Junk funds see $1.35 billion inflow, third consecutive weekly gain

By Paul Deckelman

New York, April 9 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – have seen their third consecutive weekly inflow, market sources said Thursday.

That improvement further strengthened an already robust year-to-date net inflow position.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $1.35 billion more came into those funds than left them during the week ended Wednesday.

This week’s inflow followed the $315.2 million cash injection reported last Thursday by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., for the seven-day period ended April 1.

The week before that, ended March 25, the funds had seen a gain of $856 million.

The most recent high-yield funds outflow, meanwhile, was the $1 billion cash loss seen during the week ended March 18.

Year’s net inflow grows

With 14 weeks in the books so far this year, the current week’s big inflow marked the 10th such cash addition in 2015, against four outflows.

The $2.52 billion of inflows seen over the most recent three weeks have lifted the year-to-date net inflow total to $10.68 billion from $9.34 billion the previous week.

That was still down from the peak level for the year so far of $11.12 billion recorded during the week ended March 4, according to a Prospect News analysis of the data.

With two outflows seen in the first three weeks of 2015, the cumulative fund flows figure for the nascent year had started in the red, only getting back into the black in late January but staying in positive territory ever since then, according to the data.

In 2014, inflows were seen in 31 weeks, versus 21 weeks of outflows, the analysis indicated.

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.

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 big inflow

Another fund-tracking service, Cambridge. Mass.-based EPFR Global, also saw a major inflow this week, described by a market source as “a little over $2 billion.”

That followed the previous week’s inflow, which the source had said was “a touch over $1 billion.”

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 10 inflows versus four outflows so far this year and having also seen inflows in 31 weeks versus 21 outflows last year, according to a Prospect News analysis of those 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.

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, last year’s 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.

Earlier this year, with inconsistent and indecisive fund flows, the secondary market initially struggled, producing only modestly positive results, although it seems to have lately found its footing, with annualized returns now at their highs for the year so far, topping the 3% mark.

According to data compiled by Prospect News, primary issuance of $103.22 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers had priced in 156 tranches as of Thursday’s close, running 30.4% ahead of the new-deal pace seen a year ago, when $79.13 billion had priced in 163 tranches by this point on the calendar.

Corporates continue climb

Looking at the fund flows for other asset classes, investment-grade corporate bond funds saw a $211 million inflow for the week, on top of the previous week’s $323.7 million cash addition. It was the funds’ 11th straight weekly gain.

The latest week’s gain brought the high-grade funds’ year-to-date net inflow figure up to $25.17 billion from $24.96 billion last week, according to the Lipper figures.

In 2014, the funds generated $86.11 billion of net inflows for the year.

However, the leveraged-loan participation funds lost $4 million on the week – small by the standards of the losses usually seen in this category, including the $445.2 million outflow seen last week.

It was the fourth straight negative number seen following a rare $129.9 million inflow seen about a month ago, which in turn had followed a 31-week losing streak dating back to last July.

The loan funds have been struggling mightily for the last year, when an incredible winning streak of nearly two consecutive years of weekly inflows abruptly came to an end.

The loan funds have seen $3.87 billion of net outflows so far this year, versus the prior week’s $3.86 billion total.

In 2014, the funds racked up cumulative red ink for the year of $17.26 billion.

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