Advantage Data: Health care, construction lead junk sectors lower; financials buck trend

By Paul Deckelman

New York, June 8 - With health care services and medical device manufacturers leading the way, bonds of most junk bond sectors took a turn for the worse in the week ended Friday, according to statistics supplied to Prospect News by Advantage Data Inc.

It was the first time in three weeks that more sectors and component subsectors finished in the red than in the black, and it was only the second week in the last 12 in which that has happened.

Among the more significant broad-industry sectors and subsectors - as measured in terms of the number of issuers, the number of issues and the total face amount of bonds tracked - health care services, led by its hospitals segment, and precision instrument manufacturing, led by its medical equipment component, turned in the worst performances. They were followed by such other sectors as manufacturers as transportation equipment, including its largest component, motor vehicles, as well as the makers of food, chemicals and machinery.

Construction, led by the operative residential builders, also fell, as did such service industries as amusements and business services.

The upside - such as it was - was dominated by financial sectors like real estate, insurance carriers, non-depositary institutions and brokers and exchanges. The few non-financial sectors showing relative strength, although with objectively modest gains, included metal mining, oil and natural gas exploration and production, and telecommunications.

Of the 69 broad-industry sectors into which Boston-based Advantage Data divides its high-yield universe, 50 showed negative returns in the week ended Friday, while 19 had positive returns - a sharp reversal of the pattern seen in the previous week, ended May 29, when 63 sectors finished in the black, against just six ending in the red.

In the latest week, though, most of the sectors posted relatively small declines, despite their preponderance in numbers, and the overall junk market, as measured by the widely followed Merrill Lynch High Yield II Master Index, actually showed a solid gain on the week.

Health care leads sectors lower

The single worst-performing significant broad-market sector was health care services, which was down 1.26% on the week, dragged lower by a 1.80% fall in its most sizable component subsector, hospital operators. The latter was the biggest loser among any significantly sized sector or subsector.

Bonds of medical equipment manufacturers, excluding the makers of ophthalmic goods, fell by 1.42%, to drag the broader precision instruments manufacturing sector down by 1.15%.

Other sizable manufacturing broad sectors turning in poor performances on the week included transportation equipment makers, down 0.80%, with its most important component, motor vehicle and automotive equipment manufacturing, off by 0.40%.

Among the food manufacturers, whose bonds collectively lost 0.76% on the week, the sector's most important component, meat products processors, fell by 1.29%, while sizable subsectors representing the makers of canned and frozen fruit and vegetables and beverage producers, lost 1.06% and 0.72%, respectively.

Other manufacturing broad sectors notably in the red included chemical makers, down 0.67%, paced by a 1.69% slide in its key subsector, industrial inorganic chemicals, and a 0.63% fall among the drugmakers - the latter again in line with the more generalized health care decline.

Machinery and computer makers were down 0.61%, led by the 0.73% drop in computer and office equipment makers. Building construction was down 0.86%, with its key operative residential builders segment down by 0.81%. Publishing lost 0.34%, with its newspapers segment sliding 0.71%.

Among service providers and retailers, the amusements services broad sector lost 0.64%, while business services were down 0.42%, with its most important subsector, computer programming and data processing, down by 0.84%. Grocery store operators lost 0.55%.

Financials show strength

On the upside - with bonds of most of the significantly sized sectors there showing mostly modest gains - a notable exception was real estate, which jumped by 2.28%, pulled solidly higher by the 6.17% zoom in real estate's most important component, agents and managers. Also showing strength was the subsector for real estate operators, excluding developers, which climbed by 1.89%.

Other financial sectors also showed strength, including insurance carriers, up 0.52%, as its life insurers subsector rose by 1.27%. Bonds of non-depositary financial institutions were up by 0.52%, with its personal credit institutions and mortgage bankers and brokers segments each up by 0.73%. The brokers and exchanges broad-industry sector rose 0.33%, powered a 0.50% gain in its largest segment, representing securities brokers and dealers. The investment and holding company offices sector gained 0.28%.

Outside of the financials, advertising - breaking away from the aforementioned decline in its broader business services subsector - posted a stellar 1.89% return on the week.

The metal mining sector was up 0.88%, led by a 0.74% advance in its sizable metal mining services subsector. Also among the mining sectors, oil and gas was up 0.41%, powered by the 0.58% gain in its key subsector, crude petroleum and natural gas mining.

Book publishing was up 0.45%, bucking the trend, already noted, of weakness in its broader publishing sector. Steel works and blast furnaces gained 0.31%. The telecommunications broad-industry sector was ahead by 0.26%, with its most important subsector, telephone services, up by 0.34%.

Lodging, real estate, mining, petroleum up on year

Despite most sectors and subsectors having finished in the red this past week, most still show gains on a year-to-date basis. Lodging boasted an eye-popping 42.38% year-to-date gain, despite a smallish advance on the week.

Real estate, the week's best performer, as noted, showed a 39.35% yearly gain, paced by its real estate agents and managers sub-group's commanding 105.87% return on the year - the most of any significantly sized sector or subsector.

Elsewhere among the financials, investment and holding offices was up 12.26% on the year and insurance carriers gained 7.85%, with life insurance up by 13.51%.

Strong major broad-industry manufacturing sectors for the year so far included metal production, up 13.10%, on the strength of the 14.23% cumulative gain in its steel works component and the 12.92% rise in non-ferrous metal smelting and refining. Paper manufacturing was up 9.82%, with its key paper mills component ahead by 12.02%, while publishing gained 9.07%, led by an 11.20% return among the book publishers - one of the week's major gainers, as noted. Despite their losses for the week, transportation equipment manufacturing and its most vital subsector, motor vehicles and auto equipment, remained in black to the tune of 5.24% and 12.12%, respectively.

Building construction was up by 12.66% on the year, with the operative residential builders showing a 14.95% gain. Metal mining posted a 14.86% year-to-date gain, with its precious metals mining segment up by 15.93%. Oil and gas mining gained 9.89%, with its oilfield services component up 12.38%.

Among the service industries and retailers, the business services sector was up by 9.17%, boosted by a 16.43% gain in equipment rental and leasing. Automotive rentals meantime gained 7.65% on the year. Drugstore operators were up 13.14%. Telecommunications was up 7.58%, paced by a 10.41% gain in radio and television broadcasters.

Industrial inorganic chemical makers worst on year

On the downside, no significantly sized sectors were in the red year to date, despite the week's overall slide into the red.

Among the major subsectors, the biggest loser was industrial inorganic chemical makers - also one of the week's larger losers, as noted - down 0.26% on the year.

Market gains increase

Despite the preponderance of sectors and subsectors showing negative returns on the week, as of Friday, the overall domestic high-yield market, as measured by the widely followed Merrill Lynch High Yield Master II Index, showed a 2.27% one-week gain, as its year-to-date return rose to 28.19% from 25.35% seen the previous Friday, May 29.

The average Master II price of a high-yield issue stood at 77.04% as of the close on Friday, with a spread to worst of 1,050 basis points over comparable Treasuries and a yield to worst of 13.424% - versus a price of 75.25, a spread of 1,165 bps and a yield of 14.09% the week before.

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