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U.S. Weekly Fund Flows – Investors Shrug Off The Market Rally, Are Net Redeemers Of Fund Assets For The Week

By Tim Roseen The markets rallied during the fund-flows week ended April 20, despite major oil producers’ failure to agree on a production freeze over the weekend. The major U.S. indices hit new 2016 highs during the week as investors cheered a drop in unemployment claims (the lowest since 1973), and banks rallied after oil strengthened and the dollar continued to weaken against its major trading partners. The rally was supported by companies broadly beating lower expectations at the beginning of this quarter’s earnings reporting season and on news that China’s first-quarter GDP growth of 6.7% was in line with expectations. While U.S. industrial output for March declined for the sixth month in seven – supporting fears of weakness in the manufacturing sector, the Empire State Index for April jumped to its highest level in over a year – showing signs of improving business activity in the New York Federal Reserve district. Modest declines in U.S. oil rig counts during the week and a reported labor strike in Kuwait helped prop up crude oil prices, despite a failed freeze agreement during the Doha, Qatar talks over the weekend. During the week, the Dow Jones Industrial Average closed above the 18,000 mark for the first time in nine months as investors kept their attention on better-than-expected earnings reports, despite the oil price dropping once again below $40/barrel. Investors appeared to be willing to take on more risk, bidding up emerging markets and out-of-favor sectors, with energy, materials, and industrials chalking up strong returns for the year to date. While IBM (NYSE: IBM ), Netflix (NASDAQ: NFLX ), and other tech firms’ earnings disappointed the markets at the end of the flows week, weighing on tech issues, a sixth straight week of declines in domestic oil supplies and a strong rebound in March existing home sales helped push U.S. stocks to 2016 closing highs and oil to a $42.63/barrel close. Nonetheless, for the week, fund investors were net redeemers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), pulling out a net $32.4 billion for the fund-flows week ended Wednesday, April 20. The headline number, however, was slightly misleading. Investors padded the coffers of taxable bond funds (+$3.5 billion) and municipal bond funds (+$0.6 billion) while being net redeemers of money market funds (-$32.0 billion) and equity funds (-$4.5 billion). For the second week in a row, equity ETFs witnessed net outflows, handing back $1.6 billion. Despite the equity rally during the week, authorized participants (APs) were net redeemers of domestic equity ETFs (-$1.2 billion), withdrawing money from the group for the first week in eight. As a result of the impasse between oil-producing nations for an output freeze, APs – for a second consecutive week – were also net redeemers of non-domestic equity ETFs (-$0.4 billion). The Industrial Select Sector SPDR ETF (NYSEARCA: XLI ) (+$401 million), SPDR S&P Retail ETF (NYSEARCA: XRT ) (+$400 million), and SPDR MidCap 400 ETF (+$322 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR S&P 500 ETF (NYSEARCA: SPY ) (-$2.9 billion) experienced the largest net redemptions, while PowerShares QQQ Trust 1 (NASDAQ: QQQ ) (-$641 million) suffered the second largest redemptions for the week. For the sixth week running, conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $2.9 billion from the group. Domestic equity funds, handing back $2.6 billion, witnessed their eleventh consecutive week of net outflows, while posting a weekly gain of 1.04%. Meanwhile, their non-domestic equity fund counterparts, posting a 1.33% return for the week, also witnessed net outflows (-$290 million) for a third week in four. On the domestic side, investors lightened up on large-cap funds and small-cap funds, redeeming a net $2.0 billion and $440 million, respectively. On the non-domestic side, international equity funds witnessed $264 million of net outflows. For the third week in a row, taxable bond funds (ex-ETFs) witnessed net inflows, taking in a little over $1.7 billion. Corporate investment-grade bond funds witnessed the largest net inflows, taking in $0.7 billion (for their third week in a row of net inflows), while government Treasury and mortgage funds witnessed the second largest net inflows (+$0.4 billion) of the macro-group. Flexible portfolio funds witnessed the only net redemptions of the group, handing back $211 million for the week. For the twenty-ninth week in a row, municipal bond funds (ex-ETFs) witnessed net inflows, taking in $425 million this past week.

Valeant’s Latest Acquisition Target: Perrigo’s CEO?

Shares of Valeant Pharmaceuticals International ( VRX ) rose sharply and fellow specialty drugmaker Perrigo ’s ( PRGO ) fell Friday on reports that the former is about to hire away the latter’s CEO. Late Thursday, the Wall Street Journal quoted anonymous sources saying that Valeant is hiring Joseph Papa if it can get Perrigo’s board to void a noncompete clause in his contract. On Friday morning, Perrigo issued a brief statement saying that it would not comment on “speculation,” which is the only official word from either company so far. Valeant has been hunting for a new CEO since March 21, when activist investor William Ackman moved to the board and tried to order the company’s growing chaos. The stock lost more than 80% of its value since a scandal related to a pharmacy partner broke last September, forcing Valeant to strike a new distribution deal with Walgreen Boots Alliance ( WBA ) that was accompanied by across-the-board price cuts. A disastrous Q4 report and guidance cut, along with an internal investigation that accused former CFO and current board member Howard Schiller of misconduct, eventually turned even bullish analysts against Valeant’s management. Papa, meanwhile, has run Perrigo for 10 years and has a largely successful track record. Under his watch, the company’s revenue has more than tripled, the stock has climbed eightfold, an inversion deal moved headquarters to low-tax Dublin, and Mylan ( MYL ) attempted a hostile takeover that Perrigo successfully fought off. IBD Take: Perrigo was once a hot stock, but not lately. Learn why in IBD Stock Checkup Perrigo’s once-steady profit growth has gotten uneven in the last couple of years, however, and the stock has declined more than 40% since its Mylan-induced high last April. It currently holds a mediocre IBD Composite Rating of 40. This change has led some analysts to worry about the implications of Papa’s departure for Perrigo. “Papa has become the face of Perrigo during his long tenure as CEO,” wrote Jefferies analyst David Steinberg in a research note. “However, with the exception of CFO Judy Brown, the company’s other executives — including John Hendrickson, who was appointed President in Oct. 2015 — are largely unfamiliar to the investment community. “Further, the timing couldn’t have been more inopportune. Mr. Papa is potentially departing prior to the announcement of Q1 results, and this follows a string of difficult quarterly financials — particularly in the company’s flagship consumer business.” Guggenheim analyst Louise Chen agreed, noting that Perrigo is widely expected to miss Q1 estimates and lower its guidance. “There has been debate about senior management change at Perrigo, but we don’t think the Street was thinking that it would actually happen or be this soon,” Chen wrote. Perrigo stock was down 5.8% in late-afternoon trading on the stock market today , near 121, after hitting its lowest level intraday since August 2013. Valeant stock was up 7.7%, near 36.

Reasons To Bet On Gold Mining ETFs Now

Gold Mining ETFs have been firing on all cylinders lately thanks to the dual favor by a dovish Fed and an aggressive China. The Fed seems to be in no hurry to hike interest rates this year and has hinted at just two hikes this year dampening the greenback and propelling the broader commodities including gold. In fact, a volatile market outlook, which is making places for safe-haven assets like gold and a sagging dollar, led the gold bullion to rally hard this year. Gold bullion ETF SPDR Gold Shares (NYSEARCA: GLD ) has surged 18.3% so far this year (as of April 11, 2016), enjoying the largest first-quarter gain in three decades. Along with the underlying metal gold, gold mining ETFs also put up great gains as these often trade as leveraged plays on gold. Plus, Chinese gold miners are hunting for lucrative foreign acquisitions thanks to lower gold prices so that they can acquire assets at a bargain, as per Wall Street Journal. Wall Street Journal also reported that “if cash-rich Chinese gold miners embark on an asset-buying spree, China could reduce its dependency on other international producers for supplies and increase its heft in global gold markets. Since many global gold mining companies are facing hard times due to years of low gold prices, these are appearing as lucrative acquisition targets of Chinese buyers. China is the world’s top gold consumer, accounting for about one-third of the global demand. So, its interest in gold acquisition is self-explanatory. In 2015, Barrick Gold Corporation (NYSE: ABX ) offloaded a 50% interest in Barrick (Niugini) Limited (BNL) to Chinese mining company Zijin Mining Group Co. Ltd. ( OTCPK:ZIJMF ) for a total cash consideration of $298 million. Apart from Zijin, another company Zhaojin Mining Industry Co. Ltd. ( OTCPK:ZHAOF ) is mulling over the idea of an overseas gold mining acquisition, as per Wall Street Journal. Several gold mining ETFs hit a 52-week high on April 11. Among them, we highlight five ETFs below that exhibited strong pricing gains. The Weighted Alpha of most of these ETFs hovered around positive 50 , indicating the possibility of further gains. Global X Gold Explorers ETF (NYSEARCA: GLDX ) The fund seeks to match the performance and yield of the Solactive Global Gold Explorers Index. The $39.2-million ETF charges 65 bps in annual fees and has a dividend yield of 7.58% (as of April 11, 2016). First Mining Finance ( OTCQB:FFMGF ), Seabridge Gold (NYSE: SA ), and Oceanagold Corp. ( OTCPK:OCANF ) command the top three positions in the basket. Market Vectors Junior Gold Miners ETF (NYSEARCA: GDXJ ) This one tracks the Market Vectors Junior Gold Miners Index, which provides exposure to small- and medium-capitalization companies that generate at least 50% of their revenues from gold and/or silver mining. The $1.97-billion product charges 55 basis points in annual fees with a paltry annual dividend yield of 0.46%. B2Gold Corp. (NYSEMKT: BTG ), Alamos Gold Inc. (NYSE: AGI ) and Centamin PLC ( OTCPK:CELTF ) occupy the top three positions in the 49-stock fund. ALPS Sprott Junior Gold Miners ETF (NYSEARCA: SGDJ ) SGDJ seeks to deliver exposure to the Sprott Zacks Junior Gold Miners Index. Each stock’s weighting in the index is based on two factors, namely revenue growth and price momentum. The $34.3-million ETF charges investors 57 basis points on an annual basis. Among individual holdings, Sibanye Gold Ltd. (NYSE: SBGL ), Detour Gold ( OTCPK:DRGDF ) and Tahoe Resources (NYSE: TAHO ) occupy top three spots in the fund. iShares MSCI Global Gold Miners (NYSEARCA: RING ) The fund seeks the MSCI ACWI Select Gold Miners Investable Market Index. The $103-million ETF charges 39 basis points a year. The fund currently has 29 companies in its basket, with the top stocks being Barrick Gold Corp. ( ABX ), Newmont Mining Corp. (NYSE: NEM ) and Goldcorp Inc. (NYSE: GG ). Sprott Gold Miners ETF (NYSEARCA: SGDM ) SGDM tracks the Sprott Zacks Gold Miners Index, which is a rules-based index that assigns weighting to a stock on the basis of fundamental factors like revenue growth and balance sheet strength. This $173-million ETF charges 57 bps in fees. The fund currently holds 25 stocks. Among individual holdings, Franco-Nevada Corporation (NYSE: FNV ), Goldcorp Inc. ( GG ) and Agnico Eagle (NYSE: AEM ) comprise 40% of the portfolio. Original Post