Junk funds lose $2.46 billion, second straight outflow, year’s largest

By Paul Deckelman

New York, Aug 4 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – saw their second consecutive weekly net outflow and the largest such cash loss seen so far this year.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said Thursday that $2.464 billion more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday.

That was considerably wider than the $175.43 million outflow reported last Thursday by the Arcata, Calif.-based unit of Thomson Reuters Corp.’s Lipper analytics division for the seven-day period ended July 27.

In fact, according to a Prospect News analysis of the figures, it is the biggest outflow so far this year, topping the net $2.107 billion that left the funds during the week ended Jan. 13. It is also the largest outflow the funds have experienced since the week ended Dec. 16, 2015, when a $3.811 billion outflow was recorded.

The outflows this week and last, totaling $2.639 billion, follow three weekly inflows totaling $6.471 billion, the analysis indicated.

There was a $322 million inflow during the week ended July 20 – which followed a near-record huge inflow the week before, the $4.351 billion cash injection seen during the week ended July 13. That was the second-largest cash surge on record, only lagging the $4.967 billion inflow recorded during the week ended March 2 – the single biggest inflow seen by AMG since it began tracking fund flows in 1992.

The latest week’s outflow is the 14th cash drain since the start of the year, versus 17 inflows, according to the Prospect News analysis.

Year-to-date inflow slackens

With 31 reporting weeks now in the books for 2016, the year-to-date net inflow declined to $7.053 billion, Lipper said, down from last week’s $9.517 billion and down as well from the $9.962 billion seen during the July 20th week, the year-to-date peak inflow total.

After the string of outflows early in the year, the fund flows reached their peak net outflow level for the year during the week ended Feb. 10, when they showed cumulative red ink of $5.165 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 major outflow

Another fund-tracking service, Cambridge. Mass.-based EPFR Global, meanwhile recorded a roughly $1.9 billion net outflow during the week, according to a market source.

It was the first such cash loss that EPFR had seen since the week ended June 29, when it had posted a $3.36 billion cash hemorrhage.

After that, the service had reported four consecutive inflows, including a $710 million cash addition during the week ended July 27, a market source said.

Before that had come an inflow of nearly $2 billion for the week ended July 20, an inflow “in that same vicinity” as the huge AMG/Lipper number in the week ended July 13, the source said, and an inflow during the July 6 week of over $2 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 difference in the methodologies means that while the two services’ respective weekly results usually point pretty much in the same direction, their actual numbers may sometimes vary widely – and occasionally may diverge completely, with one service reporting an inflow in a given week while the other sees an outflow.

The latter scenario has happened five times so far this year – most recently last week, when EPFR saw a fourth straight weekly net inflow while AMG/Lipper saw an outflow snapping a three-week string of inflows.

So far this year, EPFR has tabulated 15 inflows versus 16 outflows, while AMG/Lipper has reported 17 inflows and 14 outflows.

IG corporate funds continue gains

Looking at fund flows for other asset classes, investment-grade corporate funds scored their fifth straight weekly gain, with a $2.472 billion net inflow, the Lipper data indicated.

That followed a $1.475 billion net cash gain during the week ended July 27.

For the last two weeks, the high-grade funds have seen sizable inflows – while their speculative-grade cousins have seen investor money fleeing, indicating an apparent flight to safety.

The investment-grade funds had also taken in a net of $894 million during the July 20 week, $2.934 billion during the July 13 week and $907 million during the July 6 week.

That was when the funds started rebounding after a net outflow of $638.599 million during the June 29 week – which had been the first cash loss seen after 16 consecutive weeks of cash gains for the IG corporate funds.

This week’s inflow brought the funds’ year-to-date net inflow up to $23.271 billion, Lipper said, versus last week’s $20.799 billion.

This week’s total established a fifth consecutive new peak level for the year, according to Prospect News’ analysis of the data.

Loan funds turn upward

Meanwhile, loan participation funds – which have been consistently negative for much of this year so far – were trying to battle their way back into the black this week after a downturn last week.

Lipper said that the loan funds had a net inflow of $60.438 million during the week ended Wednesday, in contrast to last week’s net outflow of $15.422 million, which had followed a rare two straight weeks of relative strength – inflows of $69 million in the July 20 week and $136.5 million the week before that.

Reflecting the largely negative flows seen so far this year in the loan participation category, the year-to-date fund total remains deeply in the red.

This week’s inflow cut the cumulative net outflow figure to $5.332 billion from last week’s $5.392 billion, Lipper said.

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