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Posted by on Jul 26, 2013 in AdvisorShares, Market Insight, TrimTabs

Funds Get All-Time Record $36.8 Billion in July

Funds Get All-Time Record $36.8 Billion in July

By: Minyi Chen, CFA, Chief Operating Officer of TrimTabs Investment Research and Portfolio Manager of AdvisorShares TrimTabs Float Shrink ETF (NYSE Arca: TTFS)

As Wall Street rejoiced at the succession of record highs with the S&P 500 on Monday, our demand indicators continue to turn less favorable. Traders who are still aggressively long should definitely consider paring their long positions. The TrimTabs Demand Index, which uses 21 flow and sentiment variables for intermediate-term market timing, skidded to a six-month low of 62.5 on July 18 (readings above 50 are bullish). Since the index is between 50 and 75, the TrimTabs Demand Index model portfolio is fully bullish (100% long) rather than leveraged bullish (200% long) on U.S. stocks.

Contrarian analysis of fund flows also points to trouble for stocks over the short term. Investors are pouring money into U.S. equity funds at the fastest rate ever. U.S. equity mutual funds and exchange-traded funds have already received $36.8 billion in July, topping the previous monthly records set at the peak of the technology stock bubble in early 2000. U.S. equity ETFs alone issued $29.3 billion (3.4% of assets) in the past month, the highest trailing one-month inflow since early January. Such enthusiasm for stocks should make contrarians wary. Leveraged ETF flows are a bit more auspicious for stocks for the short run. Investors added 3.6% of assets to leveraged short ETFs in the past week despite the continuing melt-up.

Turning to the supply side, companies remain net buyers of shares, although the level of net buying in recent months has been a lot less strong than it was earlier in the year. Since the start of July, announced corporate buying (new cash takeovers + new stock buybacks) of $16.2 billion has been $8.9 billion higher than new offerings of $7.3 billion. Unless net corporate buying picks up significantly, we doubt the float will shrink much later this year (ticker-level data indicates that it expanded 2.0% in the first half of this year).

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The AlphaBaskets blog provides frequent market insight and commentary by AdvisorShares Investments, LLC, created by AdvisorShares and other leading active managers.  AdvisorShares Investments is an SEC-registered investment adviser and the investment adviser to the AdvisorShares actively managed ETFs. The views expressed on AlphaBaskets should not be taken as investment advice or a recommendation for any of the actively managed ETFs advised by AdvisorShares.

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