Junk funds see $371 million outflow in final week, end 2005 down over $11 billion

By Paul Deckelman

New York, Dec. 30 - High yield mutual funds closed out the year on a decided down note, market participants familiar with the weekly fund flows statistics compiled by AMG Data Services said Friday.

They reported that in the week ended Wednesday, Dec. 28, $371 million more left the funds than came into them, marking the third consecutive week of outflows, on top of the $160.7 million that flowed from the funds in the previous week (ended Dec. 21). In that three-week timeframe, outflows totaled about $850.5 million, according to a Prospect News analysis of the figures - confirming the predominantly negative trend that was in evidence throughout most of 2005.

For the year, $11.483 billion more left the funds than came into them, according to the Prospect News analysis, widening from an $11.112 billion cumulative deficit seen the week before. That was a much more severe hemorrhage than the $3.236 billion net outflow seen in 2004, as calculated by Prospect News. As was the case in 2005, the mutual funds had ended 2004 with several straight weeks of losses as investors cautiously pulled money from the junk funds ahead of the end of the year.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - and unlike in 2004, when there were about an equal number of weeks in which inflows were seen as there were outflow weeks, in 2005 inflows were seen in just 11 weeks out of the year, and outflows dominated in the other 41 weeks, including 15 consecutive weeks from mid-February through late May during which time outflows totaled some $6.776 billion, and another 11-week stretch from mid-September through late November when the funds declined by another $3.326 billion, according to the Prospect News analysis of the statistics.

While the mutual funds only comprise between 10% and 15 % of the total monies floating around the high yield universe, far less than they used to, they are still watched by market participants as a gauge of market liquidity trends, and because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

Liquidity is seen as a key component of market performance, although observers caution that it is certainly not the only factor. In 2003, when the high yield market turned in a stunningly strong performance, producing returns topping 30%, according to most indexes, inflows had totaled a whopping $20.126 billion, according to Prospect News' analysis of the AMG figures. With the fund flows showing a negative bias in 2004, junk market returns declined from the previous year's peak to around 10%, and in 2005, with the flows decidedly negative, returns fell further, though still remained positive, at around 1% to 2%, according to most major indexes.

The figures compiled by Arcata, Calif.-based AMG exclude distributions and count only those funds that report on a weekly basis.

According to a buy-side market source familiar with other data compiled by AMG, while high yield fund flows were overwhelmingly negative, flows into international emerging market debt funds were positive for the year, to the tune of $2.112 billion, including a $13.8 million inflow in the latest week. Investment-grade corporate bond funds saw a $96 million outflow in the most recent week, but still ended the year with inflows totaling $34.544 billion.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.