Junk funds plunge by $3.81 billion in week, largest outflow this year and third biggest ever

By Paul Deckelman

New York, Dec. 17 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – have posted a second giant-sized outflow in as many weeks.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said on Thursday that $3.811 billion more left those weekly-reporting-only domestic funds in the form of investor redemptions than had come into them during the week ended Wednesday – the funds’ biggest net outflow of the year so far and one of the largest such cash losses ever recorded, according to a Prospect News analysis of the figures.

That outflow followed, and surpassed as the year’s biggest outflow, the $3.463 billion cash loss that the Arcata, Calif.-based unit of Thomson Reuters Corp.’s Lipper analytics division had reported last Thursday for the week ended Dec. 9. That outflow, in turn, had supplanted the previous biggest outflow for the year, the $2.997 billion outflow seen in the week ended July 1.

This week’s outflow was also the third-largest net outflow on record at AMG/Lipper, which has been watching fund flows since 1992, the analysis indicated, exceeded only by the record $7.068 billion cash hemorrhage posted during the week ended Aug. 6, 2014 and the $4.63 billion outflow seen during the week ended June 5, 2013. Last week’s $3.463 billion outflow had been the previous third-biggest cash loss; it has now been pushed down to fourth place, in turn pushing the $3.43 billion outflow recorded during the week ended June 2, 2011 down into fifth place.

This week’s outflow was the fifth such downturn seen during the last six weeks, the analysis indicated. The two huge outflows, totaling $7.274 billion, followed the sole inflow seen during that six-week stretch, the $397.6 million cash addition seen during the week ended Dec. 2. That inflow had followed three straight weekly outflows before that totaling $3.658 billion – a $501.147 million outflow during the week ended Nov. 25, a $1.357 billion outflow during the week ended Nov. 18 and a $1.8 billion outflow during the week ended Nov. 11.

This week’s net outflow was the fifth such cash loss seen during the last 10 weeks, dating back to Oct. 14, evenly matched against five inflows during that time.

YTD net outflow worsens

On a longer-term basis, with 50 weeks in the books so far this year, there have been 27 inflows and 23 outflows, the Prospect News analysis showed.

This week’s big loss deepened the year-to-date net outflow total to $5.892 billion from the previous week’s cumulative deficit of $2.118 billion. It’s the largest net outflow total this year, surpassing the previous mark of $4.995 billion recorded during the week ended Sept. 30.

Last week’s big outflow had pushed fund flow totals back into the red, versus the $1.382 billion 2015 net inflow seen the week before, ended Dec. 2. Last week was the first time the year-to-date figure had been in the red since the week ended Oct. 14, when it showed a year-to-date net outflow of $2.784 billion.

Reflecting the fund flows’ strength earlier in the year, the peak cumulative inflow for 2015 was $11.476 billion during the week ended April 15, the analysis indicated.

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 2nd huge outflow

Another fund-tracking service, Cambridge. Mass.-based EPFR Global, meanwhile saw an outflow of over $5 billion in the latest week, a market source said.

It was the second straight large outflow the service had seen; the week before, ended Dec. 9, EPFR’s reported outflow was “in the same vicinity” as the $3.4 billion-plus cash bleed that AMG/Lipper had seen.

In contrast, EPFR had seen an inflow of about $1 billion the week before, ended Dec.2.

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.

The overall net effect of those divergences has been that EPFR has now seen 23 inflows so far this year versus 27 outflows, according to a Prospect News analysis of the two companies’ figures.

Corporates funds lose again

Looking at the fund flows for other asset classes, investment-grade corporate bond funds posted a net outflow of $5.12 billion during the week ended Wednesday, according to Lipper.

It was the fourth consecutive retreat for the corporate funds, following last week’s $1.55 billion cash loss, which in turn had followed the $546.7 million outflow during the Dec. 2 week and the $1.459 billion, plunge during the week ended Nov. 25.

The latest week’s outflow was the fifth in the last 10 weeks going back to Oct. 14, evenly matched against five inflows in that time, according to a Prospect News analysis of the data.

The year-to-date net inflow number shrank this week to $6.712 billion from $11.831 billion the previous week.

Loan funds’ slide continues

Meanwhile, leveraged loan participation funds, which have been struggling for the most part this year and which have been generally under pressure for well more than a year now, saw their 21st consecutive downturn this week, as some $2.039 billion more left those funds than came into them.

That slide followed the previous week’s outflow of $851 million.

This week’s outflow was the biggest cash drain seen so far this year, surpassing last week’s outflow.

The long losing streak dates back to the week ended July 29; the most recent inflow those funds have seen was the $208.1 million upturn in the week ended July 22.

The latest outflow brought the funds’ year-to-date net outflow figure up to $14.369 billion from $12.33 billion last week, according to Lipper.

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