Advantage Data: Real estate, depository financials tops as major junk sectors continue rebound

By Paul Deckelman

New York, Feb. 25 - The high-yield market notched its second consecutive weekly gain in the period ended Friday, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

That advance built on the gain seen in the previous week, ended Friday, Feb. 15, when junk broke out of a two-week slump, posting its first gain in three weeks.

The latest results marked junk's sixth weekly gain so far in 2013, against two weekly losses, which occurred back to back in the weeks ended Feb. 1 and Feb. 8. On a longer-term basis, last week marked the 13th gain in the last 18 weeks, against five losses during that timeframe. Most of the upside during that time was provided by a dazzling streak of 10 consecutive weekly gains between last November and the week ended Jan. 25.

Out of the 68 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 58 finished in the black last week, with nine sectors ending in the red and one other sector finishing with a flat 0.00% reading, showing neither a gain nor a loss on the week.

That represented a general continuation, though slightly less robust, of the previous week's solid comeback from the pronounced weakness that had been seen in the two weeks before that.

In that prior week, 62 sectors showed gains and just four showed losses (in the interim, Advantage Data recalculated and slightly expanded its roster of sectors, bringing the overall number up to 68 from 66 the week before). During the week ended Feb. 8, in contrast, 45 sectors ended on the downside, 22 were on the upside and one other sector was unchanged on the week.

The continuing rebound after the two-week plunge into the red in the overall market was reflected in the behavior of the 30 most significantly sized sectors, as measured by the number of bond issuers, the collective number of issues tracked and their total face amount outstanding.

In the latest week, 26 of those bigger sectors showed gains on the week, against just three showing losses and the one unchanged sector. The week before, all 30 of those sectors had ended in the black, versus none in the red - which in turn had been a complete reversal from the Feb. 8 week, when 25 sectors had finished with losses, against just five finishing with gains.

Among specific major sectors in the latest week, bonds of real estate operators and depository financial institutions had the best showings. Bonds of coal mining concerns, metals mining and amusement companies ended in the red.

Statistical indicators of general market performance posted their second consecutive week of gains, including the total year-to-date return as measured by the widely followed Merrill Lynch High Yield Master II index, as they continued to rebound after two consecutive weeks of losses before that. Those losses, in turn, had followed 10 straight weeks of gains.

Index adds to gains

The Merrill index showed junk bonds with a one-week gain of 0.129% as of the close Friday, adding to the previous week's 0.331% advance, which had followed successive losses of 0.54% and 0.379% in the two weeks before that. Those had been the first losses after 10 weekly gains dating back to November of last year, and the first this year after four weekly gains.

The index, which has now seen six gains so far in 2013 against the two losses, finished 2012 with 40 weekly gains versus 12 weekly losses.

The index's year-to-date return stood at 1.499%, up from 1.369% the week before, although it still remained down from its 2013 peak level of 1.991%, recorded on Jan. 28. The index had finished 2012 with a cumulative return of 15.583%, just a little below the peak for the year of 15.589%, set on Dec. 20.

Among its other components, the index showed an average price of 104.746 on Friday, down slightly from 104.797 the previous Friday but still up from 104.352 on the final day of 2012. Its yield to worst stood at 5.855%, little changed from the week-earlier yield of 5.853% but still well in from its year-end yield of 6.083%. Its spread to worst over comparable Treasury issues widened slightly to 499 basis points from 497 bps the week before but had tightened from 523 bps at year-end.

Real estate leads rally

Back on a sector basis, Advantage Data meanwhile showed the bonds of real estate companies having the best showing on the week among the significantly sized sectors, with the grouping up by 0.41% on the week.

It was the second consecutive week in which real estate had finished among the Top Five best-performing sectors, having also been there in the week ended Feb. 15, when it gained 0.56%. Real estate was by far the strongest major sector in 2012, when it returned over 33%, but up till now has been largely absent from among the leaders.

Also showing strength in the latest week were depository financial institutions (up 0.30%), health care providers and oil and gas exploration and production companies (both up 0.27%) and metals processing concerns (up 0.24%).

On the downside, bonds of coal mining companies had the biggest loss among the major sectors, finishing down 0.09%. The miners had actually been among the best finishers the week before, with a 0.50% gain, but have now been the single worst finisher among the significantly sized sectors in three weeks out of the last four.

Also among the underachievers in the latest week were metals miners (down 0.03%) and amusement providers (down 0.02%). No other key sectors ended in the red on the week, although precision instrument manufacturers were perfectly unchanged on the week with a 0.00% reading, while paper manufacturers edged up just 0.01%. Like the coal companies, the metals miners had been among the best performers the week before, with a 0.49% advance at that time.

Food stores in lead for year

Eight weeks into 2013, the food stores sector remained the leader among the key sectors on a year-to-date basis for a sixth straight week, ringing up a cumulative return of 8.33%. Metals mining was second-best, also for a sixth straight week, with a 3.21% year-to-date return.

Rounding out the top year-to-date performers so far were metals processing (up 2.76%), lodging (up 2.61%) and holding companies and other investment offices (up 2.37%), all finishing in the same order as the week before.

Among the year-to-date underachievers, coal mining remained at the bottom of the pile for a fourth consecutive week, although it stayed in positive territory overall with a 0.41% return.

Other sectors showing relatively weak returns so far included telecommunications (up 0.79%), automotive services (up 0.89%), electric and gas utilities (up 1.02%), and transportation equipment manufacturers (up 1.11%).

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