Bond Flows Have Fourth Horrendous Week as Mutual Funds, ETFs Get HitVW Staff
Via Goldman Sachs Research: Bond outflows accelerate, Eq. MFs positive As per Lipper, equity fund inflows were +$1.6 bn this week (vs. +$1.9 bn last week via ICI), with inflows in domestic eq. (+$282 mn vs. -$463 mn last week) and non-US equity (+$1.3 bn vs. +$2.3 bn last week). 2QTD equity inflows are +$11.3 bn, while YTD flows are +$78.1 bn. Bond flows were-$10.8 bn (taxable: -$6.4 bn; muni: -$4.4 bn), the worst bond flow week to date in the Lipper data series. This compares to last week’s -$8 bn (taxable: -$4.6 bn, muni: -$3.4 bn) via ICI, already making June to date the worst fixed income fund flow month on record. 2QTD bond flows are – $19.4 bn; YTD flows are +$49.7 bn. MMF flows were +$7.7 bn this week vs. last week’s -$25.1 bn, via ICI.
ETFs: Equities / bond flows swing negative
Equity ETFs (ex-comm.) saw outflows of -$7.1 bn this week (vs. last week’s +$3.3 bn), bringing 2QTD inflows to +$20.5 bn and YTD to +$71.5 bn. Commodity ETF flows were -$1.3 bn. Bond ETFs saw outflows of -$2.4 bn (taxable: -$2.2 bn; munis: -$158 mn) this week, vs. +$57 mn last week.
Equity and fixed income performance
2Q13TD equity fund performance is +0.9%, vs. the S&P 500 (INDEXSP:.INX)’s +2.8%. The group’s average 2Q13TD fixed income performance is -2.7% vs. Barclays Aggregate Bond Index’s -3.2%.
Buy FIG/Sell JNS on widening valuation gap
We reiterate our Buy-rating on Fortress Investment Group LLC (NYSE:FIG) and Sell on Janus Capital Group Inc (NYSE:JNS). We expect the valuation gap between alternative and traditional managers to narrow over time, reflecting strong asset gathering, performance, and income outlooks for alternatives relative to traditonals and see 37% upside to our Fortress Investment Group Price Target and -10% downside for Janus Capital Group.
Since May valuation gap has widened amid derisking and mark-to-market risk. Janus Capital Group Inc (NYSE:JNS) has outperformed by +450 bps vs. peers in the past two weeks despite still weak (bottom decile YTD) performance in key strategies, PM exits, and anticipated outflows. Meanwhile, Fortress Investment Group LLC (NYSE:FIG)’s macro hedge fund performance (through May) bodes well for performance fees and while, PE marks based on public company performance is a headwind, valuation bakes in no value on performance fees.