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).This communication is a publication of TrimTabs Asset Management. It should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Information presented does not involve the rendering of personalized investment advice. Content should not be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing performance returns. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Past performance may not be indicative of future results. Therefore, no investor should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions, may materially alter the performance of an investor’s portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio.