Junk funds gain $397.6 million, breaking three-week outflow skid

By Paul Deckelman

New York, Dec. 3 – High-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends, showed net additions by investors in the latest reporting week, breaking a losing streak of three straight weeks of outflows before that.

Those outflows, in turn, had followed five consecutive weeks during which inflows had been consistently seen.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said on Thursday that $397.6 million more came into those weekly-reporting-only domestic funds than had left them during the week ended Wednesday.

That was a clear turnaround from the $501.15 million net cash loss that had been reported for the seven-day period ended Nov. 25 by the Arcata, Calif.-based unit of Thomson Reuters Corp.’s Lipper analytics division.

The fund-flows data normally circulates in the market on Thursdays, but last week’s numbers were delayed due to the U.S. fixed-income market’s close last Thursday in observance of Thanksgiving Day.

Last week’s outflow had been the third consecutive cash loss for the funds and followed outflows of $1.36 billion during the week ended Nov. 18 and $1.8 billion for the week ended Nov. 11.

Those losses, totaling $3.66 billion, stood in sharp contrast to the $2.05 billion inflow notched during the week ended Nov. 4. That inflow, in turn, had followed a quartet of such cash injections, including inflows of $2.04 billion during the week ended Oct. 28 and of $3.34 billion during the week ended Oct. 21 – the largest such inflow seen this year and the second-biggest on record. There were also inflows of $1.48 billion during the week ended Oct. 14 and $7.35 million during the week ended Oct. 7.

Those five weeks of inflows had totaled $9.64 billion, according to a Prospect News analysis of the figures.

This week’s net inflow was the sixth such cash gain seen during the last 10 weeks, dating back to Sept. 30, against four outflows during that time.

Other than the past three weeks, the only other downturn during that stretch was a $2.15 billion outflow reported during the week ended Sept. 30.

YTD net inflow rises

On a longer-term basis, however, with 48 weeks in the books so far this year, inflows and outflows have been somewhat more evenly distributed, with 27 inflows seen against 21 outflows.

This week’s net addition raised the year-to-date net inflow total to $1.38 billion from $984.20 million last week, Lipper said.

Reflecting the fund flows’ strength earlier in the year, the peak cumulative inflow for 2015 was $11.48 billion during the week ended April 15.

Reflecting the erosion of the fund flows’ strength later on in the year, the cumulative fund flows number slid back into the red in early August for the first time since early January and stayed there for more than two months. The year-to-date cumulative deficit hit its worst level during the week ended Sept. 30, with $5.0 billion of aggregate red ink, and the funds did not get back into the black until the Oct. 21stt week.

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 inflow

Another fund-tracking service, Cambridge. Mass.-based EPFR Global, meanwhile saw an inflow of “a bit over $1 billion ” in the latest week, a market source said.

That snapped a three-week outflow skid that included a cash loss of about $20 million last week, on top of an outflow of a little under $1 billion during the Nov. 18 week and a roughly $550 million downturn during the Nov. 11 week, the source said.

That latter earlier outflow, in turn, had abruptly ended a four-week winning streak, including an inflow of over $3.5 billion in the Nov. 4 week.

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 source said that for the latest week, the service had seen “mostly institutional flows into U.S. high yield funds.”

While the two services’ respective weekly results usually point pretty much in the same direction, that hasn’t always been the case; there have been a number of weeks so far this year in which one of the services saw an inflow and the other an outflow.

The overall net effect of those divergences has been that EPFR has now seen 23 inflows so far this year, slightly lagging 25 outflows – four fewer inflows and four more outflows than its rival, according to a Prospect News analysis of the two companies’ figures.

Corporates funds lose again

Looking at the fund flows for other asset classes, investment-grade corporate bond funds posted a net outflow of $546.7 million during the week ended Wednesday, according to Lipper.

It was the second consecutive retreat for the corporate funds and followed last week’s $1.50 billion plunge, which had been driven by the cash withdrawals from investment-grade mutual funds totaling $1.8 billion on the week, only partly offset by ETF inflows, according to a market source.

Last week’s corporate funds outflow had been the first net such setback for the funds following inflows seen in the two weeks before that – $945 million for the week ended Nov. 18 and $82.67 million during the week ended Nov. 11. Both of those inflows had occurred while junk bond funds were experiencing net outflows.

Those cash injections contrasted with the $357.8 million outflow during the week ended Nov. 4, which had snapped a string of three consecutive inflows before that.

The latest week’s outflow was the fifth in the last 10 weeks going back to Sept. 30, evenly matched against five inflows in that time, according to a Prospect News analysis of the data.

On a year-to-date basis, inflows have now been seen in 28 weeks out of the 48 since the start of the year, against 20 weeks of outflows.

The year-to-date net inflow number shrank this week to $13.38 billion from $13.98 billion the previous week, Lipper said.

Loan funds’ slide continues

Meanwhile, leveraged loan participation funds, which have been struggling for the most part this year and which have been generally under pressure for well more than a year now, saw their 19th consecutive downturn this week as $387.4 million more left those funds than came into them.

That slide followed the previous week’s outflow of $741.706 million.

The long losing streak – dating back to the week ended July 29 – includes the $796 million outflow posted during the week ended Aug. 26, the biggest such cash drain seen so far this year.

The most recent inflow those funds have seen was the $208.1 million upturn in the week ended July 22.

The latest outflow brought the funds’ year-to-date net outflow figure up to $11.75 billion from $11.36 billion last week, according to Lipper.

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