Junk funds see $879.5 million inflow for week, breaking six-week skid

By Paul Deckelman

New York, Jan. 15 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – posted a net inflow in the latest reporting week, market sources said Thursday.

That broke a six-week losing streak dating back to early December and was the first inflow seen in the new 2015 calendar year.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $879.5 million more came into those weekly-reporting-only funds than left them during the week ended Wednesday.

There initially was some confusion about that number from Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp. Lipper’s website had indicated that the figure was an outflow, but subsequent news reports calling the week’s action an inflow cited Lipper as the source for that information.

That inflow followed the $922.2 million outflow reported last week, covering the seven-day period ended Jan. 7, and an outflow of $960 million that had taken place during the week ended Dec. 31.

Those two outflows, meanwhile, had come after a $335.5 million downturn seen during the week ended Dec. 24 and a $3.08 billion cash loss during the week ended Dec. 17 – the second-largest outflow seen in 2014, dwarfed only by the record $7.07 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.

Before those two outflows had come a deficit of $1.89 billion during the week ended Dec. 10 and an $859 million outflow recorded during the week ended Dec. 3.

During that six-week stretch, outflows totaled $8.05 billion, according to a Prospect News analysis of the Lipper figures.

The latest week’s inflow was the first such cash addition to the junk market since a modest $44.49 million inflow recorded during the week ended Nov. 26. But before that, the fund-tracking service had seen a $280.7 million outflow during the week ended Nov. 19.

Year is negative so far

The inflow reported Thursday was the first such positive fund-flows number of the new year and largely offset the inflow seen the previous week, the first reporting week of 2015.

It thus brought the year-to-date net outflow total for the nascent year down to $42.69 million from $922.2 million the week before.

During 2014, meanwhile, inflows had been seen in 31 weeks, versus 21 weeks of outflows, according to the analysis.

However, despite that roughly 3-to-2 numerical edge for the inflows, cumulative fund flows for the year were negative, finishing the year $6.27 billion in the red.

A mid-summer sea of red ink, including the massive outflow the week ended Aug. 6, as noted, 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. It edged back into the black in early November before heading back into negative territory for good 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.

EPFR sees an inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime saw what a market source called “a small inflow” in the latest week, which snapped a six-week losing streak.

That followed an outflow the week before that was described by the source as “more than double” that reported by AMG/Lipper.

That outflow, in turn, had followed a string of similar recent money losses, including one mammoth cash drain of over $5 billion in the week ended Dec. 17 – an 18-week high dating back to the week ended Aug. 6, when the service saw a record $11 billion outflow.

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

The two services’ respective weekly results usually point pretty much in the same direction, with EPFR, like AMG/Lipper, having now seen one inflow and one outflow this year and having also seen inflows in 31 weeks versus 21 outflows in 2014, according to a Prospect News analysis of the figures, the same as AMG/Lipper. However, that has not always strictly been the case – in 2014, as in years before that, there were some rare weeks when AMG/Lipper showed outflows while EPFR saw overall inflows or vice versa.

Inflow had been forecast

The week’s inflow number had been largely expected by junk market participants, who had noted positive individual day-to-day fund flows starting at the tail end of last week and continuing on into this week.

For instance, a market source said that high-yield ETFs had $250 million of inflows on Tuesday alone, while actively managed traditional funds had racked up $654 million of aggregate inflows between Thursday and Wednesday.

A trader said on Thursday before the numbers came out that “we’re expecting an inflow number.” While he declined to offer a specific numerical prediction, he said that the figure would “definitely” be positive.

When the AMG/Lipper numbers finally came in, they vindicated that optimism. According to the figures, money coming into the ETFs comprised $572 million, or 65% of the week’s total net inflow; the week before, the ETFs had accounted for fully 89% of the money pulled from the junk funds.

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 they 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 from all sources was a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past several years.

Although secondary market performance turned erratic during the 2014 third quarter after a strong start and deteriorated over several weeks late in the year, declining sharply in line with big energy-sector losses, new issuance ran slightly ahead of 2013’s near-record pace for much of the latter part of the year, only to finally fall behind the year-earlier totals as the year came to a close.

Corporates continue climb

Looking at the fund flows for other asset classes, a market source said that investment-grade corporate bond funds saw a $1.49 billion net inflow for the week – their second consecutive weekly gain and third in the last four weeks. The funds had been ahead by $2.97 billion last week, for a 2015 year-to-date total net inflow of $4.46 billion, according to the Lipper figures.

After a very strong year, the corporate funds had closed out 2014 on a weaker note, suffering a rare outflow of $1.22 billion in the week ended Dec. 31, versus the $2.59 billion inflow in the week ended Dec. 24. The corporate funds had also recorded a $79.8 million outflow during the week ended Dec.17 – a relatively rare pattern of weakness, contrasting with the overwhelmingly positive pattern seen over most of that year.

The year 2014 ended showing a cumulative corporate fund inflows figure of $86.11 billion, down slightly from their peak level for the year of $87.33 billion, recorded the week before, according to a Prospect News analysis of the data.

A market source said that leveraged-loan participation funds saw outflows of $593.7 million in the latest week, following the prior week’s $374.4 million retreat. It was the 26th consecutive weekly outflow from those funds, which have been struggling mightily since last April, when an incredible winning streak of nearly two consecutive years of weekly inflows abruptly came to an end.

With two 2015 reporting weeks in the books, the loan funds have seen $968.07 of net outflows so far this year. In 2014, the funds racked up cumulative red ink for the year of $17.26 billion.

© 2015 Prospect News.
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