Float Research: Demand Indicators Point To Jolly Holiday Season For U.S. Equity Investors

by: AdvisorShares

Minyi Chen, CFA, Chief Operating Officer of TrimTabs Investment Research and Portfolio Manager of AdvisorShares TrimTabs Float Shrink ETF (NYSEARCA:TTFS) shares recent fund flow trends.

Demand Indicators Point to Jolly Holiday Season for U.S. Equity Investors. ETF Flows Turn More Encouraging for Short Term.

Our demand indicators suggest the stock market party can keep right on rolling through the holiday season. Reflecting the impact of ongoing Federal Reserve stimulus, our demand indicators remain very favorable for the intermediate term and have turned more favorable for the short term. Any market dips should be treated as buying opportunities.

ETF flows have turned more auspicious for stocks in the short run. Investors in leveraged ETFs, who tend to be poor market timers, turned more pessimistic. They pulled 0.6% of assets out of leveraged long ETFs in the past week and added 0.4% of assets to leveraged short ETFs.

Another encouraging sign is that U.S. equity ETF flows have subsided. These ETFs issued $1.5 billion (0.2% of assets) in the past week, and the trailing one-month inflow has fallen to a modest $4.9 billion (0.5% of assets).

Equity Fund Inflows Subside in November, and Almost All Inflows Directed into MFs Rather Than ETFs. Outflows from Bond Funds Accelerate.

As a whole, fund investors have turned more cautious on stocks this month after pumping $53.2 billion into all equity mutual funds and exchange-traded funds in October, the fourth-highest monthly inflow ever.

What is most striking is that almost all of this month's inflow of $18.9 billion into all equity MFs and ETFs has been directed into MFs rather than ETFs. While U.S. equity MFs have received $7.6 billion, U.S. equity ETFs have issued just $200 million.

Similarly, while global equity MFs have received $9.8 billion, global equity ETFs have issued only $1.3 billion.

Our conclusion is that retail investors are more upbeat than institutional investors and financial advisors, who account for the bulk of ETF trading. Nevertheless, inflows into equity MFs are not high enough to be too alarming from a contrarian perspective and are nowhere close to record levels.

Meanwhile, bond funds are posting redemptions for the sixth consecutive month. Bond MFs and ETFs have redeemed $22.2 billion, already topping the outflow of $19.2 billion in October. Redemptions are picking up as the average fund has dropped 0.6% in price, the worst performance since August, when the average fund's price fell 1.5%.

Philly Fed Manufacturing Survey Weak across the Board. Even Long-Levitating Future General Activity Index Falls Sharply.

Like the Empire State Manufacturing Survey, the Philadelphia Fed Manufacturing Survey was mostly weak, which is consistent with our analysis of income tax withholdings and key credit indicators. We remain convinced the economy is in worse shape than Wall Street thinks.

The headline diffusion index of current activity fell for the second consecutive month, dropping to a six-month low of 6.5 in November from 19.8 in October. Forward-looking indices also declined. The new orders index dropped to a three-month low of 11.8 in November from 27.5 in October, while the unfilled orders index fell to a five-month low of -4.2 in November from 9.1 in October.

As in the New York area, manufacturers in the Philadelphia area are far more upbeat about the future than they are about current conditions, but even the long-buoyant outlook declined. The future general activity index fell to a three-month low of 45.8 in November from 58.2 in October.

Source: Federal Reserve Bank of Philadelphia.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: AdvisorShares is an SEC registered RIA, which advises to actively managed exchange traded funds (Active ETFs). This article was written by Minyi Chen, CFA the portfolio manager of the AdvisorShares TrimTabs Float Shrink ETF (TTFS). We did not receive compensation for this article, and we have no business relationship with any company whose stock is mentioned in this article. This information should not be taken as a solicitation to buy or sell any securities, including AdvisorShares Active ETFs, this information is provided for educational purposes only.

Additional disclosure: To the extent that this content includes references to securities, those references do not constitute an offer or solicitation to buy, sell or hold such security. AdvisorShares is a sponsor of actively managed exchange-traded funds (ETFs) and holds positions in all of its ETFs. This document should not be considered investment advice and the information contain within should not be relied upon in assessing whether or not to invest in any products mentioned. Investment in securities carries a high degree of risk which may result in investors losing all of their invested capital. Please keep in mind that a company’s past financial performance, including the performance of its share price, does not guarantee future results. To learn more about the risks with actively managed ETFs visit our website AdvisorShares.com.

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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