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Posted by on Jul 31, 2013 in AdvisorShares, Market Insight, TrimTabs

Investors Pull $17.5 Billion from Bond Mutual Funds in July

Investors Pull $17.5 Billion from Bond Mutual Funds 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)

Investors keeping socking money into U.S. Equities while outflows from bond mutual funds continue. Read this investor insight by TrimTabs Asset Management to learn more about the recent fund flows and what other activity may be foretelling.

Mutual Fund Investors Continue to Dump Bonds: Bond MFs Redeem $17.5 Billion in July after Losing Record $59.4 Billion in June.  Record $37.0 Billion Pours into U.S. Equity MFs and ETFs in July.

Several strategists have express amazement at how technically overextended the U.S. stock market has become.  One reason for the overextension is no mystery to those who follow fund flows—investors have been pumping money into U.S. equities at the fastest pace ever.

In July through Wednesday, July 24, U.S. equity mutual funds and exchange-traded funds received $37.0 billion, topping the previous record of $34.6 billion in February 2000.  Fund flows tend to be a good contrary indicator when they reach extreme levels, so U.S. equity bulls should not expect huge gains from current levels.

Meanwhile, global equities have been a lot less popular even though the average global equity fund’s 4.9% month-to-date gain nearly matches the average U.S. equity fund’s 5.3% month-to-date gain.  Global equity MFs and ETFs have received $10.5 billion this month, which is nowhere close to a record.

Investors pull 7.30.13 - chart 1

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

Finally, outflows from bond MFs are continuing.  On the five trading days ended Wednesday, July 24, bond MFs lost $2.9 billion.  For the month, bond MFs have redeemed $17.5 billion.  The outflows from bond funds in June and July are a huge change in trend.  Before June, bond funds posted inflows for 21 consecutive months.  If outflows persist and yields back up further, it would not be good news for the highly leveraged U.S. economy.

Investors pull 7.30.13 - chart 2

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

Demand Indicators Do Not Point to Big Gains for Stocks.  TrimTabs Demand Index Near Six-Month Low.  U.S. Equity ETFs Post Biggest Trailing One-Month Inflow since December 2008.

Our demand-side indicators deteriorated significantly in the past month.  While our indicators do not point to a major sell-off, traders should be less aggressive on the long side.The TrimTabs Demand Index, which uses regression analysis of 21 flow and sentiment variables for intermediate-term market timing, was little changed in the past week.  It closed at 61.9 on July 24, which is above the neutrality level of 50 but not far above the six-month low of 60.7 on July 19.  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.

 
Investors pull 7.30.13 - chart 3
 

Contrarian analysis of ETF flows suggests stock prices are unlikely to rise much over the near term.  Massive investment inflows into U.S. equities are bearish from a contrarian perspective.  U.S. equity ETFs issued $33.2 billion (3.9% of assets) in the past month, the highest trailing one-month inflow since December 2008.

Investors pull 7.30.13 - chart 4
 
Source: TrimTabs Investment Research
Past performance is not indicative of future results.
 

The only real bright spot on the demand side—and a key reason we are not expecting a big sell-off anytime soon—is that leveraged ETF investors are still betting against equities.  Leveraged long ETFs redeemed 2.7% of assets in the past week, while leveraged short ETFs issued 3.3% of assets.

 
Investors pull 7.30.13 - chart 5
 
Source: TrimTabs Investment Research
Past performance is not indicative of future results.
 

U.S. companies remain net buyers of shares, although the level of net buying in recent months has been less strong than it was earlier in the year.  In July through Thursday, July 25, announced corporate buying (new cash takeovers + new stock buybacks) of $39.2 billion has been $27.6 billion higher than new offerings of $11.6 billion.

.Investors pull 7.30.13 - chart 6
Source: TrimTabs Investment Research
Past performance is not indicative of future results.
 
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