Supply Demand

The “cash on the sidelines” is a Supply/Demand argument that we’ve struggled with even in the most bullish of times; every purchase of a security is matched with a sale. But even taking the argument at face value, current holdings of retail investors and mutual fund managers suggest that the cash left the sidelines long ago.

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Negative cash flows were the trend across major fund subsets in the latest week; bond ETFs were the only category to buck the trend.

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Newfound fund flow trends established midway through 2013 are still unbroken halfway into 2014. Even with net cash inflows resuming to bond mutual funds, the definitive shift in preference for equity funds, although more subtle, is still intact.

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Within two broad categories – domestic equity funds and bond funds - mutual funds versus ETFs continue to display opposite flow trends.

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Bond mutual funds continue to capture net inflows while their ETF counterparts have seen net outflows for three straight weeks. Domestic equity mutual funds see more net outflows, but (barely) hang on to positive YTD flows.

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Bond ETFs, Domestic Equity Mutual Funds and Money Market Funds see weekly net outflows, while all other broad categories experience net inflows.

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Many fund categories are exhibiting similar but muted net cash flow trends to those recorded at this time last year. However, equity ETF net cash flows, both U.S.- and foreign-focused, remain flat in contrast to last year’s strong start. Nonetheless, the definitive shift in trend from bond to equity funds which began midway through 2013 is still intact.

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Outflows From Domestic Equity & Bond Funds Continue; Foreign-Focus Funds Still See Inflows.

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YTD net flows have remained in positive territory by about $10 billion.

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The late 1970’s bull market has some eerie similarities, and sentiment reflects Main Street’s newfound bullishness. Plus a look at January fund category flows gives us some points to ponder.

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Despite flows out of U.S. focus equity mutual funds, investors remain heavily invested there; while dollars flood into bond funds, they’re also flowing into other varieties of equity funds.

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We have maintained that the mere fact that the Financials sector has been successful in raising capital via new equity issuance in the stock market is a good sign that the system is stabilizing. The aftermarket support for these deals indicates a healthy secondary market, and furthermore, points to the presence of ample stock market liquidity.

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Four trends worth noting and their implications for 2008.

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In reviewing the numerous Supply/Demand factors we track, there were four trends that are perhaps the most important and/or most interesting on this front so far in 2005.

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With convertible issuance in 2003 running almost 23% ahead of common equity issuance, we thought it would be a good time to take a look at this subject.

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In the context of Supply/Demand considerations, convertible offerings represent a potential increase for equity supply down the road.

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A comparison of stock market net new equity supply with and without Convertibles.

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U.S. focus equity fund net inflow of $15 billion is estimated for May, which is somewhat less than the $17.5 billion net inflow in April, but somewhat more than $13.2 billion net inflow last May.

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Our Aggressive Stance On Equity Exposure: Fed cuts, money supply expansion, tax cut prospects, fund inflow, and market internals.….Not all worries have gone away, however. This bear market has not followed what can be thought of as a traditional course.

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