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[UNLOCKED] Fund Flow Survey | Passive Crushes Active (Again)

Takeaway: Last week, equity ETFs had their largest inflow of 2016 while domestic equity mutual funds had their largest outflow.

Editor's Note: Below is a complimentary research note originally published July 21, 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:

The ongoing shift from the expensive, less liquid, and taxably inefficient mutual fund structure was most evident as although U.S. stocks rose in the 5-day period ending July 13th, investors put through the biggest redemption of 2016 in U.S. active equity mutual funds redeeming-$7.3 billion. International equity mutual funds were also losers giving up -$769 million in the period. Meanwhile, the reallocation to passive products continued with equity ETFs winning their largest inflow of the year with +$15.7 billion in new money last week ($8.4 billion of which went into the broad market SPY).

 

In light of these trends, we maintain our short call on T. Rowe Price, which has the highest percentage of large-cap strategies of the public asset managers (the main category which is moving to passive). We estimate TROW continues to overearn in the current bull market in equities but with a stubbornly high cost structure, operating margins have peaked and are now compressing. We are also cautious near-term for the company's earning's print next Tuesday the 26th.

 

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In fixed income, almost all categories experienced inflows last week. Total bond mutual fund flows were +$6.1 billion, and fixed income ETFs took in +$4.7 billion. Only global bond mutual funds lost a small -$8 million. Additionally, investors defensively shored up +$19 billion in money market funds.


[UNLOCKED] Fund Flow Survey | Passive Crushes Active (Again) - ICI1

 

In the most recent 5-day period ending July 13th, total equity mutual funds put up net outflows of -$8.1 billion, trailing the year-to-date weekly average outflow of -$3.0 billion and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net inflows of +$6.1 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 +$15.7 billion, outpacing the year-to-date weekly average outflow of -$420 million and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$4.7 billion, outpacing the year-to-date weekly average inflow of +$1.9 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:

 

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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.

 

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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:

 

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Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors contributed +$8.4 billion or +4% to the broad market SPY while withdrawing -$500 million or -6% from the utilities XLU.

 

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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.

 

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Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$3.2 billion spread for the week (+$7.6 billion of total equity inflow net of the +$10.8 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 -$3.4 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.)

  

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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:

 

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What To Expect Ahead Of The BOJ's Policy Announcement

Takeaway: Wall Street analysts overwhelmingly expect the BOJ to ease monetary policy. But does whatever the BOJ decides to do even matter?

What To Expect Ahead Of The BOJ's Policy Announcement - Kuroda cartoon 02.18.2015

 

Japan's Nikkei soared today, up +1.7%, as the country's Prime Minister Shinzo Abe announced a shockingly large fiscal stimulus package. Adding to all the shenanigans, helicopter money speculation reignited as the Wall Street Journal cited "people familiar with the matter" who said Japan was considering issuing 50-year bonds.

 

"... Every morning I wake up to a new headline about the next “yuuuge” fiscal stimulus package in Japan," Hedgeye Senior Macro analyst Darius Dale wrote in today's Early Look. "In a few short weeks, market expectations for the size of the post-election supplementary budget have nearly tripled from an anticipated ¥10T ($95B) to ¥28T ($260B)."

 

Meanwhile, the BoJ heads into its July 28-29 meeting with peak expectations of incremental monetary easing (22 of 28 analysts according to the latest Nikkei survey expect easing).

 

Some of that easing is already being priced-into Japanese equity and currency markets. The month-over-month performance numbers are as follows:

  • Nikkei: +8.9%
  • Yen (USDJPY): +3.7%

 

As we noted in today's Chart of the Day, "if you thought Japan's two lost decades were bad, just wait until the next ten year of what we'll affectionately term 'plunging into the abyss' happens." Japan's core consumption cohort, the 35-54 year old popultion, will decline over the next ten years. To which we ask:

 

Does whatever the BOJ decides to do even matter?

 

Bottom Line: If the policy board sticks with traditional QQE expansion, we would expect a short-lived JPY sell-off and Nikkei pop, but if the #BeliefSystem (that policymakers can prevent economic reality from occuring) in Japan was still intact then 10Y JGB Yields wouldn’t have come in by -9bps with 5Y5Y Forward Breakeven Rates declining -17bps MoM, according to our Macro team.

 

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The #BeliefSystem is breaking down.


There May Be No Bottom In Sight For Twitter

Takeaway: There isn't any clear way to fix TWTR's model. There might not be any bottom in sight outside potential take-out value.

This is a brief excerpt from our Internet & Media analyst Hesham Shaaban's note to institutional subscribers on Twitter's (TWTR) lousy earnings report which has sent shares down over -10%. He’s been bearish on TWTR and remains so. Send an email to sales@hedgeye.com for more information on our institutional research.

 

...We’re lucky TWTR isn’t down near LNKD-4Q15 levels off this print, especially considering TWTR's +30% rally since the LNKD-MSFT deal.  So we may get another shot at the short, which we had covered prematurely thinking TWTR may have bottomed out.  But considering that there isn't any clear way to fix TWTR's model, it may just mean there isn't a bottom in sight outside potential take-out value, which we doubt would be anywhere near its $10B EV when both its revenues and users are trending toward decline.  

 

2-minute clip ahead of TWTR's print where Hesham outlines his concerns.

 

Where's the bottom for shares of Twitter? Anyone's guess.

 There May Be No Bottom In Sight For Twitter - Twitter cartoon 5.7.2014


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Ouch! Durable Goods: Neither Durable Nor Good

Takeaway: Headline Durable Goods fell -4.6% sequentially in June and declined to -6.4% YoY.

Ouch! Durable Goods: Neither Durable Nor Good - The Cycle cartoon 05.12.2016

 

While aggregate household spending remains relatively healthy, the trend in domestic durable goods orders continues to prove neither durable nor good, according to Hedgeye U.S. Macro analyst Christian Drake.  Headline Durable Goods fell -4.6% sequentially in June and declined to -6.4% YoY. 

 

The -60% decline in private sector aircraft orders weighed on the headline, Durables ex-Defense and Aircraft – which aligns most closely with what actual households buy – remained negative year-over-year (-1.8%) for a 4th consecutive month. 

 

Meanwhile, Core Capital Goods Orders fell -3.7% YoY, extending its epic run of negative capital spending growth to 17 of the last 18 months = the most dismal non-recession/peri-recession streak basically ever.

 

Here's the detailed Durable goods breakdown (as you can see, it's a sea of red):

 

Click image to enlarge

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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, rates and bond spreads, key currency crosses, and commodities. 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

 

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Daily Market Data Dump: Wednesday - sector performance 7 27

 

Daily Market Data Dump: Wednesday - volume 7 27

 

Daily Market Data Dump: Wednesday - currencies 7 27

 

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Daily Market Data Dump: Wednesday - commodities 7 27


CHART OF THE DAY: Can The BOJ Save Japan From Economic Reality?

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.

 

"... So as the BoJ heads into its July 28-29 meeting with peak expectations of incremental monetary easing (22 of 28 analysts expect such per the latest Nikkei Quick survey), we must ask ourselves one very simple question:

 

“Does whatever they do even matter?”

 

CHART OF THE DAY: Can The BOJ Save Japan From Economic Reality? - 7 27 16 Chart of the Day


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