Advantage Data: Metals mining firm as junk, key sectors extend rebound

By Paul Deckelman

New York, Jan. 5 – The junk market moved higher for a third consecutive week as it continued to recover from its recent two-week losing streak, according to sector-tabulated weekly bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Before that upturn, the overall market had also been lower in four of the previous five weeks.

Out of the 58 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 44 finished in the black during the week ended Friday, with 14 closing in the red.

That did represent a deterioration from the week before, ended Dec. 26, when 52 of the sectors had shown gains and just six had showed losses.

In the week before that, ended Dec. 19, some 32 of the sectors had positive returns, against 26 negatives, as the market bounced back solidly, if not spectacularly, from its weak showing in the two weeks before that, including the week ended Dec. 12, when 57 sectors had been in the red, with only one sector in the black.

The year 2014 ended with a majority of the sectors on the plus side in 38 weeks, versus 15 weeks in which more sectors were down than up (with the year having ended on a Wednesday, the latest week is counted for statistical purposes as having occurred in 2014 since the first three trading days of the week took place at that time, producing the anomaly of the reporting year thus having had 53 weeks).

Although the gainers outnumbered the losers most weeks, the negative weeks were more numerous over the course of the last few months, reversing the pattern seen earlier in 2014, when, for instance, there had been a streak of 16 consecutive upside weeks between mid-March and early July.

A subset of just 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, also extended its recovery this past week along with the broader market, rising for a third straight week – though also not as decisively as the week before – after having plunged for two straight weeks before that.

Some 23 of those more substantial sectors closed in the black this past week, with seven sectors in the red, versus the week before when 28 of the sectors had shown gains and only 2 posted losses. In the week ended Dec. 19, the breakdown had been 18 positive sectors versus 12 negatives – a comeback from the week ended Dec. 12, when 29 of those larger sectors had been losers against just one gainer.

That more-focused grouping generally moves up or down in tandem with the overall market, although from time to time there is a rare divergence, as happened during the week ended Nov. 14, when a small majority of the larger sectors finished higher on the week, even though the overall sector breakdown was negative, and before that, during the week ended March 7, when most of those key sectors were down on the week while the overall sector roster showed more gains than losses. Other than those two points, the results had mirrored those of the broader market.

Thus, for 2014, those significantly-sized sectors showed gains in 38 weeks, versus 15 downturns, the same as the broader market.

In the latest week, the recently struggling metals mining sector broke out of its slump and led the market higher, while bonds of coal-mining companies were – once again – the biggest losers this past week among those key sectors.

The year closed out with real estate companies having turned in the best cumulative return for the second time in three years, while coal mining continued as the cellar-dweller for a third straight year.

Very early indications for the new year showed coal and the lodging sector poised to continue as the weakest significantly-sized sectors, just as they were in 2014, with metals mining and precision instrument manufacturing the early year-to-date leaders so far.

Index continues rebound

Other statistical indicators of general market performance meanwhile were mixed across the board this past week versus where they had finished out the week before, after having been higher across the board for two straight weeks before that. Those higher weeks, in turn, had followed successive two weeks in early December on the downside.

The Merrill Lynch High Yield Master II Index led the way upward, firming by 0.123% on the week as of Friday’s close.

It was the index’s third consecutive weekly gain, following the 0.48% advance in the week ended Dec. 26 and the 1.055% jump during the week ended Dec. 19 – one of the largest weekly gains seen during 2014, only slightly less than the 1.057% surge seen during the week ended Aug. 15.

In contrast, during the week ended Dec. 12, the index had swooned by 2.094% on the week – its largest weekly decline of 2014, eclipsing the 1.419% plunge recorded during the week ended Aug. 1, and one of the biggest weekly downturns on record.

The index closed out 2014 with 36 weekly gains against 17 losses, including a winning streak of 14 straight weekly advances that started during the week ended March 21 but which was snapped during the week ended June 27.

As of the close of trading on the last session of 2014, on Wednesday, Dec. 31 the index had posted a cumulative return for the year of 2.503% – up from 1.911% at the end of the previous week and well above its low point for the year, the 0.258% cumulative loss recorded on Dec. 16, but down from its peak level for the year of 5.847%, posted on Sept. 1.

The index ended 2014 well down from the 7.419% at which it had closed out 2013.

With only one trading session seen so far in 2015, on Friday, the index’s year-to-date return for the new year so far stood at 0.022%.

Among its other components, Friday’s yield to worst stood at 6.652%, up a little from its 2014 year-end 6.448% level as well as 6.618% the week before. It was down from its high point for the year of 7.259%, set on Dec. 16. All of those elevated yields stood in contrast to the 4.847% yield notched on June 24, which was both the low point for this year and the all-time low. At the end of 2013, the yield to worst had been 5.671%.

The index’s spread to worst over comparable Treasury issues stood at 517 basis points on Friday – up from 513 bps on the last day of 2014 and up as well from 504 bps the Friday before. It had come in from 576 bps on Dec. 16, its widest level for the year, but it remained well up from the 353 bps seen on June 23, its tightest spread for 2014. At the end of 2013, the yield to worst had been 418 bps.

Metals mining on top

Back on a sector-by-sector basis, Advantage Data meanwhile showed the metals mining sector (up 0.39%) doing the best among any significantly-sized sector this past week.

It was a rare show of strength for the sector, which has usually been found among the underachievers. In fact, it had been among the Bottom Five worst-performing sectors in each of the previous two weeks, including the week ended Dec. 26, when it posted a meek 0.16% gain while most other sectors were rebounding from recent losses far more robustly. The week before that, ended Dec. 19, it had been the single worst large-sized sector, losing 1.11% that week.

Also showing strength in the latest week were precision instrument manufacturing (up 0.38%), printing and publishing (up 0.34%), paper manufacturing (up 0.33%) and three sectors each showing a gain of 0.30% – depository financial institutions, healthcare and primary metals processing. None of those sectors had been among either the big weekly gainers or losers the previous week.

On the downside, coal mining (down 1.61%) made the worst showing among the large-sized sectors. It was coal’s seventh straight week among the laggards, and its second straight week of having the worst loss, also achieving that dubious honor in the Dec. 26 week, when it was down by 0.27%.

Other sectors showing weakness in the latest week included lodging (down 0.43%), chemical manufacturing (down 0.18%), oil and natural gas exploration and production (down 0.14%) and food manufacturing (down 0.04%).

Lodging and the energy grouping had both been among the Top Five best-performing large sectors the week before, with lodging actually on top that week with a 1.54% surge – a rare advance for the sector, which most weeks had been among the big losers, where the innkeepers have now been in three of the past four weeks. The volatile oil and gas sector, meanwhile, had been among the best performers over the previous two weeks, including the week ended Dec. 19, when it had been the biggest winner with a 1.66% gain, and the week after that, when it had notched a very respectable 1.17% bulge.

Real estate tops for 2014

The junk market closed out 2014 with the real estate sector in the top spot for a second consecutive week and a final return for the year of 9.50%.

It was the second time in the last three years that real estate was the champion for the year; in 2012, it had topped all of the other significantly-sized sectors with an outsized 33.49% return on the year, and had held that position for the last 30 consecutive weeks of the year and in 45 weeks out of the final 48.

Among other sectors showing strength during the past year, paper manufacturing was in the runner-up spot for a third straight week, ending 2014 with a 7.90% return.

Printing and publishing was third best, healthcare fourth best and depository financial institutions fifth best on the year, each in those positions for a second straight week and posting year-end returns of 7.75%, 7.45% and 6.83%, respectively.

In 2013, food stores had been the best-performing large-sized sector for the year, with a 22.56% return.

Coal repeats as worst sector

On the downside, coal mining was the worst cumulative performer for a fifth straight week and for a 12th week in the last 21, ending 2014 with a 10.59% loss.

Coal was the year-to-date bottom-finisher for most weeks of 2014, at one point having the worst cumulative return for 23 consecutive weeks and in 27 weeks out of 28, until that skid was broken by the lodging sector during the week ended Aug. 15.

From that point till the end of the year, those two sectors alternated, with one of them down at the very bottom in all of those weeks and the other usually in the second-worst position.

Two thousand and fourteen was also the third straight year in which coal turned in the worst cumulative performance among any of the major sectors; it had that dubious distinction in 2012 and in 2013, when its returns of 4.16% and 4.35%, respectively, although ending in positive territory, were smaller than the returns posted by all of the other sectors.

Among the other large-sized sectors showing losses or only small gains for 2014, metals mining (down 4.14%) was the second-worst cumulative performer and lodging (down 2.31%) was the third worst, both for a second successive week.

Oil and gas E&P (down 1.76%) was fourth worst for a ninth consecutive week.

Holding companies and other investment offices (ending the year up 0.62%) was the fifth worst major sector for a fifth straight week.

Early gainers and losers

With New Year’s Day having fallen on a Thursday this year, Friday was the only session last week that fell in 2015, but it offered some very early indications on which sectors could be among the leaders and laggards for the upcoming year.

The metals mining sector (up 0.13%) led the initial Top Five list of best performers; if that holds, it would be a departure from 2014, when it was one of the worst finishers, as noted above.

Other very early gainers included precision instrument manufacturing (up 0.13%), securities and commodities brokers, dealers and exchanges (up 0.06%) and insurance carriers and primary metals processing (both up 0.02%).

On the downside, coal and lodging remained in their familiar 1-2 rut at the start of the new year, down 0.18% and down 0.13%, respectively.

Food stores were down 0.10%, while the food manufacturing and oil and gas groupings were each down by 0.06% early on.

© 2015 Prospect News.
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