Junk funds plummet by $1.16 billion in week, third straight fall

By Paul Deckelman

New York, July 6 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – plunged deeper into the red this week, their third consecutive downturn after three straight weeks of gains before that, according to numbers released on Thursday.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $1.16 billion more left those weekly reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday, July 5.

It was the second consecutive sizable net outflow the funds had recorded, following the $1.74 billion setback reported last Thursday by the Arcata, Calif.-based unit of Thomson Reuters Corp.’s Lipper analytics division for the seven-day period ended June 28.

Before that had come a $128 million outflow during the week ended June 21.

Those three outflows, totaling $3.02 billion, had followed three consecutive weeks of net inflows totaling about $1.31 billion – a $198 million inflow for the week ended June 14 and inflows of $586 million for the week ended June 7 and $521 million during the week ended May 31.

Year-to-date outflow widens

According to a Prospect News analysis of the data, this week’s outflow was the 14th so far this year, versus 13 inflows during that time.

It was the sixth cash loss in the last 10 weeks, dating back to the week ended May 3, versus four inflows during that stretch.

It widened the year-to-date net outflow number to $7.72 billion from $6.57 billion last week.

Thanks to the latest loss, that loss hit its highest level for 2017 so far for a second consecutive week.

It was also the biggest cumulative net outflow number the junk funds have seen since the $9.75 billion deficit recorded the week ended Aug. 6, 2014.

Before their headlong plunge into negative territory seen during the last few months, the flows had shown a relatively strong start to the year.

They had posted six inflows during the first 10 reporting weeks of the year, reaching a peak cumulative net inflow total of $1.62 billion during the week ended Feb. 22, and they were still in positive territory for the year to date as recently as the week ended March 1, with a $1.38 billion net inflow, before falling into the red the following week and staying there after that.

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 sizable outflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meanwhile saw a net outflow from high yield funds in the latest week that a market source estimated was “in that same ballpark” as the big AMG/Lipper figure.

As was the case with Lipper, it was the third consecutive outflow seen after three inflows.

Last week, the source said, EPFR had seen an outflow “only one-eighth the size” of the Lipper outflow number.

In contrast, during the June 21 week, the source said, EPFR’s reported outflow was an eye-popping “roughly nine times bigger” than the corresponding Lipper outflow number.

EPFR’s methodology differs from Lipper’s as its fund universe includes many mutual funds and ETFs domiciled outside the United States, such as strictly European junk funds and broader global funds, versus Lipper’s solely domestic orientation.

Because of that difference, while the two services’ respective weekly results usually point pretty much in the same general direction, sometimes even tracking fairly closely, as happened this week, their actual numbers may sometimes vary widely, as was the case during the previous two weeks.

Occasionally, the two companies’ numbers may even diverge completely, as most recently happened during the week ended May 3, when Lipper saw a $386 million outflow and EPFR calculated a $300 million inflow.

Taking those differences into account, EPFR has now seen 15 inflows so far this year and 12 outflows, versus Lipper, which, as noted, has seen 13 cash gains and 14 cash losses.

IG corporates continue gains

Looking at fund flows for other asset classes during the week, investment-grade corporate funds posted their 29th consecutive gain overall and their 27th straight net inflow this year, with no net outflows yet recorded for 2017.

The Lipper data indicated that the funds saw an inflow of $2.54 billion during the reporting week ended Wednesday.

The week before, ended June 28, had seen a relatively modest $724 million cash injection.

The latest inflow brought the year-to-date surge so far up to an estimated $68.47 billion this week – the peak 2017 cumulative inflow level so far, versus $65.93 billion seen last week, the previous high point for the year.

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