No Sign of “Great Rotation”

No Sign of “Great Rotation” among Fund Investors

Bond Mutual Funds and ETFs Get $20.2 Billion in May Despite Average Fund’s 1.5% Price Drop

By:  Minyi Chen, CFA, Portfolio Manager of AdvisorShares TrimTabs Float Shrink ETF (TTFS) TrimTabs Asset Management, 40 Wall Street, 28th Floor, New York, NY 10005,

Scrutinizing May’s month end numbers, investors are putting more money into equities despite the gradual slowing of the economy over the last few months and relative year-over-year growth. Read this investor insight by TrimTabs Asset Management to see why there is no sign of a “Great Rotation” among Fund investors out of bonds into stocks.

There is no sign yet of a “great rotation” out of bonds and into stocks among fund investors despite the recent backup in corporate and sovereign bond yields.  Bond mutual funds[1] (MFs) and exchange-traded funds (ETFs) have taken in $20.2 billion in May even though the average fund has dropped 1.5% in price.  This month’s inflow may well be the highest since January.

May 1, 2010 – May 31, 2013

6.13.13 Chart 1Source: Trim Tabs

Past performance is not indicative of future results

Many Investors seem to be putting more money to work in equities.  U.S. equity MFs and ETFs have received $11.7 billion, while global MFs and ETFs have received $14.1 billion.  These inflows are more than double those in April.  However, we believe the money to buy equities seems to be coming at the expense of money flowing into bank products, not bonds.

[1] Bonds are debt obligations issued by entities, such as corporations or government. Mutual funds are made up of a pool of funds collected from many investors for the purpose of investing in such as stocks, bonds and similar assets. Bond funds are mutual funds that invest in bonds.

6.13.13 Chart 2

5/31/12 – 5/13/13, Source: Trim Tabs

Past performance is not indicative of future results

New Offerings Seasonally Slow in Memorial Day Week.  Dealogic Reports $700 Million Scheduled for Later This Week.

Historically new stock offerings have generally been light in the Memorial Day week as many underwriters take extended vacations.  This week is likely to be no exception, which is good news for the bulls.  Only $150 million stocks priced Friday and Tuesday, and Dealogic reports that $300 million new stock is scheduled for Wednesday and $400 million is scheduled for Thursday, led by a $250 million follow-on for Air Lease scheduled for Thursday. The pricing includes new and proposed stock offerings that will potentially bring new equity to the U.S. market.

Unless some big overnight deals to issue new stocks materialize, new offerings the week of May 27th should total no more than $2 billion.  We expect the pace to pick up starting next week as long as stock prices do not sell off hard. See the below comparison of new stock offerings against the S&P 500 Index’s new stock offerings.

6.13.13 Chart 3

5/31/12 – 5/31/13, Source: Trim Tabs

Past performance is not indicative of future results

U.S. Economy Continues to Expand at Slow Pace.  Income Tax Withholdings Rise 2.6% Year Over Year (YOY) in Real Terms in Past Four Weeks and Two Days(4/26/13-5/28/13) Adjusting for Tax Changes.

We believe one of the best measures of the U.S. economy’s health is income, which we track in real time based on the income and employment taxes withheld from the paychecks of all salaried U.S. workers.  The latest withholdings data suggests the U.S. economy has continued to expand at a slow pace.

Adjusting for tax changes, income tax withholdings increased 3.7% YOY in nominal terms and 2.6% YOY in real terms in the past four weeks and two days.  This period surrounds May 1, May 15, and Memorial Day this year and last year, so we do not believe calendar quirks are skewing the data. What this means is as the tax withholdings have gradually reduced over the past year we can deduce that so has the income of and therefore we believe a slight slowing of the U.S. economy. In the following chart we have presented both Nominal and Real values to take a closer look as the gradual slowing of the U.S. economy on a short term perspective.

6.13.13 Chart 4

Source: U.S. Treasury and Bureau of Labor Statistics.  All periods end Tuesday, May 28.  Inflation is calculated based on the non-seasonally adjusted consumer price index.

This 2.6% YOY real growth rate in the latest period is above the 1.3% YOY in April and in line with the 2.4% YOY in March. As you can see in the below chart even with the year-end spike in tax withholdings over the past year it still shows a slight reduction in tax withholdings in the past 12 months. We believe this also means a slight reduction in income and therefore a gradual slowing in the U.S. economy not only in the past 3 months but also for the past 12 months.

6.13.13 Chart 5

Source: U.S. Treasury and Bureau of Labor Statistics.  Inflation is calculated based on the non-seasonally adjusted consumer price index.

This communication is a publication of TrimTabs Asset Management. It should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Information presented does not involve the rendering of personalized investment advice. Content should not be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing performance returns. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Past performance may not be indicative of future results. Therefore, no investor should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions, may materially alter the performance of an investor’s portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio.


The S&P 500 Index is a free-float capitalization-weighted index based on the common stock prices of 500 American companies. It is one of the most commonly followed equity indices and many consider it the best representation of the market and a bellwether for the U.S. economy.

Bull Market (the bulls) is a financial market of a group of securities in which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.

U.S. Equity Funds and ETFs represent mutual funds and ETFs that invest principally in stocks in the domestic (U.S.) market.

Global Equity Funds and ETFs represent mutual funds and ETFs that invest principally in stocks in the global (international) market.

Bond Funds are funds that invest primarily in bonds and other debt instruments.

Nominal Value is the stated value of an issued security. Nominal value in economics also refers to a value expressed in monetary terms for a specific year or years, without adjusting for inflation. When used in reference to securities, nominal value is also known face value or par value.

Real Value is the Nominal value adjusted for inflation. Real value is obtained by removing the effect of price level changes from the nominal value of time-series data, so as to obtain a truer picture of economic trends. The nominal value of time-series data such as gross domestic product and incomes is adjusted by a deflator to derive their real values.

 One cannot invest directly in an index.

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