Saturday, November 28, 2009


Credit, non-US stocks gain flow share in 4Q For the week ending 11/4, Lipper FMI data and our preliminary estimates suggest equity fundsremained in the outflow mode, shedding another $3 bn, which was once again led by domestic funds. This compares to $1.5 bn of net outflows ($2.6 outflows in domestic and $1.1 bn in international inflows) reported by ICI for the week prior.

Conversely, bond fund flows remained solid at an estimated $7.4 bn for the current week,
following $10.2 bn (comprising $8.9 bn bn in taxable bonds and +$1.3 bn in munis) for the prior
week reported by ICI.

Money manager barometer: Déjà vu… domestic equities, MMFs outflow; credit inflows.

MMFs outflows accelerated once again, reaching $21 bn for the current week. As we approach the middle innings of 4Q, MMFs lost $79 bn qtd, tracking in-line with 3Q’s total outflows of $235 bn. Similarly to 3Q, credit remains the only game in town with over +$50bn of inflows qtd, on track to beat last quarter’s record. Domestic equity funds outflowed $17 bn, while international funds continued to gain share, picking up +$7bn 4QTD.

Equity performance recovers
Equity fund performance recovered somewhat this week but remains in the negative for the
quarter. Specifically, equity funds are down 1.6% 4QTD. CLMS continues to lead the group with
+0.4% of asset-weighted performance, followed by IVZ and WDR. CNS, LM and PZN all rank at the bottom with -4.1%, -3.5% and -3.1%, respectively.

Trade idea: Buy ART ahead of 3Q earnings We recommend buying ART ahead of 3Q earnings
on 11/13. The stock has underperformed the group recently, now trading at just 12.7X 2010E
P/E vs. the group’s 17.6X average. With further strength in non-US mutual fund flows industry wide in 3Q and 4QTD, we expect ART to deliver $500-$550 mn in positive flow for the quarter,
while the near-term investment performance is catching up. Our 3Q EPS estimate is $0.38.

In addition, BEN (Buy) will be reporting October end AUM, which should show continued strength in credit flows, boding well for the stock on the back of the recent weakness.

To read the full report: ASSET MANAGERS