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Here Are The Biggest Fund Losers From The Retail Stock Market Boycott
It is no surprise that Charles Schwab is trading at 52 week lows: as long highlighted, for retail brokers to make money, someone has to trade. And since Schwab can't charge the computers, the banks, and the Fed for transactions (especially the latter which seems to enjoy dark venues more than anything), the future is sure not bright for the E-Trade's (potentially the only investment in Citadel's portfolio, which is for the second year in a row below its high water mark, making money this year) and the Schwabs. Yet due to their relatively lean cost structure, retail brokers at least do not have to worry much about redemptions and capital under management. Which is most certainly not true for the mutual funds out there, many of which are also public, and will soon be whacked doubly more so as a result of plunging asset holdings, and tumbling transactions. So instead of shorting Schwab, here are the mutual funds, classified courtesy of Moody's, which have the most to lose from the ongoing $50 billion+ YTD withdrawal by investors from domestic stock funds (hint: Waddell & Reed, and Janus).
But first some narrative:
In data released last week, year-to-date flows into bond mutual funds moved over the $270 billion mark during the week ending 18 August, according to EPFR Global, a mutual fund research firm. Investors’ voracious appetite for fixed-income mutual funds has only increased in recent months. For asset management firms such as Janus and Waddell & Reed that are weighted toward retail equity mutual funds, the preference for fixed income is credit negative. But the trend also carries negative implications for the industry as a whole, because asset manager profitability will be challenged as lower-fee fixed-income assets become an increasing percentage of the underlying mix of assets under management (AUM).
Retail investors are moving out of higher margin equity products and into lower margin fixed-income products. We estimate that top-line revenue declines by approximately $1 billion and pre-tax income by approximately $250 million for every 5% of industry mutual fund assets that move from equities to fixed-income. Given the much higher fees on equity mutual funds, an asset manager needs a higher base of fixed-income assets just to achieve the same level of profitability.
US retail mutual fund investors, nervous about sluggish growth and high unemployment, have shown a decided preference for bond mutual funds at the expense of equity mutual funds since late 2007, as shown in Exhibit 1. As of the end of the second quarter 2010, absolute assets under management at asset management firms were close to the peak AUM levels seen in the fourth quarter of 2007 and early 2008; however, the underlying mix is now weighted more heavily towards lower margin fixed-income products. According to the Investment Company Institute (ICI), bond mutual funds have attracted more money than equity mutual funds for 30 consecutive months through June, the longest stretch in more than 23 years.
For asset management companies like Janus (Baa3 negative) and Waddell Reed (Baa2 stable) whose businesses are skewed toward retail investors, this extended flow trend poses more concern because these firms lack scaled fixed-income platforms to offset increased outflows from equity mutual funds. Increased risk aversion among retail investors poses the greatest challenge for these two firms’ AUM position because of their higher sensitivity to retail investors and equity markets.
Firms with stronger global fixed-income franchises such as Legg Mason (Baa1 stable), BlackRock (A1 stable), and Franklin (A1 stable) will be greater beneficiaries of a continuation in this flow trend and their gains in fixed-income AUM will help soften negative impacts from increased equity fund outflows. Additionally, the improved operating environment for asset managers since first quarter 2009 has helped most asset managers, including Janus and Waddell & Reed, to strengthen their balance sheets and position them to weather this trend and/or address gaps in their product line-ups.
Moody's conclusion:
If this flow trend holds, the asset management industry’s profitability will be challenged. We believe this trend has no near-term credit implications but that its protracted extension is more likely to have negative credit implications on asset managers with asset mixes more skewed toward retail equity funds.
And here are the biggest losers from the ongoing boycott, sorted in order of decreasing reliance to equity. Our condolences to Janus - it is not too late to buy up some Cajas and some Greek banks and to try to pass off for a TBTF.
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Greek News Sources Report that Plan B on Debt Restructuring May Be Taking Shape!!!!
The people have been scammed. The market is a rigged casino. Bonds are in a bubble. Many of those in 401Ks are trapped like a tortured animal in a cage with no options but equities (often in high debt countries) or bonds.
Is there any wonder why there is a boycott? Just choose the lesser of the evils?
We are at war!
Schwab should be at the front of line for cleaning the bs in the markets, but not a peep.
Nope - just that permabull sugar plum fairy singing her Buy Buy Buy song.
+++ Schwab sent me an email a few weeks ago assuring me that a double-dip was unlikely, and that I should just buy some damn stocks.
Hey Kraus! You pulled in extra $10 million, but this time didn't blow up the ship! Job well done! <sarc> I hope AXA wakes up and sees the money they've burned propping up the art market and dumps your pathetic ass. If ever the term parasite applied...
I miss the ppt'ers...
This trend is indicative of nothing except that mutual funds are dinosaurs. For all the restrictions and expenses, mutual funds can't even outperform; therefore, they lose to ETFs and to ownership of individual stocks. It may in fact be that Joe Retail has thrown in the towel on the market, but this is not evidence of it.
Not related to this article, but a Swedish bank imploded today.
Yeeeees, Btw that is a Lawrence-Fishburn-Matrix "Yeeeeeees", a-Swedish-Bank, one of those prudently managed ones that "have learnt their lesson from history and are holier than gawed".
The losses are penuts in the grand scheme of things but what is interesting is that the cause of the failure was, wait for it, get feeling just right..... there it is! TRADINGLOSSES!
Run a translator on this:
http://di.se/Default.aspx?pid=3866&epslanguage=sv
I had some wacked-out substitute teacher at my Catholic grade school that told us the correct way to pronounce god was "gawd." Thanks for reminding me and bringing back all the awful memories.
Nanex has made it to the Australian news media headlines. I posted this elsewhere but want to get coverage...
ABC (Australian Broadcasting Company) has a must hear documentary online from this weekend's show. I think we are watching the imminent implosion of HFT. They've overplayed their greedy hand and now everyone is saying WTF. Even if the SEC does nothing, other regulators worldwide are going to act to string these bastards up. Goodnight and good f*ing riddance.
The flash crash
Just so we get the facts, the recent inflows to bond funds is significant true. As ZH has shown it is still only a fraction of what is in equity funds, as of today, and what flowed into equity funds over the years.
Imagine being held hostage by a 10% penalty. Losing 30-40% because some dickwad said you are an idiot to cash out early. Now thats some great advice.
Let's see. Inflation, taxes, a debt mountain, and absolutely no capacity to turn GDP around because all of our missing jobs have gone elsewhere. Just who or what is going to drive investments up. That's right. Nothing. This is a one way elevator.
Fuck fund managers. Do what's in your best interests. And don't think for a second that Frankenstein Government can't change the rules.
Alliance Bernstein - "Our analysis suggests..."
that there will never be a recession. only normal growth at lower levels..hahaha
Hey, you had the same advisor! Sorry.
"Sub-prime will be limited to a 220 million dollar event, don't worry."
"Don't be concerned that our fnma holdings have gone to zero, that's the beauty of a diversified portfolio. As a percentage of your overall holdings fnma only represented a fraction." (what's 15K, meh.) AB was one of the biggest holders of gse stock - they couldn't get out.
"I don't see any reason to change your allocation." (70% equities - early 2008)
"We could see three to four quarters of softness in the market." ( mid 2008)
"You want me to liquidate the ENTIRE account??!! What if we just changed your allocation??!!" (10/08)
"We have got to get you back in the market, right away! All in!" (12/08)
You can't blame the advisor, they were getting it from central command. The advisors insight was "commission control".
(rant off)
I want to come back as a Waddell & Reed broker so I can charge a "planning" fee to put people into our shitty, high-fee funds. Now that's a double-dip!
You take a mortal man,
And put him in control
Watch him become a god,
Watch peoples heads a'roll
A'roll...
Just like the Pied Piper
Led rats through the streets
We dance like marionettes,
Swaying to the Symphony...
Of Destruction
Acting like a robot,
Its metal brain corrodes.
You try to take its pulse,
Before the head explodes.
Explodes...
The earth starts to rumble
World powers fall
A'warring for the heavens,
A peaceful man stands tall
Tall...
http://www.jango.com/music/Megadeth?l=0
I have been hammering my contact at Schwab for some time about the deafening silence from them as regards the retail investor. They have been completely mute on the debate for financial reform, proper regulation and accountability on Wall St., Needless to say I've been pissing in the wind, Schwab deserve to lose all their customers.
SCHW is trading at a 52 week low because the are making ZERO on money market balances ( due to low interest rates), like many firms it was one of their biggest profit centers as most clients with regular balances don't notice the 35bps the firm collects on money markets. They also get about the same amount for the onesource fund families which brings a number of load waived funds to the retail investor. Using schwab, TD or Etrade as your conduit was supposed to limit the need for marketing budgets fund promotion etc. Schwab has gone down the path of creating more proprietary quant funds (overpriced for the results) and razor thin margins on ETF's. Chuck is a nice guy but is too tired to actually do anything other than get behind tax reform. Their institutional biz has no prime broker arm so they aren't dealing with the HFT's at all. Schwab is trying to just throw a net around baby boomer assets, they want to give you the illusion of advice but at the end of the day they just want you to sit in an allocation of onesource funds so they can make their nut. Short WDR is a good trade but it runs the risk of getting acquired so protect it with a call.
Quant funds meltdown:
http://www.youtube.com/watch?v=s927h5W30dU
"Talk about how beat up the whole industry is"
That's not a woman, it's a MAN BABY!!!!
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