Junk funds see $2.74 billion inflow in latest week, second straight gain

By Paul Deckelman

New York, Feb. 25 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – turned strongly positive this week, posting their biggest net inflow since last fall.

It was the second straight cash gain and followed last week’s more modest inflow that snapped a two-week losing streak.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said on Thursday that $2.74 billion more came into those weekly-reporting-only domestic funds than left them in the form of investor redemptions during the week ended Wednesday.

It was the largest inflow of the year so far and in fact was the biggest cash injection the junk funds have seen since the week ended Oct. 21, when they gained $3.34 billion – the second-largest inflow recorded by AMG/Lipper since it began tracking fund flows in 1992.

A high-yield portfolio manager said that about 46% of this week’s big inflow was ETF-related, with the rest attributable to more traditional mutual funds.

He said asset managers “had their biggest daily inflow on Wednesday since last October,” $550 million.

This week’s giant-sized inflow completely dwarfed the $65.5 million cash addition reported last Thursday by the Arcata, Calif.-based unit of Thomson Reuters Corp.’s Lipper analytics division for the seven-day period ended Feb. 17.

The latest week’s inflow was only the third such cash gain seen in the eight weeks since the start of the new year, versus five outflows; the only other inflow, of $883.3 million, was recorded during the week ended Jan. 27, with outflows seen in all of the other intervening weeks.

This week’s inflow was the fourth seen in the last 10 weeks dating back to the week ended Dec. 16, against six outflows during that time, according to a Prospect News analysis of the figures.

Year-to-date outflow narrows

With eight reporting weeks in the books for 2016, the year-to-date net outflow figure fell to $2.36 billion from $5.1 billion last week and from $5.17 billion during the Feb. 10 week, the peak cumulative net outflow level for 2016 so far.

In 2015, meanwhile, there were 27 inflows and 25 outflows, the Prospect News analysis showed, producing a net outflow for the year of $7.05 billion.

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 first inflow

Another fund-tracking service, Cambridge. Mass.-based EPFR Global, meanwhile saw its first funds inflow of the year, breaking a losing streak of seven straight weeks before that.

A market source said EPFR’s headline number “was modestly higher” than the AMG/Lipper total and was in fact the biggest inflow the service had recorded since the first week in November.

He said that funds domiciled in the United States “took the bulk of the fresh money.”

The big inflow stood in contrast to the roughly $600 million outflow that EPFR saw last Thursday, a downturn, he said, that was largely driven “by funds with global and European mandates.”

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.

While the two services’ respective weekly results usually point pretty much in the same direction, that hasn’t always been the case. The two services’ findings diverged last week, and while AMG/Lipper saw a sizable inflow in the Jan. 27 week, EPFR reported what the source called a “tiny” outflow of around $4 million that week, largely due to “investors souring on European corporates.”

The latest week’s inflow was only the second that it has seen in the past 10 weeks, a losing streak otherwise broken only by a roughly $25 million inflow during the Dec. 30 week.

Corporate funds head higher

Looking at fund flows for other asset classes, investment-grade corporate bond funds posted a net inflow of $141.8 million during the week ended Wednesday, versus last week’s outflow of $1.12 billion.

That outflow, in turn had followed a $551.39 million inflow in the Feb. 10 week, which snapped a string of 11 consecutive weekly downturns dating back to the week ended Nov. 23.

These included the $1.45 billion outflow reported during the Feb. 3 week – the biggest downturn so far this year.

With eight Thursday-to-Wednesday reporting weeks of the new year complete, the year-to-date outflow total for 2016 fell to $5.38 billion from $5.52 billion last week, the peak level for the year so far.

For 2015, when inflows were seen in 28 weeks, against 24 weeks of outflows, net inflows for the year totaled just $1.83 billion, according to a Prospect News analysis of the figures – a far cry from the robust $86.11 billion net inflow figure recorded during 2014.

Loan funds’ slide continues

Meanwhile, leveraged loan participation funds, which struggled all of the last two years, remained under pressure so far this year, according to the latest Lipper data.

Some $618 million more left those funds than came into them during the week ended Wednesday.

It was the loan funds’ eighth consecutive outflow so far in 2016, versus no inflows in that time, including last week’s $645 million cash downturn

The latest week’s outflow brings the year-to-date net outflow total to $4.67 billion, the peak cumulative loss for the year so far, having widened from the previous peak level of $4.05 billion last week, according to a Prospect News analysis of the data.

On a longer-tem basis, the latest outflow was the loan funds’ 30th consecutive downturn, according to the analysis.

The long losing streak dates back to the week ended July 29; the most recent inflow those funds have seen was the $208.1 million upturn in the week ended July 22.

In 2015, the funds racked up a net outflow total of $16.41 billion.

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