Earlier we showed that when looking at asset returns in the first quarter, there were hardly any underperformers while positive returns were generous across virtuall all asset classes. What drove this outsized performance, which once again left most hedge funds and asset managers seeking to generate alpha in the dust? The answer: a continuation of the capital reallocation euphoria launched with the Trump election in November, which continued for the second consecutive quarter. And while stocks were by far the biggest beneficiaries of the fund flows, with US equity ETFs alone taking in $62 billion in Q1, as TrimTabs' David Santschi points out, the bond inflow was perhaps the most noteworthy, which saw $34 billion in inflows even as Bond ETFs rose just 1.0% last quarter, yet money kept pouring in all quarter.
Here is the summary of how retail investors allocated funds to the market, courtesy of the TrimTabs:
All Stock and Bond Funds Get $162 Billion in Q1 2017, Biggest Quarterly Inflow in Four Years. Insider Selling Hits Six- Year High in February and March. Real Wages and Salaries Keep Rising at Brisk Pace, although TrimTabs Macroeconomic Index Levels Off, and Credit Indicators Not Signaling Big Pickup in Growth
And the Demand (Fund Flows) details
Fund investors went on a buying spree last quarter, snapping up $162 billion worth of stock and bond funds, the most since the inflow of $193 billion in Q1 2013. U.S. equity ETFs alone took in $62 billion in Q1 2017 following the record inflow of $109 billion in Q4 2016.
Our U.S. demand indicators generally improved last week, turning mildly bullish for the short term (one to two weeks) and more firmly bullish for the intermediate term (one to two months).
Demand for U.S. equity ETFs decreased in recent weeks, which is encouraging from a contrarian perspective. Inflows into these funds totaled just $2.2 billion (0.1% of assets) in the past week, and the trailing one-month inflow has plunged to a seven-week low of $11.5 billion (0.7% of assets).
The TrimTabs U.S. Equity ETF Index (TTEI), which uses ETF flows for short-term market timing, rose to 62.9 on March 30, up from 52.2 a week earlier. Since the TTEI is between 50 and 75, the TTEI Model Portfolio is 75% long the S&P 500.
Leveraged ETFs are not sending such positive signals, but recent flows have been light. Leveraged short ETFs redeemed 1.6% of assets for a second consecutive week, while leveraged long ETFs added 0.9% of assets.
Sentiment measures continue to send more negative short-term signals than flows. Major sentiment surveys show optimism has pulled back a bit but remains historically high, the equity put/call ratio has not cracked 0.8 for two months, and the VIX fell to 12.4 last week.
Yet while retail investors, whether due to latent "Trumpforia", or other reasons, were allocating cash to risk assets, others were selling, most notably corporate insiders, who according to TrumTabs unloaded $10 billion ($500 million) in stock in the first quarter, the highest volume since February 2011, even as corporate buybacks continued to decline to the lowest level since November 2013. Some more details:
U.S. companies have been committing less money to shrink the float ever since the election. In March through Thursday, March 30, announced corporate buying (new cash takeovers + new stock buybacks) of $44.5 billion was only 1.5 times the $29.5 billion in new offerings. This buy/sell ratio is the lowest since November 2013. Since the start of November 2016, the buy/sell ratio has been 2.7-to-1, below the average of 4.3-to-1 in all of 2016.
As companies have been less willing to use cash to support share prices, corporate insiders have been selling at the fastest pace in six years. Insiders unloaded $9.9 billion ($500 million daily) in February and $9.7 billion ($450 million daily) in March, the highest monthly volumes since February 2011.
Do buying mom and pop investors know something selling corporate insiders do not? Normally, some would smile at this assumption, alas in this day and age when retail investors are increasingly becoming the "smartest" money (with hedge funds almost terminally relegated to "dumb money" status), this time may just be different. For the definitive answer check back this time next quarter.