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Posted by on Jul 2, 2013 in AdvisorShares, Investment Perspective, TrimTabs

Investors Dump Emerging Markets Stocks but Continue to Buy Developed Markets Stocks

By:  Minyi Chen, CFA, Portfolio Manager of AdvisorShares TrimTabs Float Shrink ETF (TTFS)

Investors sold off bond mutual funds and ETFs at a record pace in June, while equity sell-offs were much more limited, with almost all of the selling occurring in the emerging market space. Surprisingly, despite a decline in price, US and developed equity ETFs had inflows in June. And investors in leveraged ETFs turned aggressively bullish last week, despite the recent sell-off. Read this investor insight by TrimTabs Asset Management to learn why these signs should be unsettling for contrarians.

Bond mutual funds and exchange-traded funds have lost an astonishing $72.8 billion from June 1st through June 25th, smashing the previous monthly record outflow of $41.8 billion in October 2008.  Selling of equities has been much more limited.  Almost all of the selling has occurred in the emerging markets space.

Emerging Markets equity ETFs have redeemed a whopping $7.4 billion (6.0% of assets) in the past month.  The heavy outflows are not surprising.  Flows generally follow performance, and the average emerging markets equity fund plunged 11.9% in price in the past month.

What is more surprising is that investors are not selling developed market equities even though they too have sold off.  Both U.S. equity ETFs and Developed International equity ETFs managed posted inflows in the past month, issuing $6.3 billion (0.4% of assets) and $1.3 billion (1.6% of assets), respectively.

Investors dump chart 1

Source: TrimTabs Investment Research
Past performance is not indicative of future results.

The complacency of fund investors toward developed market equities, particularly U.S. equities, should unsettle contrarians.  U.S. equity MFs and ETFs have managed to attract $5.8 billion in June despite a 3.0% decline in price.  Global equities have performed much worse, losing 6.4% in price, yet global equity MFs and ETFs have redeemed only $2.0 billion.

Investors Dump chart 2

Source: TrimTabs Investment Research
Past performance is not indicative of future results.

Another Warning Sign for Contrarians: Leveraged ETF Investors Turn Bullish Again Despite Stock Market Sell-Off.

Last weekend we wrote that investors in leveraged ETFs were turning a lot less upbeat, which from a contrarian perspective was positive for stocks.  That all changed in last week, when these investors turned aggressively bullish despite the recent sell-off.  In the past week ended June 25, leveraged long U.S. equity ETFs issued 6.4% of assets, while leveraged short U.S. equity ETFs redeemed 6.1% of assets.

The vast majority of leveraged ETF investors are day traders and retail investors.  As a whole, these investors tend to be horrible market timers, so it has paid handsomely to bet against them.  Note that they were bullish in almost all of the first four months of this year amid the powerful rally.

Investors Dump Chart 3

Source: TrimTabs Investment Research
Past performance is not indicative of future results.

New Offerings below $10 Billion for Seventh Consecutive Week as Market Volatility Puts Damper on Share Selling.  Dealogic Reports $2.5 Billion Set for Wednesday and $300 Million Set for Later This Week.

Corporate share selling has been relatively low for almost two months, which we attribute to increased market volatility.  Companies—particularly private companies going public—are less likely to sell shares when prices swing more widely.

Underwriters sold only $200 million Friday June 21st through Tuesday June 25th, and Dealogic reports that $2.5 billion is scheduled for Wednesday July 3rd led by IPOs for HD Supply Holdings ($1.4 billion) and CDW ($700 million)—and $250 million is scheduled for Thursday.  It will be interesting to see how many of the 11 IPOs on deck this week manage to get done.  Two small ones successfully came to market on Tuesday June 25th.

Unless some large overnight deals materialize, new stock offerings should be below $10 billion for the seventh consecutive week.  The low flow of new shares is one factor working in the bulls’ favor.  The fewer new shares are sold, the more money stays in the checking accounts of stock market intermediaries to buy existing shares.

Investors Dump Chart 4

Source: TrimTabs Investment Research
Past performance is not indicative of future results.

Turning to the other side of the corporate liquidity ledger, corporate buying has picked up.  Five new cash takeovers using a total of $1.3 billion in cash have been announced this week, led by Tenet Healthcare’s purchase of Vanguard Health System for $700 million in cash.  In addition, six buybacks totaling $17.0 billion have been announced this week, led by big repurchases for Oracle ($12.0 billion), Medtronic ($4.1 billion), and Hartford Financial Services Group ($750 million).

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.

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