Mutual Fund Flows

April 30th, 2015 7:58 pm | by John Jansen |

Via Merrill Lynch Research:

  • Outflows from short term high grade funds rose further last week…
  • …to $1.42bn, the second biggest weekly outflow on record.
  • high yield fund outflows accelerated to $0.88bn last week, up from -$0.35bn.
  • Out of HY and short duration. High grade bond fund flows jumped sharply during the week ended April 29th, to an inflow $3.14bn (from +$1.23bn the prior week). However, we would dismiss the importance of this development as the increase can largely be attributed to a big flow into one particular intermediate term fund last Monday. That suggests the increase was more likely the result of a re-classification of an existing bond portfolio, than an actual inflow of cash to our asset class. Outflows from short term high grade funds rose further last week to $1.42bn, the second biggest weekly outflow on record after the $1.48bn we saw the week ended 12/24/14. With the return of interest rate risk we expect outflows from short term funds to accelerate, while inflows further out the curve diminish. Muni funds reported another inflow of $0.44bn, down just slightly from +$0.54bn the prior week.
  • Down the quality curve outflows from high yield funds accelerated to $0.88bn last week, compared with an outflow of $0.35bn the previous week, whereas loan fund outflows moderated a bit to $0.16bn, from outflows of $0.26bn. Stock funds reported the fourth consecutive small inflow – this time $1.57bn (vs. +$0.66bn the prior week). Inflows to EM funds accelerated to $0.97bn last week, from $0.60bn the prior week. Inflows to all fixed income – a category that also includes government bond funds – fell to $2.19bn last week (from +3.82bn). Finally money market funds had outflows of $9.46bn (up from -$2.55bn the prior week). – Hans Mikkelsen (Page 4)
  • Turning the table on issuers. Although again surprising to the upside, high grade new issue supply volumes slowed seasonally to $104bn in April, from an exceptionally strong $143bn March. This week new issuance amounted to $24.2bn, down from $49.0bn the prior week. We expect volumes to bounce back in May for three reasons. First, by the end of this week 70% of S&P 500 companies will have reported 1Q results, meaning that issuance blackouts are over for most. This leads to a seasonal pick up in supply during the month of May, when primary market activity tends to be dominated by non-financial issuers. Second, corporate yields remain low and the very recent increases may trigger supply out of fear of missing the boat. Third, there is a large pipeline of M&A-related issuance (see: (Companies) Sell in May). As a result, we expect heavy issuance in May, in the $100 to $140bn range.
  • At the same time we expect that investor demand declines in May, due to rate hiking risks, as US economic data bounces back – hence the tables are turning on issuers and we expect higher concessions and supply re-pricing secondaries wider. We saw signs of such weakness already during the last two weeks of April, as new issue concessions rose – particularly out the curve. Furthermore this week bonds tightened on average much less on the break in secondary trading than we have been used to. – Yuriy Shchuchinov (Page 6)
  • Who is afraid of Grexit?. A roundtable on spillovers from Grexit. Grexit is an outcome that we believe both Greece and the European institutions do not want. However, without new official loans, it could become inevitable later this year. New official loans require agreement on a program and reforms. Delays and brinkmanship so far have increased risks. Although not our baseline, we have to start thinking what used to be unthinkable. In this context, we organized a roundtable with our economists and strategists to discuss contagion and market implications from Grexit. Some of these implications will be relevant if markets get more concerned about Grexit, even if Greece stays. – Athanasios Vamvakidis, Gilles Moec, Ralf Preusser, CFA, Sphia Salim, Ruben Segura-Cayuela (Page 9)
  • Auto Monthly: Motorin’: April SAAR expected at 16.6mn. We expect U.S. light vehicle sales in April to run at a SAAR of 16.6mn units, up from a SAAR of 16.1mn a year earlier. We estimate that GM sales will be up 5% YoY, driven by continued strong pickup sales. We forecast Ford sales to be up 5% YoY as well, although the F-Series remains a drag as the Kansas City plant ramps to full production. We expect FCA sales to rise 7.5% YoY, continuing the robust momentum in trucks (Jeep and Ram) and the more recent momentum in cars.Douglas Karson, Mark Hammond, Max Hubbard (Page 9)
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