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Fidelity Suffers Massive Active Funds Outflow

Summary According to Morningstar data, US-focused mutual funds and exchange-traded funds have seen $78.8 billion worth of outflows in the first seven months of 2015. Fidelity Investments witnessed the biggest outflows on the active side for both July and 1-year period. The Fidelity Contrafund Fund, the Fidelity Growth Company Fund and the Fidelity Low-Priced Stock Fund accounted for outflows of $2,360 million, $2,111 million and $1,463 million in July. We present 5 funds that were in the Top-Flowing Active Funds list. In our previous article, we discussed that domestic equity-focused funds are facing tough time in terms of fund outflows. According to Morningstar data, US-focused mutual funds and exchange-traded funds have seen $78.8 billion worth of outflows in the first seven months of 2015. Continued transfers from open-end mutual funds to collective investment trusts at Fidelity triggered much of the outflows. This is higher than any full-year outflows since 1993. The money had instead been poured into international funds. This time, we will look into the flows in active and passive funds; which in fact shows how outflows in active funds have led to record dismal numbers. The active funds saw outflows of $20,446 million in July, while inflows of $6,175 million were recorded on the passive side. Over the last 1-year period, $158,607 million flowed out of active funds, while the passive funds added $140,836 million. Inflows into passive funds failed to offset the outflows from the active U.S. equity funds. In July alone, estimated net outflows from U.S. equity funds increased to $14.3 billion from $8 billion in June. Outflows a Trend Now? According to the Morningstar Direct U.S. Asset Flows Update, passive U.S. equity funds saw inflows of $166.6 billion, while active U.S. equity funds lost $98.4 billion in 2014. Reportedly, 2014 was one of the worst years for active managers. Based on Standard & Poor’s 2014 SPIVA Scorecard (S&P indexes versus active funds), only 23% of actively managed domestic stock funds were reported to have outperformed the Standard & Poor’s Composite 1500 in 2014. Separately, Morningstar had revealed earlier that indexed equity vehicles, mutual funds and exchange-traded funds attracted $1 trillion in the five years ending March 31st. On the other hand, active management saw redemption of $266 billion over the same period. Many active managers run at a disadvantage against the indexed funds owing to higher costs of active management, efficient capital markets and intense competition. While a spokesman for Fidelity Investments called it a “cyclical trend”, a MarketWatch article notes that it is not cyclical, as investors are starting to understand this being a permanent trend. Fidelity Investments Witness Huge Outflows Fidelity Investments witnessed the biggest outflows on the active side for both July and 1-year period. Again, much of Fidelity’s outflows indicated continued transfers from mutual funds to collective investment trusts. Fidelity witnessed outflows of $10,101 million in July and $18,928 million over 1-year period. The Fidelity Contrafund Fund (MUTF: FCNTX ), the Fidelity Growth Company Fund (MUTF: FDGRX ) and the Fidelity Low-Priced Stock Fund (MUTF: FLPSX ) accounted for outflows of $2,360 million, $2,111 million and $1,463 million in July. Ironically, earlier this year, Fidelity ads had been vocal about the “power of active management”. Fidelity promoted via an ad featuring Joel Tillinghast, speaking in favor of active management and how its top stock pickers outperformed rivals. The Tillinghast managed Fidelity Low-Priced Stock fund claimed in the ad that it has outperformed the Russell 2000 index by 4.66% on annualized basis since its inception in 1989. A Bloomberg Markets Global Poll of financial professionals showed 42% were in favor of indexed products as the better option for retirement savings. Instead, only 18% supported actively managed funds. The waning popularity of actively managed funds was thus a wake-up call for Fidelity, which has built its reputation on active management. For the 1-year period, Fidelity saw outflows of $18,928 million on the active side, while passive funds accumulated $23,015 million. Franklin Templeton Investments and PIMCO were also big losers over the 1-year period. They witnessed outflows of $10,422 million and $176,451 million, respectively. Bottom & Top Flowing Funds Below we present 5 funds that were in the Bottom-Flowing Active Funds list: Source: Morningstar *Note: T. Rowe Price New Income witnessed $1,160 million of inflows over 1-year period. However, these funds have encouraging year-to-date and 1-year returns. They also carry favorable Zacks Mutual Fund Ranks. The Fidelity Growth Company carries a Zacks Mutual Fund Rank #1 (Strong Buy). It has returned 8% year to date and 14.6% over the last one year. The Fidelity Low-Priced Stock and the T. Rowe Price New Income Fund (MUTF: PRCIX ) carry a Zacks Mutual Fund Rank #2 (Buy) and have year-to-date return of 3.8% and 0.6%, and 1-year return of 6% and 1.6%, respectively. The Fidelity Contrafund also carries a Buy rank and has a year-to-date return of 7.8% along with 1-year return of 10.9%. The PIMCO Total Return Fund (MUTF: PTTAX ) carries a Zacks Mutual Fund Rank #3 (Hold). Below we present 5 funds that were in the Top-Flowing Active Funds list: Source: Morningstar Here, both the PIMCO Income Fund (MUTF: PONAX ) and the Metropolitan West Total Return Bond Fund (MUTF: MWTRX ) carry a Zacks Mutual Fund Rank #2 (Buy). However, Morningstar notes that inflows into PIMCO Income were not sufficient to offset outflows from PIMCO Total Return. PIMCO Total Return has lost $122.5 billion since September 2014. The fund family itself has seen substantial outflow as PIMCO’s total outflows since January 2014 was at $212.8 billion. Nonetheless, Morningstar opines that the numbers proving PIMCO Income to be a better performer is not completely fair. The Morningstar Direct U.S. Asset Flows Update mentions: “PIMCO Income is in the multisector-bond category as opposed to the intermediate-bond category, and it can afford to look for alpha by having much higher allocations to emerging-markets and high-yield bonds, for example”. Mutual funds would definitely want to see more inflows than the outflows. For that to happen, the domestic strength is of particular importance. China has sparked many concerns recently, and if investors decide to keep the money within the domestic boundaries, it would help domestic-stock focused funds to see inflows. However for active funds, it is getting difficult, as many active managers run at a disadvantage against the indexed funds owing to higher costs of active management, efficient capital markets and intense competition. Nonetheless, a turnaround would definitely cheer up the active funds. Original Post

Prime Minister Tsipras Resigned, The Greek Parody Is Set To Continue

Summary Prime minister Tsipras resigned, new elections are expected in September. A new anti-austerity Popular Unity party to be created. GREK investors should expect increased share price volatility and potentially new lows. The Greek parody seemed to come to an end finally. But the recent developments show that another act has only begun. Although opponents of the austerity measures were victorious in the referendum that took place in early July, the Greek government agreed to adopt reforms and austerity measures demanded by the creditors, in order to avoid the looming state bankruptcy. On July 15, the Greek parliament approved bailout measures with 229 out of the total of 300 votes. The measures included increase of value added tax, limits on public spending and reform of the pension system. As a result, €86 billion should be provided to Greece over the next three years. The reaction of the Global X FTSE Greece 20 ETF (NYSEARCA: GREK ) was positive at first, but the share price decline resumed very quickly due to the uncertainty as to whether the new financial package for Greece will be approved by the creditors. There are 19 countries in the eurozone and in 8 of them (Austria, Germany, Greece, Estonia, Finland, France, Latvia, Slovakia) the parliament had to decide whether the country will vote for or against the bailout package. Things started to look brighter in August, as it began to be clear that the bailout package will be approved. On August 18, Fitch upgraded the Greek credit rating to CCC, on August 19, the German parliament approved the bailout package. Germany was the last country to approve the package. It seemed like the Greek problem has been resolved (swept under the carpet) for now. But another of the countless surprises was prepared by the Greek government on August 20, when prime minister Tsipras resigned . According to Reuters, the new elections should take place on September 20. Tsipras wants to support his position and get rid of the opposition inside his own party. According to BBC , 25 members of Syriza plan to create a new Popular Unity party, led by the former energy minister Panagiotis Lafazanis. The situation may get really complicated, as the July referendum showed that a majority of Greeks opposes the austerity measures. If the new anti-austerity party gains too much power, all the bailout process may be endangered. After Tsipras won elections in January 2015, he said that his government doesn’t feel obliged to fulfill commitments of former Greek governments. If the new government behaves the same way, the Greek parody may start over again. Source: own calculations, using data of YahooFinance It is highly probable that the relatively calm couple of weeks have ended for GREK. Volatility measured by the 10-day moving coefficient of variation (chart above) was relatively low over the last couple of weeks, as it ranged from 1% to 4%. But GREK investors should prepare for another turbulent period ahead. GREK’s share price development will be driven mainly by the pre-election polls. The most vulnerable part of GREK’s portfolio continues to be shares of Greek banks, however their cumulative weight declined to approximately 12%. The banks are in a complicated situation, as the eurozone finance ministers declared that bail-in of depositors will be explicitly excluded. It means that the Cypriot scenario shouldn’t repeat in Greece. But the bondholders are endangered. This decision should prevent bank runs and increase the trust of depositors in Greek banks. On the other hand, Greek banks will have even bigger problems to raise money via bond markets. Conclusion The situation in Greece is getting more complicated once again. If the anti-austerity parties win the coming elections, it is hard to predict what may happen. GREK investors should be prepared for another weeks of increased share price volatility and it is quite possible that new lows will be created. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

3 Country ETFs Impacted By China’s Currency Devaluation

Wise were those analysts who had foreseen the start of a currency war post China’s yuan devaluation story. China shook the global markets on August 11 when its policymakers devalued the country’s currency by 2% against the greenback to boost its sagging exports. This resulted in the largest single-day decline since the historical devaluation in 1994 . Though the Chinese central bank defended its currency intervention ‘as a free-market reform’, global experts’ apprehensions of a currency war in the near future, especially among its Asian neighbors, are turning into a reality. Most export-centric economies will likely be forced to depreciate their currencies to stave off competition and rev up their exports. And analysts were not wrong at all, as this currency war is already underway. Let’s take a look at the country ETFs which were hit hard by the yuan devaluation. Vietnam To fight against the dark impact on its exports, Vietnam weakened its currency, dong, on August 19. This was the third time that the country devalued its currency this year and the second time in a week. The trading band has now has been widened to 3% from 2%, per Reuters. Like China, Vietnam also acts as a low-cost producer and earned some edge over China in recent times, as Chinese wages are on the rise. With a stronger currency, Vietnam would lose this competitive advantage. Not only exports, Vietnam is unable to sell products to domestic consumers due to the surge in cheaper Chinese imports, resulting in a widening trade deficit. In the first seven months of 2015, deficit in trade with China was $19.33 billion, worse than $14.88 billion of deficit in the year-ago period, according to Reuters . Following the latest depreciation in currency, dong fell 4.5% in interbank on August 18. In the last one month, the greenback gained 2.3% against dong. The Market Vectors Vietnam ETF (NYSEARCA: VNM ) – the pure play on Vietnam – lost about 5% in the last five trading sessions. Malaysia The Malaysian equity market has been an impacted area post the yuan devaluation. Also, a falling oil price marred the stocks of oil-rich Malaysia, which happens to be one of the largest Asian crude exporters. Political crisis is another cause of concern for Malaysia. On the other hand, China’s currency devaluation hurt its competiveness as an exporter. This, coupled with a strong U.S. dollar amid the looming Fed rate hike, recently sent Malaysia’s currency, ringgit, to a 17-year low. This resulted in the depletion of Malaysia’s foreign exchange reserves, and in turn soured investors’ mood toward Malaysian investing. Ringgit fell over 7% in the last one month against the U.S. dollar. Pure play-Malaysia ETF, the iShares MSCI Malaysia ETF (NYSEARCA: EWM ), was off 17.9% in the last one month (as of August 20, 2015). Indonesia Following the yuan move on August 11, Indonesia’s currency, rupiah, tumbled the most in 2015. This currency also touched a 17-year low after the yuan episode. Rupiah was the second worst-performing Asian currency this year. The country was already grappling with weak exports and a five-year low GDP growth. Indonesia ETF, the iShares MSCI Indonesia ETF (NYSEARCA: EIDO ), was down over 14% in the last one month. Original Post