Advantage Data: Health care, auto services are tops as junk major-sector rally resumes

By Paul Deckelman

New York, Nov. 18 - The high-yield market got back in the black during the week ended Friday, resuming its recent rallying trend after a one-week interruption, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

The market thus bounced back from the downturn seen in the week ended Nov. 8 - a loss which had snapped a winning streak of five consecutive weeks on the upside before that and nine weeks out of the previous 10.

The gain in the latest week was the 31st weekly advance that the junk market has seen so far this year, versus 15 weekly setbacks.

Up through the middle of May, gains had been seen virtually every week, with just two back-to-back losses in early February marring that strong run. But then came a seven-week nosedive running from the week ended May 17 through the week ended June 28. After that, a choppy pattern was in effect - three straight weeks of gains starting in early July, followed by a week or two of alternating losses and gains here and there for a few weeks.

But starting in the week ended Aug. 30, things had been pretty much on the upside since then, except for one previous recent loss, in the week ended Sept. 27, which had snapped a string of four consecutive weeks of improvement before that, and the loss in the Nov. 8 week.

In the latest week, 44 out of the 60 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, with 17 sectors ending in the red.

That represented a comeback from the weaker position seen the week before, when 40 of those sectors had recorded losses against 20 gains. In the interim, Advantage Data recalculated and slightly expanded its sector roster.

That strengthening was also seen in the behavior of the 30 most significantly sized sectors, as measured by the number of bond issuers, the collective number of issues tracked and their total face amount outstanding. In the week ended Friday, 19 out of the 30 were finishing in positive territory, with 11 showing negative results, in sharp contrast to the previous week, when 22 of those sectors had ended in the red and eight had finished in the black.

Among specific major sectors in the latest week, bonds of health care providers and automotive services companies turned in the best showings, while the coal mining and amusement sectors did the worst.

Index shows improvement

Statistical indicators of general market performance were meanwhile mixed versus the previous week for a fourth straight time, after having been higher across the board for two straight weeks before that.

The total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, resumed its winning ways, posting its first weekly gain following a loss in the week ended Nov. 8. That loss, in turn, had come after the index had racked up five straight weeks before that of having posted gains.

At the close on Friday, the index showed junk bonds having risen by 0.126% for the week, versus the previous week's 0.315% fall.

The index has now seen 27 weekly gains so far in 2013 against 19 losses. It had finished 2012 with 40 weekly gains versus 12 losses.

As of Friday, the index's year-to-date return had firmed to 6.146%, up from 6.012% the previous week, though it remained down from its high mark for the year so far of 6.367%, which was recorded on Thursday, Nov. 7.

The index had fallen to its 2013 low point of 0.384% on June 25.

Among its other components, the index showed an average price of 103.151337 on Friday, down from 103.162276 a week earlier. Those levels meanwhile remain well under the high average price for the year of 107.222488, set on May 9.

Its yield to worst stood at 5.74%, down from 5.80% a week earlier. While having come in markedly from its high point for the year of 6.853%, set on June 25, it still remained well above its low yield for the year of 4.986% on May 9 - which was also the lowest all-time yield as well.

The index's spread to worst over comparable Treasury issues stood at 448 basis points, unchanged from the week before. While recently trending lower, the spread continued to steer a course in between its 2013 wide point of the year of 536 bps, set June 25, and its tightest level for the year so far of 427 bps over Treasuries, set on May 9.

Health care, autos do best

Back on a sector-by-sector basis, Advantage Data meanwhile showed the bonds of health care providers as the best performer among the significantly sized groupings, with a 0.29% gain on the week.

Health care thus accomplished the relatively uncommon feat of going from worst to first - the week before, the sector had been the single worst performer among the major sectors, losing 0.32% in that week ended Nov. 8.

Also showing strength in the latest week were automotive services such as vehicle rental companies (up 0.26%), paper manufacturing (up 0.19%), wholesale durable goods distributors (up 0.17%) and the non-computer electronics manufacturing and primary metals processing sectors, each of which was up by 0.16%.

On the downside, coal mining's trajectory was a negative mirror image of health care, as the sector - which had been the best performer among the major groupings in the Nov. 8 week with a robust 1.01% gain - went from first to worst this past week, suffering an index-worst 0.17% loss. The strongly positive previous week may have been something of a fluke, as volatile coal has now been the worst-performing major sector in two weeks out of the past three.

Amusement and recreation services did just as badly as coal, also posting a 0.17% loss on the week.

The week's Bottom Five list of the worst performers was rounded out by financial brokers, dealers and exchanges (down 0.15%), real estate (down 0.14%) and building construction (down 0.10%).

It was the second straight week among the laggards for construction, which had also been there the week before with a 0.30% loss.

Real estate, on the other hand, had been one of the previous week's best-performing sectors, with a 0.17% gain that week. But the sector has now been among the worst finishers in four weeks out of the last five.

Food stores ahead for year

Forty-six weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 44th straight week, posting a cumulative return of 19.35%. It remained the first, and so far the only, major sector to hit double digits on a percentage basis this year, although several other sectors have come close to also breaking that barrier.

One of those is lodging (up 9.42% on the year), which moved up two notches to second-best this week from fourth-best last week.

Among the other year-to-date leaders, non-computer electronic manufacturing (up 8.82%) fell by one position, to third-best from second the week before.

Wholesale durable goods distributors (up 8.31%) also lost one notch in the standings, falling to fourth-best from third the week before.

Financial brokers, dealers and exchanges (up 8.28%) occupied fifth-place on the list for a second straight week.

On the downside, building construction remained in last place among the major sectors for a second consecutive week, with just a 4.43% return for the year so far.

Electric and gas utilities (up 4.49%) stayed right down near the bottom as second-worst on the year for a 16th consecutive week.

Coal mining (up 4.86%), which along with amusement and recreation was the week's worst-finisher, as noted, fell by one notch to third-worst on the year from fourth-worst the week before. That's when coal had improved by several slots after having spent 21 straight weeks before that as the absolute worst significantly sized sector, including a six-week stretch during which it had actually been showing red ink for the year rather than just relatively small gains.

Food manufacturing (up 5.43%) was fourth-worst this past week, and telecommunications (up 5.48%) was fifth-worst; neither sector had been among the worst 2013underachievers the week before.

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