Advantage Data: Real estate leads rally as major sectors keep rising

By Paul Deckelman

New York, Oct. 31 - The high-yield market had its third strong showing in a row in the week ended Friday as a majority of industry groupings showed gains, according to weekly sector-tabulated bond-performance statistics supplied to Prospect News by Advantage Data Inc.

Junk thus continued to build upon the advances it has posted since about the middle of October, when it got back into the black for the first time after five straight weeks on the downside before that, a losing streak that dated back to the week ended Sept. 9.

Last week was the 29th time this year that a majority of sectors ended on the upside, against 14 weeks of downturns - although most of that lopsided positive breakdown reflects the tremendous strength seen early in the year, when there was week after week of improvements.

After the market's peak levels in late May, upturns and downturns were evenly matched for a time with a week or two of one, followed by a week or two of the other. The market then turned decidedly negative in late summer and early fall before finally beginning to snap out of it - though even with the latest upturns, declines have still been seen in five weeks out of the last eight.

Of the 72 broad industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 64 finished in the black in the latest week, just three sectors were in the red and another five sectors did not show enough statistically meaningful activity to produce any kind of results.

That was almost identical to the breakdown seen the week before, ended Oct. 21, when 63 sectors posted positive returns, only four had negative results and five other sectors did not show any results.

And in another continuation of the prior week's strongly positive pattern, all 30 of most significantly-sized sectors - as measured by the number of bond issuers, the collective number of issues tracked and their total face amount - ended in the black this week, with none of them finishing in the red, for a third consecutive week.

Among specific major sectors in the latest week, bonds of real estate, building construction and healthcare companies enjoyed the strongest showings.

As was the case the week before, with all major-sized sectors ending on the plus side of the ledger, there was no downside as such. However, bonds of machinery and computer manufacturers, insurance carriers and petroleum refiners showed the smallest gains.

Among statistical indicators, the junk market's total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, posted a gain for the third straight week. It was also the fourth such advance in the past 10 weeks.

Real estate leads the rise

Bonds of real estate companies had the best showing of any major sector, posting a 4.73% return for the week.

Real estate had not been among the top finishers in the week ended Oct. 21 - but had been the top- performing significantly-sized sector in each of the two weeks before that, the weeks ending Oct. 14 (up 5.68%) and Oct. 7 (up 2.04%). And it has now been among the best in five weeks out of the last 10.

Other sectors among the elite finishers this past week included building construction (up 2.84%), healthcare (up 2.71%) automotive services (up 2.66%) and the chemical manufacturing and metals processing sectors (both up 2.39%).

It was the second straight week among the top finishers for construction and chemicals, and the third straight week there for metals processing and for automotive services. The latter group had, in fact, been the best-performing major sector in the Oct. 21 week, with a 2.77% return.

For a third straight week, as noted, there was no real downside this past week, with all sectors finishing in the black, but some sectors had relatively modest returns, chief among them machinery and computer manufacturing (up 0.99%). It was the third straight week the sector was among the weakest performers.

Other relative underachievers this past week included insurance carriers (up 1.07%), petroleum refiners (up 1.19%), electric and gas services (up 1.47%), coal mining (up 1.49%) and paper manufacturing (up 1.50%).

Like the machinery and computer makers, the paper producers suffered their third straight week among the weakest sectors, while the refiners have been there over the last two weeks, and in three weeks out of the last four. While managing to miss the cut the in Oct. 21 week, the electric and gas utilities have been among the lesser performers in two weeks out of the last three. In contrast, the coal miners' group had actually been among the best finishers over the previous two weeks.

Year-to-date gains continue

On a year-to-date basis 43 weeks into 2011, bonds of the major-sized sectors continued to improve in the latest week, with fully 27 out of 30 showing cumulative returns of at least three full percentage points - up from 23 the week before, 17 in the week ended Oct. 14 and well up from just seven sectors in the Oct. 7 week.

One sector had a return above 8%, five topped 7% and nine exceeded 6%, versus zero, two and three sectors, respectively, at those highest levels during the previous week.

There were six sectors surpassing 5% in the latest week, four above 4% and one greater than 3 %; the week before, six sectors had also topped 5%, and 4% and 3%, respectively.

While the number of sectors with relatively strong year-to-date totals firmed for a third straight week, the number with weak cumulative returns or even losses again diminished proportionally. Just one sector had a return of under 2%, two were greater than 1%, one was between zero and 1% - and none were in the red, the first time since the week ended Aug. 5 that there were no year-to-date losers. In the previous week, two sectors had readings better than 2%, one was above 1%, one had a gain of more than zero but less than 1%, and the number of sectors in negative territory year to date was three.

Bonds of food store operators remained in the lead in the latest week with a return of 8.33% for the year so far. They were followed by electric and gas services (up 7.84%), oil and gas exploration and production companies (up 7.76%), miscellaneous retailers (up 7.68%), food manufacturers (up 7.67%) and electronics manufacturers (up 7.32%).

Bringing up the rear, building construction had a 0.92% gain for the year, followed by real estate (up 1.30%), publishing (up 1.49%) and depository financial institutions (up 2.97%).

Key measure continues rebound

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II index, had a one-week gain of 4.28% - the biggest weekly rise this year - following the previous week's 1.884% advance.

It was the third straight weekly gain, following five weeks of slide dating back to early September. However, even with those impressive increases, the index has still been down in six weeks out of the last 10 and in nine weeks out of the past 14, as the junk market begins to try and rebuild the strong momentum which the market had generated during the first half of the year, but which until very recently had been absent for much of the second.

The latest gain raised the index's year-to-date return to 4.28%, up from the previous week's 1.886%. It was the index's highest year-to-date reading since 5.03% recorded on Aug. 4, though it remained below the 2011 peak level of 6.362%, set on July 26. Recent levels, though, have been well up from the index's low point of the year, the 3.998% deficit recorded on Oct. 4.

Other components of the index also continued to show a healthy rebound from their early-October levels. As of Friday, the index showed an average price of 98.690, a yield to worst of 8.097% and a spread to worst of 692 basis points over comparable Treasuries, versus a price of 96.523, a yield of 8.675% and a spread of 747 bps at the end of the previous week.

© 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.