Advantage Data: Financials, chemical and electronics makers, autos lead way amid junk rebound

By Paul Deckelman

New York, June 2 - The junk bond market continued to perform strongly in the week ended Friday, with positive returns in the bonds of most industry sectors and component subsectors for a second straight week and for the 10th week in the last 11, according to statistics supplied to Prospect News by Advantage Data Inc.

Among the more significant broad-industry sectors and subsectors - as measured in terms of the number of issuers, the number of issues and the total face amount of bonds tracked - several of the financial sectors, such as depositary institutions, insurance carriers and securities dealers were among the leaders.

Manufacturing sectors posting strong gains included chemical, electronics and transportation equipment manufacturers, with the latter once again powered by a respectable gain in its all-important motor vehicle and automotive equipment subsector. Publishing, lodging, business services and some retailers were also strong, along with broadcasters.

There was not much of a downside, with almost all sectors posting returns in the black. Some of the weaker showings came among some of the food processing companies, select segments of the chemical and machinery manufacturers and a few real estate-related financial areas.

Of the 69 broad-industry sectors into which Boston-based Advantage Data divides its high-yield universe, 63 showed positive returns in the week ended Friday, while just six had negative returns.

That continues the pattern seen in the previous week, ended May 22, when 65 sectors finished in the black against just three ending in the red - a sharp reversal of the strongly negative trend seen in the week ended May 15.

Financials lead the way

For a second straight week, financial sectors were among the key gainers on the week. Depositary financial institutions had the strongest performance of any significantly sized broad-industry financial sector, returning 2.90% on the week, with its dominant subsector, commercial banks, up 2.97%.

Insurance carriers as a group returned 2.60%, led by the sector's life insurance segment, which gained 3.65% on the week.

Investment and holding offices were up 2.56%, while brokers and exchanges were up 2.18%, led by the sector's key component, securities brokers and dealers, which rose by 2.90%.

Carmakers lead manufacturers higher

The single best-performing significantly sized broad-industry sector was transportation equipment manufacturing, which shot up by 2.98%, paced by the 3.90% gain in its most important subsector, motor vehicle and automotive equipment manufacturing. It was the second consecutive week in which the carmakers have led the transportation equipment grouping solidly higher, doing a U-turn from the two weeks before that, ended May 8 and May 15, in which both were among the biggest losers in Advantage Data's junk bond universe.

Other significantly sized manufacturer groups posting sizable gains included the chemical makers, up 2.70% on the week, helped by a 2.12% rise in its plastics materials and synthetic resins' subsector; publishing, up 2.29%, boosted by the newspaper segment's 3.21% gain; and electronics manufacturing, ahead by 2.18%, as its most important subsector, electronic components and accessories, posted a 3.12% gain.

The engine and turbine manufacturing subsector gained 2.13%, even though the overall machinery manufacturing broad sector of which engines and turbines are the most significant component, gained less than a full percentage point on the week, while metal mining services rose by 3.03%, although the overall metal mining broad sector was up by about half that.

Among service providers and retailers, drug store operators zoomed by 7.05%, the single biggest gain by any significantly sized sector or subsector, helping its broader miscellaneous retailing sector to a 2.18% gain on the week. The lodging sector did even better, up 2.55%, while business services gained 2.17%, paced by its equipment rental and leasing segment, up 4.26%, and by far its largest subsector, computer programming and data processing, which rang up a 2.39% return.

Bonds of radio and television broadcasting companies returned 3.93%, although the larger communications sector terrestrial broadcasting is a part of only rose by 1.1%.

Produce producers lead losers

No significantly sized broad-industry sector finished in the red in the most recent week; the half-dozen sectors that were on the downside were relatively smaller in terms of the number of issuers, the number of outstanding bond issues tracked and the total face amount of their bonds.

Among the several significantly sized subsectors posting declines, even though their larger sectors actually finished in the black, food manufacturing's canned, frozen and preserved fruit and vegetable subsector had the worst performance, down 1.39% on the week. Another major foods component, beverages, lost 0.06%.

While the overall chemical sector rose solidly, as mentioned, its agricultural chemicals subsector had a 1.27% loss on the week. The makers of construction, mining and materials-handling machinery lost 1.23%.

Although most financial areas prospered, as noted, the mortgage bankers and brokers subsector lost 0.44%, while real estate agents and managers - the key component in the broader real estate sector - retreated by 0.42%.

Real estate, mining, petroleum up on year

While the real estate agents were among the relative handful of losers this past week, the subsector still shows a commanding 112.36% gain on the year - the most of any significantly sized sector or subsector, helping its broader real-estate sector to a 69.92% year-to-date return, easily the most of any major sector.

Elsewhere among the financials, brokers and exchanges, one of week's better performers, as noted, boosted its gain on the year to 44.10%.

Strong major broad-industry manufacturing sectors for the year so far included publishing, one of the week's big gainers, up 32.63% on the year. Building was up 28.75% year to date, particularly its biggest component, the operative residential builders subsector, up by 28.59%, while metal mining was up 27.24%.

While metal mining's most significant component, the precious-metals miners, posted a relatively modest year-to-date return of 20.13%, the sector continued to draw plenty of strength from its somewhat smaller but considerably stronger iron mining segment, which has jumped by 59.45%. Metal production was up by 24.29% on the year, led by its key steel works component, up 29.15% year to date.

The petroleum refining subsector, despite only a modest half-point gain on the week, still boasts a 36.31% year-to-date return.

Among retailers and service industry companies, miscellaneous shopping goods stores were up 29.82%, while drugstores, a big winner on the week, fattened their bulge to 48.36%. The catch-all miscellaneous shopping goods stores segment, the sector's largest, was up 31.53% on the year.

Amusement services was up 29.23% year to date, the automotive rental subsector was up 43.62%, telecommunications up 29.29 - including a 35.07% gain in its all-important telephone services segment - and business services were up 30.47%. Lodging, one of the week's good performers, was up 14.46%, while health care was up 17.84% on the year.

Fire and casualty insurers worst on year

On the downside, no significantly sized sectors were in the red year to date. Among the major subsectors, the biggest loser remained fire, marine and casualty insurance, down 24.71%.

Book publishing remains in negative territory, although it cut its year-to-date loss notably, to just 4.48%.

Automotive manufacturing and its larger transportation equipment manufacturing sector managed to shed their unwanted status as major year-to-date losers with a second consecutive week of strong performances, as noted, moving into the black with cumulative returns of 6.60% and 11.68%, respectively.

Market gains increase

As of Friday, the overall domestic high-yield market, as measured by the widely followed Merrill Lynch High Yield Master II Index, showed a 1.51% one-week gain, as its year-to-date return rose to 25.35% from 24.43% seen the previous Friday, May 22.

The average Master II price of a high-yield issue stood at 75.25% as of the close on Friday, with a spread to worst of 1,165 basis points over comparable Treasuries and a yield to worst of 14.09% - versus a price of 74.23, a spread of 1,201 bps and a yield of 14.53% the week before.

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