Junk funds see $89 million outflow in week, fourth consecutive downturn

By Paul Deckelman

New York, May 14 – High-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends, saw their fourth straight weekly outflow on Thursday, a growing losing streak that has followed, and has offset, the four consecutive weeks of inflows seen before that, market sources said.

That downturn brought the year-to-date net inflow position further off its 2015 high, although that cumulative total still remained solidly positive.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $89 million more left those weekly-reporting-only funds than came into them during the week ended Wednesday.

That setback followed on the heels of the $2.75 billion cash hemorrhage 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 May 6 – the biggest cash loss seen so far this year, surpassing the $1.96 billion outflow that was seen during the week ended March 11.

Those two inflows followed downturns of $859.1 million during the week ended April 29 and $162.2 million during the week ended April 22.

The four outflows, totaling $3.85 billion, in turn followed and offset four consecutive weekly gains totaling $3.31 billion of net inflows during that time, according to a Prospect News analysis of the figures.

These included the last recent inflow of $791.6 million, which was recorded during the week ended April 15.

The week before that, ended April 8, the funds had seen a gain of $1.35 billion, which in turn had followed inflows of $315.2 million and $856 million during the weeks ended April 1 and March 25, respectively.

Year’s net inflow still strong

With 19 weeks in the books so far this year, the current week’s outflow marked the eight downturn seen so far in 2015, against 11 inflows.

It dropped the year-to-date net inflow total to $7.62 billion from $7.71 billion last week and from $11.48 billion in the week ended April 15, the peak cumulative inflow total so far.

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, according to the Prospect News analysis of the data – but it has stayed in positive territory ever since then.

In 2014, inflows had been 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 outflow

Another fund-tracking service, Cambridge. Mass.-based EPFR Global, saw an outflow that was “roughly double” the one reported by AMG Lipper, a market source said.

That followed the more than $2.5 billion downturn seen the week before.

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.

While the two services’ respective weekly results usually point pretty much in the same direction, that hasn’t always been the case; during the week ended April 22, while AMG/Lipper was recording its $162.2 million outflow, the market source said that EPFR had posted an inflow, pegging that cash gain at $375 million.

While the two services’ results this year had been in tandem prior to April 22, after that rare divergence, EPFR accordingly has now seen 12 inflows so far this year, against seven outflows, according to a Prospect News analysis of those figures – one additional inflow and one fewer outflow than AMG/Lipper.

The two services did both see inflows in 31 weeks versus 21 outflows last year, although in the course of reaching those totals, there were some rare weeks when AMG/Lipper showed outflows while EPFR saw overall inflows or vice versa.

Inflows propel primary

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 did turn 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 near their highs for the year so far, a little below the 4% mark.

According to data compiled by Prospect News, primary issuance of $146.55 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers had priced in 230 tranches as of Thursday’s close, running some 17% ahead of the new-deal pace seen a year ago, when $125.15 billion had priced in 233 tranches by this point on the calendar.

© 2015 Prospect News.
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