Junk funds see $241.3 million outflow for week, resuming recent downturn

By Paul Deckelman

New York, Jan. 22 – 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, market sources said on Thursday, resuming a recently negative trend in that market measure that had been briefly interrupted last week.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that some $241.3 million more left those weekly-reporting-only funds than came into them during the week ended Wednesday.

That partially reversed the $879.5 million inflow reported last Thursday by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., for the seven-day period ended Jan. 14. That cash injection had snapped a six-week losing streak dating back to early December, during which outflows had totaled $8.045 billion, according to a Prospect News analysis of the Lipper figures.

Counting the latest week’s outflow, cash losses have now been seen in seven weeks out of the last eight, creating a net outflow during that time of some $7.407 billion, according to the analysis.

Year is negative so far

The outflow reported on Thursday was the second such downturn seen so far in the new year, along with the $922 million outflow seen during the week ended Jan. 7.

Last week’s inflow has been the only inflow seen so far this year.

The new outflow raised the year-to-date net outflow total for the nascent year to $284 million from $42.69 million the week before, according to Lipper.

In 2014, inflows had been seen in 31 weeks, versus 21 weeks of outflows, according to the analysis.

However, despite that roughly three-to-two numerical edge for the inflows, cumulative fund flows for the year were negative, finishing the year $6.266 billion in the red.

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 sees an inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime saw what a market source called a “similar” outflow number to AMG/Lipper’s in the latest week.

That too was a reversal of what the source called last week’s “small inflow,” which had snapped a six-week losing streak.

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.

The two services’ respective weekly results usually point pretty much in the same direction, with EPFR, like AMG/Lipper, having now seen two outflows versus one inflow so far this year and having also seen inflows in 31 weeks versus 21 outflows, according to a Prospect News analysis of those figures.

However, that has not always strictly been the case. In 2014, as in years before that, there were some rare 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 – moreso than those of other, larger cash sources – and they 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 from all sources was a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past several years.

Although secondary market performance turned erratic during the 2014 third quarter after a strong start and deteriorated over several weeks late in the year, while declining sharply in line with big energy-sector losses, last year’s new issuance ran slightly ahead of 2013’s near-record pace for much of the latter part of the year, only to finally fall behind the year-earlier totals as the year came to a close.

So far this year, with inconsistent fund flows, the secondary market has struggled, producing barely positive results, while primary issuance of $8.263 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers in 17 tranches, as of Thursday’s close, lags some 44% behind the red-hot new-deal pace seen a year ago, when $14.787 billion had priced in 22 tranches by this point on the calendar.

Corporates continue climb

Looking at the fund flows for other asset classes, investment-grade corporate bond funds saw a $1.137 billion inflow for the week, on top of the previous week’s $1.492 billion cash addition. It was the funds’ third straight weekly gain and their fourth in the last five weeks.

That brought their year-to-date net inflow figure up to $5.601 billion from $4.464 billion last week, according to the Lipper figures.

In 2014, the funds generated $86.111 billion of net inflows for the year.

Leveraged-loan participation funds saw outflows of $738.1 million on the heels of last week’s $593.7 million retreat. It was the 27th consecutive weekly outflow from those funds, which have been struggling mightily since last April, when an incredible winning streak of nearly two consecutive years of weekly inflows abruptly came to an end.

With three 2015 reporting weeks in the books, the loan funds have seen $1.706 billion of net outflows so far, up from the prior week’s $968.065 million total.

In 2014, the funds racked up cumulative red ink for the year of $17.256 billion.

© 2015 Prospect News.
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