Via Goldman Sachs Research: Bond outflows accelerate, Eq. MFs positive As per Lipper, equity fund inflows were +$1.6 bn this week (vs. +$1.9 bn last week via ICI), with inflows in domestic eq. (+$282 mn vs. -$463 mn last week) and non-US equity (+$1.3 bn vs. +$2.3 bn last week). 2QTD equity inflows are +$11.3 bn, while YTD flows are +$78.1 bn. Bond flows were-$10.8 bn (taxable: -$6.4 bn; muni: -$4.4 bn), the worst bond flow week to date in the Lipper data series. This compares to last week’s -$8 bn (taxable: -$4.6 bn, muni: -$3.4 bn) via ICI, already making June to date the worst fixed income fund flow month on record. 2QTD bond flows are – $19.4 bn; YTD flows are +$49.7 bn. MMF flows were +$7.7 bn this week vs. last week’s -$25.1 bn, via ICI.
ETFs: Equities / bond flows swing negative
Equity ETFs (ex-comm.) saw outflows of -$7.1 bn this week (vs. last week’s +$3.3 bn), bringing 2QTD inflows to +$20.5 bn and YTD to +$71.5 bn. Commodity ETF flows were -$1.3 bn. Bond ETFs saw outflows of -$2.4 bn (taxable: -$2.2 bn; munis: -$158 mn) this week, vs. +$57 mn last week.
Seth Klarman: Investors Can No Longer Rely On Mean Reversion
"For most of the last century," Seth Klarman noted in his second-quarter letter to Baupost's investors, "a reasonable approach to assessing a company's future prospects was to expect mean reversion." He went on to explain that fluctuations in business performance were largely cyclical, and investors could profit from this buying low and selling high. Also Read More
Equity and fixed income performance
2Q13TD equity fund performance is +0.9%, vs. the S&P 500 (INDEXSP:.INX)’s +2.8%. The group’s average 2Q13TD fixed income performance is -2.7% vs. Barclays Aggregate Bond Index’s -3.2%.
Buy FIG/Sell JNS on widening valuation gap
We reiterate our Buy-rating on Fortress Investment Group LLC (NYSE:FIG) and Sell on Janus Capital Group Inc (NYSE:JNS). We expect the valuation gap between alternative and traditional managers to narrow over time, reflecting strong asset gathering, performance, and income outlooks for alternatives relative to traditonals and see 37% upside to our Fortress Investment Group Price Target and -10% downside for Janus Capital Group.
Since May valuation gap has widened amid derisking and mark-to-market risk. Janus Capital Group Inc (NYSE:JNS) has outperformed by +450 bps vs. peers in the past two weeks despite still weak (bottom decile YTD) performance in key strategies, PM exits, and anticipated outflows. Meanwhile, Fortress Investment Group LLC (NYSE:FIG)’s macro hedge fund performance (through May) bodes well for performance fees and while, PE marks based on public company performance is a headwind, valuation bakes in no value on performance fees.