Junk funds open year up $734 million in week, second straight gain

By Paul Deckelman

New York, Jan. 5 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – opened 2017 on a positive note on Thursday, reporting a net inflow for the first week of the year and a second consecutive cash gain overall, continuing their rebound from a small net outflow seen in late December.

That outflow was the first downturn after four straight weeks of net inflows, which in turn had followed a string of six net outflows before that.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said Thursday that some $734 million more came into those weekly-reporting-only domestic funds than left them in the form of investor redemptions during the reporting week ended on Wednesday.

That gain followed the $592 million inflow reported last Thursday by the Arcata, Calif.-based unit of Thomson Reuters Corp.’s Lipper analytics division for the seven-day period ended Dec. 28.

The funds had also recently shown a $19 million outflow the week before that, ended Dec. 21.

Big streaks of inflows and outflows

That small outflow had snapped a four-week winning streak before that during which a net total of $6.724 billion had come into those funds.

These had included the $3.75 billion inflow recorded during the week ended Dec. 14 – one of the biggest that AMG/Lipper has ever seen, ranking fourth on the all-time list, according to a Prospect News analysis of the fund-flows data.

It was exceeded only by the $4.25 billion inflow seen during the week ended Oct. 26, 2011, the third-biggest inflow on record, and by two even bigger inflows seen earlier in 2016 – the $4.351 billion cash gain during the week ended July 13, the second-biggest ever, and the $4.967 billion inflow in the week ended March 2, currently in the books as the all-time biggest net cash addition.

That big cash gain in the Dec. 14 week had followed inflows of $2.034 billion for the week ended Dec. 7, of $342 million during the week ended Nov. 30 and of $598 million for the week ended Nov. 23.

Those four weeks of big inflow numbers meantime stood in stark contrast to the $2.284 billion outflow posted during the week ended Nov. 16, which had been the most recent of six consecutive weekly cash declines totaling $7.349 billion.

Those outflows also included the gaping $4.116 billion loss in the week ended Nov. 2 – easily the largest outflow seen last year and the third largest on record, according to the Prospect News data analysis.

Year begins in a positive mode

According to the Prospect News analysis, this week’s inflow was sixth improvement in the last 10 weeks, dating back to the week ended Nov. 2.

It starts the new year off on a positive note in terms of year-to-date fund flows, in contrast to 2016, which had opened up with three consecutive outflows totaling $4.959 billion.

On a longer-term basis, last year ended with 28 weekly inflows versus 24 outflows.

In the last reporting week of 2016, ended Dec. 28, the year-to-date cumulative net inflow had risen to an estimated $11.123 billion from $10.531 billion during the Dec. 21 week, the data showed.

That remained down from the estimated $11.175 billion peak cumulative net inflow total for the year, recorded during the week ended Oct. 5.

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 sixth straight inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meanwhile saw an inflow in the week ended Wednesday that a market source called “a couple of hundred million [dollars] more” than the corresponding AMG/Lipper figure.

It was the sixth consecutive net inflow the service had reported.

During the week ended Dec. 28, inflows had totaled nearly $2.107 billion, which followed a cash gain of $1.915 billion during the week ended Dec. 21. There was also an inflow of $3 billion during the week ended Dec. 14, while for the week ended Dec. 7, EPFR’s inflow figure was “close to” the $2.034 billion AMG/Lipper inflow figure, according to the market source.

And during the week ended Nov. 30, EPFR had reported a $600 million overall inflow, which included over $1 billion of net cash going to funds domiciled solely in the United States, while non-U.S. funds generated a roughly $400 million net loss that week (EPFR’s methodology differs from AMG/Lipper’s, as its fund universe includes many mutual funds and ETFs domiciled outside the U.S., such as strictly European junk funds and broader global funds, versus AMG/Lipper’s solely domestic orientation).

Because of that difference in the EPFR and AMG/Lipper methodologies, while the two services’ respective weekly results frequently point pretty much in the same direction, their actual numbers may sometimes vary widely – and occasionally they may diverge completely, with one service reporting an inflow in a given week while the other sees an outflow.

Taking those differences into account, EPFR tabulated 30 inflows during 2016 against 22 outflows, versus AMG/Lipper’s 28 inflows and 24 outflows.

IG corporates continue surge

Looking at fund flows for other asset classes during the week, investment-grade corporate funds posted their third consecutive gain.

The Lipper data indicated that the funds saw net inflows of $2.186 billion in the week ended Wednesday, on top of last week’s $1.162 billion inflow and a $1.620 billion cash gain in the week ended Dec. 21.

As was the case with the high yield fund flows, this week’s inflow starts the IG funds off on a positive basis in year-to-date terms.

The funds ended 2016 with an estimated $46.983 billion cumulative net inflow, their peak level for the year, the analysis indicated.

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