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U.S. Fund Flows Report: Investors Shy Away From Equity Funds

By Patrick Keon Click to enlarge Thomson Reuters Lipper’s fund macro-groups (including both mutual funds and exchange-traded funds [ETFs]) experienced net outflows of approximately $266 million for the fund-flows week ended Wednesday, May 11. This almost-static outcome was the result of negative net flows from equity funds (-$6.1 billion) and taxable bond funds (-$514 million), offset by similar positive net flows into money market funds (+$5.1 billion) and municipal bond funds (+$1.2 billion). Equities bounced back from two straight weeks of losses on the strength of one trading day. After losing roughly 2.5% combined in the previous two weeks the S&P 500 Index posted a gain of 0.3% this past week, all of which was captured on Tuesday, May 10, as the index appreciated 1.25% for the day. This one-day spike represented the best daily return for the index in two months and was driven by a surge in oil prices as well as a rally in some beaten-down sectors. Oil prices rose on the news that U.S. crude inventories would not increase as much as they have in recent weeks. Meanwhile, sentiment on the street was that the interest in healthcare and biotech stocks was not sustainable, since it was most likely driven by value hunters and was not an actual bullish view of the sectors. The outflows from equity funds were basically split down the middle between mutual funds (-$3.1 billion) and ETFs (-$3.0 billion). Among mutual funds domestic equity funds saw $3.2 billion leave their coffers, while nondomestic equity had net inflows of $100 million. For ETFs nondomestic products accounted for the majority of the net outflows, with the iShares MSCI Eurozone ETF (BATS: EZU ) ( -$950 million ) and the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) ( -$933 million ) leading the way. Taxable bond ETFs (-$1.1 billion) were responsible for all of the net outflows for the group, while taxable bond mutual funds took in almost $700 million of net new money. The iShares iBoxx High Yield Corporate Bond ETF (NYSEARCA: HYG ) ( -$1.5 billion ) and the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) ( -$697 million ) had the largest net outflows among the ETFs, while funds in Lipper’s Core Plus Bond Funds category had the largest net inflows (+$1.1 billion) among the mutual funds. Municipal bond mutual funds extended their string of net inflows to 32 weeks-taking in $1.1 billion of net new money this past week. Funds in the High Yield Muni Debt Funds (+$287 million) and General and Insured Muni Debt Funds (+$278 million) classifications were the largest contributors to the week’s inflow totals. This past week’s flows activity (+$5.1 billion net) marked the third consecutive week of positive flows for money market funds, during which time they took in $16.7 billion of net new money. Funds in Lipper’s Institutional Money Markets Funds classification were responsible for all of the net inflows for the group this past week (+$9.2 billion).

Hitting A Home Run With Our SPY Put Spread

We have another home run here, a 13.02% profit in only 6 trading days. Friday the 13th seems as good a day as any to take a profit. Also, we are realizing 87.17%of the maximum potential profit in the S&P 500 SPDR’s (NYSEARCA: SPY ) May , 2016 $210-$213 in-the-money vertical bear put spread. In the highly unlikely event that we have a major rally in stocks next week, we now have new dry powder to play with, having cut our net short position in the from 40% to 20%. If you have the ProShares Short S&P 500 Short Fund ETF (NYSEARCA: SH ) (click here for the prospectus here ), or the ProShares Ultra Short S&P 500 Short Fund 2X ETF (NYSEARCA: SDS ) (click here for the prospectus here ), keep them. We are going lower. This trade takes our performance up to a blockbuster 10.37% so far in May, and 11.58% since the beginning of 2016. These are numbers almost anyone would kill for. I never bought this week’s rally in the Dow Average for two seconds. No volume, no news, and no cross asset class confirmations meant it was not to be believed. It was just another opportunity for the high frequency traders to pick the pockets of hedge funds by squeezing them out of their shorts, which they have been doing on a weekly basis all year. That conviction allowed me to hang on to my aggressive 40% net short position, until now. This takes my Trade Alert performance to a new all time high of over 203.26%. Better yet, WE ARE POISED TO MAKE AS MUCH AS A 14% PROFIT BY THE END OF NEXT WEEK WITH OUR REMAINING POSITIONS! To remind you of why we are short the S&P 500 in a major way, let me refresh your memories. It’s all about the strong dollar. A robust buck diminishes the foreign earnings of the big American multinationals, major components of the S&P 500. I think it is much more likely that stocks grind down in coming weeks to first retest the unchanged on 2016 level at $2,043, and then the 200-day moving average at $2,012. Share prices are anything but inspirational here. Price earnings multiples are at all time highs at 19X. The calendar is hugely negative. Soggy and heavily financially engineered Q1 earnings reports came and went. Huge hedge fund shorts have been covered with large losses, and no one is in a rush to jump back into the short side. Oh, and the is bumping up against granite like two year resistance at $2014 that will take months to break through in the best case. Did I mention that US equity mutual funds have been net sellers of stock since 2014? This position is also a hedge against what I call “The Dreaded Flat Line of Death” Scenario. This is where the market doesn’t move at all over a prolonged period of time and no one makes any money at all, except us. If I am right on all of this May will come in as the most profitable month for the Mad Hedge Fund Trader Trade Alert Service in more than a year. For new subscribers, your timing is perfect! To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of optionshouse . The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous. Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out. Here are the specific trades you need to execute this position: Sell 37 May, 2016 $213 puts at………….….……$8.40 Buy to cover short 37 May, 2016 $210 puts at…..$5.45 Net Cost:…………………………………………………..$2.95 Potential Profit: $2.95 – $2.61 = $0.34 (37 X 100 X $0.34) = $1,258 or 13.02% profit in 6 trading days. Time for Some Downside Protection Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

How To Get Statistically Significant Alpha In A Hurry: Financial Advisors’ Daily Digest

MFS Investment Management argues active management can consistently deliver alpha; Mark Hebner says investors would be better off seeking beta. Ronald Surz says investors need not wait decades to determine statistically significant alpha; he offers “microwave alpha,” a quick way to measure manager skill. Jack Waymire gives five reasons why mobile-optimized websites are no longer a luxury for financial advisors. To frightened investors who sense something bad is due after a seven-year bull market and amidst a wobbly economy, MFS Investment Management’s commercials touting a “significant advantage to active management” may be striking just the right chord. These investment pros are working to reduce “downside volatility” and to “consistently deliver alpha,” says the investment firm’s one-and-a-half-minute commercial on the power of active management. But of course, not everybody’s having it. RIA Mark Hebner, a proponent of indexing, applies statistical tests to MFS’ fund lineup and suggests just one out of 87 funds has any alpha to offer (and even that one could be a fluke, Hebner further argues). He concludes that investors would be better served seeking beta. Hebner has previously argued that it could take something like a century to evaluate investment skill in a statistically significant way. Comes along SA contributor Ronald Surz, an innovative thinker, and proposes a method to deliver statistical significance in years rather than decades: “microwave alpha,” he calls it . This quick-cooking alpha is achieved through portfolio simulations: “The breakthrough determines statistically significant success in the cross-section rather than across time… A portfolio simulator creates all the portfolios the manager might have held, selecting stocks from a custom benchmark – thousands of portfolios… To state an extreme example, a return of, say, 1000% is significant, and you don’t have to wait 50 years to declare it significant.” With no further ado, we’ve got many other advisor-relevant stories to start your week with: Your comments on any of the above are, as always, most welcome below.