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI15

 

[UNLOCKED] Fund Flow Survey | Brexit-ing Equity Mutual Funds - 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 | Brexit-ing Equity Mutual Funds - ICI7

 

[UNLOCKED] Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: There wasn't a large standout in sector SPDR ETFs this week, but the materials XLB ETF saw the largest percentage outflow of -2% or -$68 million.

 

[UNLOCKED] Fund Flow Survey | Brexit-ing Equity Mutual Funds - 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 | Brexit-ing Equity Mutual Funds - ICI17

 

[UNLOCKED] Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$6.0 billion spread for the week (-$6.0 billion of total equity outflow net of the -$2 million outflow from fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is -$2.8 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 | Brexit-ing Equity Mutual Funds - 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 | Brexit-ing Equity Mutual Funds - ICI11


The Folly of Fed Central Planning & Unintended Consequences

The Folly of Fed Central Planning & Unintended Consequences - Fed dunce cap cartoon 12.23.2015

 

As we've been noting in the past few days, the market is not assigning a more than 50% probability of a Fed rate hike until the beginning of 2018. 

 

That's right... a year and a half from now.

 

Meanwhile, rate CUT expectations have spiked and the market marches higher. Here's analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:

 

"Watching the Old Wall (and it’s media) shift to “Fed on Hold, buy stocks” is funny – but a friendly reminder that this is not funny if you are a bank; 1.44% 10yr Yield minus 0.62% 2yr = fresh YTD low (and low for #TheCycle) as trending US employment growth continues to slow ex-Brexit."

 

 

Below is a chart of 10s/2s yield spread. Notice that the last time it was at its current level the U.S. economy was in recession:

 

The Folly of Fed Central Planning & Unintended Consequences - yield spread 6 29

 

In short, the compression of the yield spread means pain for bank net interest margins... which is why bank stocks look like this year-to-date: 

 

Ouch!

 

The Folly of Fed Central Planning & Unintended Consequences - xlf financials

 

Take a look at the U.S. equity market sector scorecard.

 

Note: Our favorite sector long Utilities (XLU) continues to outperform Financials (XLF) by a wide margin:

 

 

What to do?

 

Stick with what's working in 2016. Long Utilities, Short Financials


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 29

 

Daily Market Data Dump: Wednesday - sector performance 6 29

 

Daily Market Data Dump: Wednesday - volume 6 29

 

Daily Market Data Dump: Wednesday - rates and spreads 6 29

 

Daily Market Data Dump: Wednesday - currencies 6 29


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

Bear markets bounce on decelerating volume

Client Talking Points

Gold

One down day and right back up we go, +0.4% to +24.2% YTD for the Gold Bulls as both US and Global Bond Yields crash to all-time lows; don’t chase it into the month-end markup; buy more at low-end of the $1290-1339 immediate-term risk range; rinse & repeat.

UST 10YR

Watching the Old Wall (and it’s media) shift to “Fed on Hold, buy stocks” is funny – but a friendly reminder that this is not funny if you are a bank; 1.44% 10yr Yield minus 0.62% 2yr = fresh YTD low (and low for #TheCycle) as trending US employment growth continues to slow ex-Brexit.

SP500

While we covered some shorts 2 days ago on the SPX oversold signal, I kept the SPY signal itself on as I think this one might look good for more than a little while; with buy-backs blacked out and the worst EPS season of #TheCycle pending (Financials report 1st), shorting more US Equity Beta in the 2058-2085 range would be a nice Canada Day gift.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/28/16 61% 0% 0% 12% 24% 3%
6/29/16 58% 0% 0% 14% 25% 3%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/28/16 61% 0% 0% 36% 73% 9%
6/29/16 58% 0% 0% 42% 76% 9%
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

In Great Britain, the people voted for freedom and not for the broken promises that central planners can bend and smooth economic gravity. The #BeliefSystem is breaking down and despite the fact that every central banker around the world was out Friday talking about “stepping in.”

As we’ve mentioned, the bond market has gotten the #GrowthSlowing call right all along.

GLD

Looking at other markets (yes there are other markets), maybe being long the Long Bond (TLT) for almost two years and sitting long of Gold (GLD) was too boring for some people, you have to ask yourself what you’re buying in broader equity indices with an ongoing earnings and cyclical slowdown. The second quarter of 2016 is setting up as the 5th consecutive quarter of Y/Y earnings declines for the S&P 500, the longest streak since the quarter ending in Q3 2009.

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

QUOTE OF THE DAY

“The most difficult thing is the decision to act. The rest is merely tenacity.”  -Amelia Earhart

STAT OF THE DAY

Jeff Blauser had a career batting average of .262.


The Macro Show Replay with Darius Dale | June 29, 2016

CLICK HERE to access the associted slides.

 

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


CHART OF THE DAY: A Closer Look At Housing Cost Burdens

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye U.S. Macro analyst Christian Drake. Click here to learn more.

 

"... As can be seen in the Chart of the Day below, almost half of all renter households make less than $75K so the incidence of moderate and severe cost burdens is the prevailing reality for over 20 million households.

 

And as housing’s share of wallet grows, capacity for other discretionary consumption declines proportionally.  Indeed, severely cost burdened households spend more on transportation costs and significantly less on Food, Healthcare and retirement savings."

 

CHART OF THE DAY: A Closer Look At Housing Cost Burdens - 06.29.16 Cost Burden CoD


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