Junk funds see $791.6 million inflow, fourth consecutive weekly gain

By Paul Deckelman

New York, April 16 – High-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends, have seen their fourth consecutive weekly inflow, market sources said Thursday.

That improvement pushed their already-robust year-to-date net inflow position to a new 2015 high.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $791.6 million more came into those funds than left them during the week ended Wednesday.

This week’s inflow followed the $1.35 billion cash injection 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 April 8.

During the week before that, ended April 1, the funds had seen a gain of $315.2 million, which in turn had followed an $856 million inflow during the week ended March 25.

The most recent high-yield funds outflow, meanwhile, was the $1 billion cash loss seen during the week ended March 18.

Year’s net inflow grows

With 15 weeks in the books so far this year, the current week’s inflow marked the 11th such cash addition in 2015, against four outflows.

The $3.31 billion of inflows seen over the most recent four weeks have lifted the year-to-date net inflow total to $11.48 billion from $10.68 billion the previous week.

That also established a new peak level for the year so far, surpassing the former 2015 high point of $11.12 billion that had been recorded during the week ended March 4, according to a Prospect News analysis of the data.

With two outflows seen in the first three weeks of 2015, the cumulative fund flows figure for the nascent year had started in the red, only getting back into the black in late January – but it has stayed in positive territory ever since then, according to the data.

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

However, despite that roughly 3-to-2 numerical edge for the inflows, cumulative fund flows for the year were negative, finishing the year $6.27 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 big inflow

Another fund-tracking service, Cambridge. Mass.-based EPFR Global, also saw a sizable inflow this week, estimated by a market source to be over $1 billion.

That followed last week’s cash gain, which the source described as “a little over $2 billion.”

EPFR’s methodology differs from AMG/Lipper’s, as its fund universe includes many non-U.S.-domiciled mutual funds and ETFs, 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 11 inflows versus four outflows so far this year and having also seen inflows in 31 weeks versus 21 outflows last year, according to a Prospect News analysis of those figures, the same as AMG/Lipper.

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 – more so 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, 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.

Earlier this year, with inconsistent and indecisive fund flows, the secondary market initially struggled, producing only modestly positive results, although it seems to have lately found its footing, with annualized returns now at their highs for the year so far, approaching the 4% mark.

According to data compiled by Prospect News, primary issuance of $113.94 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers had priced in 173 tranches as of Thursday’s close, running 22.9% ahead of the new-deal pace seen a year ago, when $92.68 billion had priced in 186 tranches by this point on the calendar.

Corporates finally stumble

Looking at the fund flows for other asset classes, a rare role reversal was the order of the day.

Investment-grade corporate bond funds saw a $384.4 million outflow for the week, in contrast to the previous week’s $211 million cash addition.

It was the first such downturn for the corporate funds this year after 14 consecutive weeks of posting inflows. The last previous outflow the high-grade funds had seen was their $1.215 billion loss for the week ended Dec. 31.

The new outflow dropped the high-grade funds’ year-to-date net inflow figure to $24.78 billion from $25.17 billion last week – their peak level for the year so far, according to the Lipper figures.

In 2014, the funds generated $86.11 billion of net inflows for the year.

Meanwhile, the usually beleaguered leveraged-loan participation funds outpaced the normally robust investment-grade funds, posting a $529.9 million inflow – the grouping’s first such upturn after seven consecutive weeks on the downside, including last week, when the loan funds had run a $4 million deficit, although that was quite small by the standards of the losses usually seen in that category.

The inflow was the first for the loan funds since a $129.9 million cash addition seen in the week ended Feb. 18, which had snapped a 31-week losing streak that had dated all the way back to last July.

The loan funds have been struggling mightily for the last year, when an incredible winning streak of nearly two consecutive years of weekly inflows abruptly came to an end.

The loan funds have seen $3.34 billion of net outflows so far this year – an improvement from the prior week’s $3.87 billion total.

In 2014, the funds racked up cumulative red ink for the year of $17.26 billion.

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