Junk funds plunge by $6.31 billion; fifth straight outflow, second biggest ever

By Paul Deckelman

New York, Feb. 15 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – remained in negative territory for a fifth straight week after two weeks in a row before that on the plus side to begin the year, according to numbers released on Thursday.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $6.31 billion more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday, Feb. 14.

According to a Prospect News analysis of the data, this week’s outflow was not only by far the biggest cash drain seen so far this year, more than double the $3.08 billion which had left the funds during the week ended Jan. 17, the first outflow of the year, but it was also the second largest outflow on record since the Arcata, Calif.-based unit of Thomson Reuters Corp’ s Lipper analytics division began tracking fund flows back in 1992.

It was exceeded only by the record $7.07 billion that the funds lost during the week ended Aug. 6, 2014.

This week’s outflow grabbed the all-time runner-up spot from the previous second-biggest outflow – the $5.68 billion which exited the funds during the week ended March 15 of last year.

A string of outflows

This week’s giant-sized cash hemorrhage followed the $2.74 billion outflow reported for the seven-day period ended Feb. 7.

And before that came outflows of $1.75 billion during the week ended Jan. 31, $1.13 billion during the week ended Jan. 24 and a $3.08 billion cash drain during the Jan. 17 week, which, as noted, had been the first outflow of the year, after two consecutive net inflows.

The five outflows, totaling $15 billion, follow two inflows amounting to $2.84 billion – $186 million in the week ended Jan. 3 and $2.651 billion for the week ended Jan. 10.

According to the Prospect News analysis, that latter inflow was the largest cash infusion the junk funds had seen since the week ended Dec. 14, 2016, when $3.75 billion more came into the funds than left them. It topped the largest inflow seen in all of 2017, the nearly $2.38 billion cash gain recorded in the week ended last April 5.

According to the Prospect News analysis, this week’s outflow was the eighth cash loss in the last 10 weeks, dating back to the week ended Dec. 13, versus just two cash gains during that time – the ones which had started the year.

Year-to-date loss deepens

With seven reporting weeks in the books for 2018 so far, this week’s outflow pushed the year-to-date fund flow number much deeper into the red, a cumulative net deficit of $12.16 billion.

This week’s total was the fifth successive peak loss for the year so far, versus the $5.86 billion cumulative outflow seen last week.

According to the Prospect News analysis, 2017 meantime saw 28 weeks of outflows versus 24 weeks of inflows but the cumulative funds-flow figure was considerably more lopsided than that, with a final net outflow number for the year of $15.21 billion; that more than reversed the total net inflow of $11.12 billion recorded in 2016.

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 outflow nears record

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meanwhile also saw its fifth consecutive net outflow for the year this week, after having opened the new year with two straight weeks of inflows.

And as was the case with the AMG/Lipper outflow figure, this week’s cash loss was the second biggest EPFR had ever recorded.

A market source said that EPFR’s outflow number this week clocked in at over $10 billion – second only to the more than $11 billion of cash that exited the funds the agency was tracking during the week ended Aug. 6, 2014.

That was the same week the Lipper number set a company record, as noted.

This week’s huge outflow reported by EPFR easily surpassed the more than $5 billion cash loss seen last week and was several times the outflow of more than $2 billion posted during the Jan. 31 week.

The source meantime said that the cash loss EPFR reported during the Jan. 24 week had been roughly double the outflow reported by AMG/Lipper, while the outflow during the Jan. 17 week had totaled about half a billion dollars less than the Lipper figure.

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

The two services’ overall respective weekly results usually – but not always – point pretty much in the same general direction in terms of a given week having an inflow or an outflow. The numbers may track more or less closely and occasionally may even diverge completely.

Taking those differences into account, EPFR is even with Lipper so far this year, each recording two inflows and five outflows.

IG corporates also see plunge

Looking at fund flows for other asset classes during the week, investment-grade corporate funds, like their high yield cousins, were in negative territory this week, posting a net outflow of $790 million during the week ended Wednesday.

But unlike the junk funds, which, as noted, have been on the downside for much of the year so far, this week’s loss for the high-grade funds was their first in a very long time.

It not only snapped a winning streak which had seen those funds post gains during the first six weeks of this year, but overall, the funds had posted gains over the last 21 consecutive weeks, following a rare two straight weekly losses back in September, according to a Prospect News analysis of the data.

The Lipper calculations indicated that last week the funds had a net inflow of $4.73 billion for the seven-day period ended Feb. 7 and before that, $2.2 billion for the Jan. 31 week.

Last week’s inflow was the biggest so far this year and was one of the largest weekly inflows ever recorded for those IG funds.

This week s outflow drops the year-to-date net inflow figure for the IG corporates to $18.09 billion from $18.88 billion last week, which had been their sixth consecutive new peak cumulative inflow level for the year, up from the previous week’s $14.75 billion.

Last year ended with a $117.35 billion net inflow total for the year, the 14th consecutive new 2017 cumulative peak level, the analysis indicated.

© 2015 Prospect News.
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