Junk funds plunge $4.12 billion on week, third-biggest outflow ever

By Paul Deckelman

New York, Nov. 3 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – nosedived deep into the red this week, recording their fourth consecutive net outflow.

The cash drain was easily the largest seen so far this year and the third largest on record.

The four outflows have followed two large weekly net inflows – and those inflows, in turn, had followed two weekly outflows.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said Thursday that some $4.116 billion more left the weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the reporting week ended Wednesday.

The giant-sized outflow followed three straight weeks of more modest declines – the $48 million cash loss reported last Thursday by the Arcata, Calif.-based unit of Thomson Reuters Corp.’s Lipper analytics division for the seven-day period ended Oct. 26 and before that, outflows of $160.056 million during the week ended Oct. 19 and $72 million during the week ended Oct. 12.

Those four outflows, totaling $4.396 billion, followed a pair of sizable inflows – a $1.908 billion cash gain during the week ended Oct. 5 and a $2.011 billion inflow the week before that, ended Sept. 28.

According to a Prospect News analysis of the data, this week’s outflow was the seventh cash loss in the last 10 weeks, dating back to the week ended Aug. 31.

On a longer-term basis, this week’s outflow was the 21st so far this year, against 23 inflows.

Biggest outflow of the year

This week’s huge outflow came as no surprise to denizens of the high-yield market; they noted that the market has been taking its lumps over the last seven sessions, as illustrated by a string of losses in statistical indicators such as the KDP Daily Index, the Markit Series 27 CDX Index and the Merrill Lynch U.S. High Yield Master II Index – losses which could only indicate that investors were pulling cash out of the junk funds.

Before the weekly number was reported, a trader presciently predicted that the widely expected outflow “is going to be sizable – in the $3 billion to $4 billion range.”

In fact, this week’s outflow is the largest seen so far this year, according to the Prospect News analysis, surpassing the previous biggest 2016 outflow figure of $2.464 billion, seen during the week ended Aug. 3.

And it was the third-largest cash hemorrhage seen since AMG/Lipper began tracking fund flow movements back in 1992.

This week’s outflow was surpassed in magnitude only by the whopping $7.068 billion that the funds lost during the week ended Aug. 6, 2014 – the biggest outflow ever – and the second-largest all-time downturn of $4.63 billion during the week ended June 5, 2013.

This week’s mega-outflow bumped down to fourth-place on the all-time list the largest outflow seen last year – $3.811 billion during the week ended Dec. 16, 2015, the data indicated.

Year-to-date inflow shrinks

With 44 reporting weeks now in the books for 2016, the year-to-date cumulative net inflow fell this week to $6.779 billion from last week’s $10.895 billion, the data showed, which itself was down from the $11.175 billion recorded during the Oct. 5 week. That latter figure had established a new peak cumulative net inflow for the year so far.

Cumulative fund-flow estimates may be revised upward or downward or they may be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

EPFR streak snapped

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meanwhile also recorded a huge cash loss this week, with a market source calling it “a bit higher [than the outflow reported by AMG/Lipper], but still in the ballpark.”

The outflow snapped a five-week winning streak during which EPFR had reported consecutive inflows.

Three of those inflows came during weeks when AMG/Lipper reported outflows.

Last week, for instance, the source said that EPFR’s calculations showed a $426 million inflow.

During the week ended Oct. 19, he said, the service had seen “a small inflow,” and the week before that, ended Oct. 12, a cash gain that was as “just shy of $600 million.”

EPFR’s methodology differs from AMG/Lipper’s, as its fund universe includes many mutual funds and ETFs domiciled outside of the United States, such as strictly European junk funds and broader global funds, versus AMG/Lipper’s solely domestic orientation.

Because of that difference, while the two services’ respective weekly results frequently point pretty much in the same direction, their actual numbers may sometimes vary widely – and occasionally they may diverge completely, with one service reporting an inflow in a given week while the other sees an outflow, as had happened over the previous three weeks.

EPFR has now tabulated 25 inflows, versus 19 outflows on the year, versus AMG/Lipper’s 23 inflows and 21 outflows.

IG corporates head south

Looking at fund flows for other asset classes, investment-grade corporate funds tumbled into the red this week after having been in in the black for two consecutive weeks before that, the Lipper data indicated, with a $2.495 billion net outflow on the week.

That big loss stood in contrast to last week’s $1.701 billion net inflow and the $2.431 billion cash addition during the Oct. 19 week – a robust comeback from the $666 million outflow seen during the week ended Oct. 12, which had snapped a 14-week winning streak of continual net inflows which had dated back to early summer.

This week’s outflow cut the funds’ year-to-date net inflow to $40.296 billion, down from $42.791 billion last week, which had established a second consecutive new peak level for the year, according to Prospect News’ analysis of the data.

© 2015 Prospect News.
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