Junk funds see $3.084 billion outflow for week, third decline in a row; year-to-date outflow expands

By Paul Deckelman

New York, Dec. 18 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – posted a huge net outflow in the latest week, their third consecutive such large downturn.

As activity was wrapping up on Thursday, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that some $3.084 billion more left those weekly-reporting-only funds than came into them during the week ended Wednesday.

It was the second-largest outflow seen so far this year, dwarfed only by the record $7.068 billion money hemorrhage the funds had suffered during the week ended Aug. 6 – the biggest outflow the company had seen since it began tracking the fund flows back in 1992.

The latest week’s cash loss followed the already sizable $1.885 billion outflow reported last Thursday by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., covering the seven-day period ended Dec. 10, and before that, an $859 million outflow recorded during the week ended Dec. 3.

During that three-week stretch, outflows have totaled $5.828 billion, according to a Prospect News analysis of the Lipper figures.

The latest week’s massive outflow was the fourth such retreat seen over the last five weeks, according to the analysis, a losing pattern interrupted only by a modest $44.487 million inflow recorded during the week ended Nov. 26. Before that, the fund-tracking service had seen a $280.7 million outflow during the week ended Nov. 19.

Year-to-date outflow increases

On a longer-term basis, inflows have now been seen in 31 out of the 50 weeks since the beginning of the year, versus 19 weeks of outflows, according to the analysis.

However, despite that nearly 2-to-1 numerical edge for the inflows, cumulative fund flows for the year were negative, to the tune of $4.971 billion, widening the year-to-date loss from last week’s $1.887 billion total.

A key factor in the negative year-to-date numbers – despite all of those weeks of gains – was the four straight weeks of massive outflows recorded between the week ended July 16 and the week ended Aug. 6, the week of the record heavy outflow, as noted.

That sea of red ink more than wiped out what had been a positive year-to-date fund-flow pattern up to that point.

After that, things turned choppy, while the year-to-date total mostly remained on the downside, according to the analysis, only edging back into the black in early November, before heading back into negative territory in December.

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.

In 2013 – which had 53 reporting weeks due to a statistical quirk – inflows were seen in 33 weeks, versus 20 weeks of outflows, with total net inflows for the year tallying up to about $1.274 billion, the analysis indicated.

EPFR sees huge outflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime saw an outflow in the latest week that was described by a market source as over $5 billion, an 18-week high dating back to the week ended Aug. 6, when the service saw a record $11 billion outflow.

That follows outflows of $3.5 billion last week and the slightly more than $1.4 billion cash decline seen the week before that.

Those figures stood in marked contrast to the Nov. 26 week, when, according to the source, EPFR had shown a “mildly positive” inflow, in the neighborhood of “$250 million or so.”

EPFR’s methodology differs from AMG/Lipper’s, as its fund universe includes many non-U.S.-domiciled mutual and exchange-traded funds, including strictly European junk funds and broader global funds, versus AMG/Lipper’s solely domestic orientation.

Counting the latest week’s setback, EPFR has now recorded inflows in 31 weeks since the start of the year, versus 19 outflows, the same as AMG/Lipper, according to a Prospect News analysis of the figures. However, while the two services’ respective weekly results usually point pretty much in the same direction, that has not always been the case; there have been some weeks when AMG/Lipper showed outflows while EPFR saw overall inflows, or vice versa.

The latest week’s giant-sized outflows from the funds came as no real surprise to the market. A bond trader noted before the AMG/Lipper numbers came out that there had been sizable daily outflows last Thursday and on Friday, as well as on Monday and Tuesday, as the junk market fell each of those sessions.

High yield was decisively better on Wednesday – but he said that even if money came back into the funds as a result, it would not be enough to offset the previous four days of net redemptions.

Although the mutual funds and ETFs represent only a relatively small percentage of the total amount of investor money coming into or leaving the more than $1.5 trillion junk market, their flows are very observable and quantifiable – more so than those of other, larger cash sources – and thus are suited to act as a fairly reliable proxy for overall junk market liquidity trends.

Analysts said that the sustained flows of fresh cash into junk have been a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past several years, and which had mostly continued on into the first half of this year as well. Secondary performance was erratic during the third quarter and has remained so into the current fourth quarter, lately declining sharply in line with big energy-sector losses, while new issuance continued to run slightly ahead of last year’s near-record pace for much of the current quarter, only to finally start to lag behind a year ago over the past few weeks.

Loans lose again; corporates off

A market source meantime said that leveraged-loan funds saw outflows of $1.776 billion in the latest week, following the prior week’s $1.045 billion downturn. It was the 23rd consecutive weekly outflow from those funds, which have seen $14.939 billion of cumulative red ink for the year so far, the loss widening from the previous week’s $13.164 billion.

Those funds have been struggling mightily since April, when an incredible winning streak of nearly two consecutive years of weekly inflows abruptly came to an end.

Investment-grade corporate bond funds, on the other hand, saw a rare net outflow this week of $79.8 million, versus the previous week’s $2.01 billion inflow. The year-to-date corporate fund inflows figure fell to $84.739 billion from $84.819 billion the week before.

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