Junk funds see $66.5 million inflow, breaking two-week skid

By Paul Deckelman

New York, Feb. 18 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – broke out of their recent rut, posting a modest inflow during the latest week. That snapped a two-week losing streak, although more weekly outflows than inflows have still been seen so far this year.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said on Thursday that $65.5 million more came into those weekly-reporting-only domestic funds than left them in the form of investor redemptions during the week ended Wednesday.

That stood in sharp contrast to the net outflows, totaling $1.089 billion, which had been seen over the previous two weeks – a $1.048 billion outflow reported last Thursday by the Arcata, Calif.-based unit of Thomson Reuters Corp.’s Lipper analytics division for the seven-day period ended Feb. 10, and before that the $40.897 million cash loss seen the week before that, ended Feb. 3.

The latest week’s inflow was only the second cash addition in the seven weeks since the start of the new year; the other inflow, of $883.3 million, was recorded during the week ended Jan. 27.

That followed sizable outflows totaling $4.959 billion that were recorded during the first three weeks of the new year.

These included a $2.043 billion net outflow during the week ended Jan. 20, an outflow of $2.107 billion in the week ended Jan. 13 – the year’s largest downturn so far – and a cash loss of $809.1 million in the week ended Jan. 6.

This week’s inflow was only the third seen in the last 10 weeks dating back to the week ended Dec. 16, 2015, against seven outflows during that time, according to a Prospect News analysis of the figures.

Year-to-date outflow narrows

With seven reporting weeks in the books for 2016, the year-to-date net outflow figure fell to $5.099 billion from $5.165 billion last week, which was the peak cumulative net outflow level for 2016 so far, surpassing the previous red-ink high point of $4.959 billion seen during the Jan. 20 week,

In 2015, meanwhile, there had been 27 inflows and 25 outflows in that time, the Prospect News analysis showed, producing a net outflow for the year of $7.046 billion.

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, meanwhile saw an outflow estimated by a market source at around $600 million, largely driven, he said, “by funds with global and European mandates.”

That followed last week’s EPFR outflow in excess of $2 billion, with funds based in the United States “accounting for about two-thirds of the headline number,” the market source said, on top of a $614 million outflow during the Feb. 3 week.

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 two services’ findings diverged this week, and while AMG/Lipper saw a sizable inflow in the Jan. 27 week, EPFR reported what the source called a “tiny” outflow of around $4 million that week, largely due to “investors souring on European corporates.”

Accordingly, EPFR has yet to record an inflow seven weeks into the new year.

The latest week’s outflow was the ninth that it has seen in the past 10 weeks, a losing streak broken only by a roughly $25 million inflow during the Dec. 30 week.

Corporates funds back on the slide

Looking at the fund flows for other asset classes, investment-grade corporate bond funds posted a net outflow of $1.122 billion during the week ended Wednesday, in contrast to the inflow of $551.385 million seen last week, which had snapped a string of 11 consecutive weekly downturns for the corporate funds dating back to the week ended Nov. 23.

These included the outflow of $1.451 billion reported during the Feb. 3 week – the biggest downturn so far this year – a $1.187 billion outflow in the Jan. 27 week, which had followed a $442 million outflow in the Jan. 20 week, a $740 million cash loss during the Jan. 13 week and a $1.126 billion downturn during the Jan. 6 week with which they had started the new year.

With seven Thursday-to-Wednesday reporting weeks of the new year complete, the year-to-date outflow total for 2016 rose to $5.518 billion from $4.396 billion last week.

This week’s cumulative net outflow total establishes a new peak level for the year so far, surpassing the previous peak red-ink level of $4.947 billion recorded during the Feb. 3 week.

The corporate funds had closed out 2015 during the week ended Dec. 30 with a $1.656 billion outflow.

Loan funds’ slide continues

Meanwhile, leveraged loan participation funds, which struggled all of the last two years, remained under pressure so far this year, according to the latest Lipper data.

Some $645 million more left those funds than came into them during the week ended Wednesday.

It was the loan funds’ seventh consecutive outflow so far in 2016, versus no inflows in that time.

The losing streak includes outflows of $510.454 million last week, of $405 million during the week ended Feb. 3, of $783.7 million during the week ended Jan. 27, of $743 million during the week ended Jan. 20, of $402.2 million during the week ended Jan. 13, and of $560.1 million during the week ended Jan. 6.

The latest week’s outflow brings the year-to-date net outflow total to $4.049 billion, the peak cumulative loss for the year so far, having widened from the previous peak level of $3.405 billion last week, according to a Prospect News analysis of the data.

On a longer-tem basis, the latest outflow was the loan funds’ 30th consecutive downturn, according to the analysis.

In 2015, the funds racked up a net outflow total of $16.406 billion.

© 2015 Prospect News.
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