Junk funds see $335 million outflow for week, fourth consecutive decline; year-to-date outflow expands

By Paul Deckelman

New York, Dec. 29 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – posted a net outflow in the latest reporting week, ended Wednesday, Dec. 24; it was their fourth consecutive weekly downturn.

While the fund-flow numbers generally circulate in the junk bond market on Thursday afternoons, they were delayed until Friday this time around because of the market close on Thursday for the Christmas holiday. Market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $335.5 million more left those weekly-reporting-only funds than came into them during the week.

That followed the $3,084,000,000 outflow reported the previous Thursday by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., covering the seven-day period ended Dec. 17, which was the second-largest outflow seen so far this year, dwarfed only by the record $7,068,000,000 money hemorrhage the funds had suffered during the week ended Aug. 6 – the biggest outflow the company had seen since it began tracking the fund flows back in 1992.

Those outflows followed the $1,885,000,000 outflow in the week ended Dec. 10 and, before that, an $859 million outflow recorded during the week ended Dec. 3.

During that four-week stretch, outflows have totaled $6,163,000,000, according to a Prospect News analysis of the Lipper figures.

The latest week’s outflow was the fifth such retreat seen over the last six weeks, according to the analysis, a losing pattern interrupted only by a modest $44,487,000 inflow recorded during the week ended Nov. 26. Before that, the fund-tracking service had seen a $280.7 million outflow during the week ended Nov. 19.

Year-to-date outflow increases

On a longer-term basis, inflows have now been seen in 31 out of the 51 weeks since the beginning of the year, versus 20 weeks of outflows, according to the analysis.

However, despite that 3-to-2 numerical edge for the inflows, cumulative fund flows for the year were negative, to the tune of $5,306,000,000, widening the year-to-date loss from last week’s $4,971,000,000 total.

A key factor in the negative year-to-date numbers – despite all of those weeks of gains – was the four straight weeks of massive outflows recorded between the week ended July 16 and the week ended Aug. 6, the week of the record heavy outflow, as noted.

That sea of red ink more than wiped out what had been a positive year-to-date fund-flow pattern up to that point.

After that, things turned choppy, while the year-to-date total mostly remained on the downside, according to the analysis, only edging back into the black in early November, before heading back into negative territory in December.

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.

In 2013 – which had 53 reporting weeks due to a statistical quirk – inflows were seen in 33 weeks, versus 20 weeks of outflows, with total net inflows for the year tallying up to about $1,274,000,000, the analysis indicated.

EPFR sees fourth outflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime saw an outflow in the latest week that a market source said was north of $1.5 billion.

It was the fourth consecutive outflow reported by EPFR; the week before, ended Dec. 17, the funds it tracks had seen a more than $5 billion cash loss – an 18-week high and the biggest outflow since the week ended Aug. 6 when the service saw a record $11 billion exodus of cash.

The latest figures follow of $3.5 billion during the week ended Dec. 10 and the slightly more than $1.4 billion cash decline seen the week before that, ended Dec. 3.

Those figures stood in marked contrast to the Nov. 26 week, when, according to the source, EPFR had shown a “mildly positive” inflow, in the neighborhood of “$250 million or so.”

EPFR’s methodology differs from AMG/Lipper’s as its fund universe includes many non-U.S.-domiciled mutual and exchange-traded funds, including strictly European junk funds and broader global funds, versus AMG/Lipper’s solely domestic orientation.

Counting the latest week’s setback, EPFR has now recorded inflows in 31 weeks since the start of the year, versus 20 outflows, the same as AMG/Lipper, according to a Prospect News analysis of the figures. However, while the two services’ respective weekly results usually point pretty much in the same direction, that has not always been the case; there have been some weeks when AMG/Lipper showed outflows while EPFR saw overall inflows, or vice versa.

Although the mutual funds and ETFs represent only a relatively small percentage of the total amount of investor money coming into or leaving the more than $1.5 trillion junk market, their flows are very observable and quantifiable – more so than those of other, larger cash sources – and thus are suited to act as a fairly reliable proxy for overall junk market liquidity trends.

Analysts said that the sustained flows of fresh cash into junk have been a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past several years, and which had mostly continued on into the first half of this year as well. Secondary performance was erratic during the third quarter and has remained so into the current fourth quarter, lately declining sharply in line with big losses in the energy sector, while new issuance continued to run slightly ahead of last year’s near-record pace for much of the current quarter, only to finally start to lag behind a year ago over the past few weeks.

Loans again lose

A market source meantime said that leveraged-loan funds saw outflows of $1,287,000,000 in the latest week, following the prior week’s $1,776,000,000 downturn. It was the 24th consecutive weekly outflow from those funds, which have seen $16,226,000,000 of cumulative red ink for the year so far, the loss widening from the previous week’s $14,939,000,000.

Those funds have been struggling mightily since April, when an incredible winning streak of nearly two consecutive years of weekly inflows abruptly came to an end.

Meanwhile, investment-grade corporate bond funds saw a $2,587,000,000 inflow for the week, in contrast to the previous week’s rare net outflow of $79.8 million. The year-to-date corporate fund inflows figure rose to $87,326,000,000 from $84,739,000,000 the week before.

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