Junk funds plunge $5.683 billion in week, second-worst decline ever

By Paul Deckelman

New York, March 16 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – saw their biggest cash loss of the year so far and the second-largest net outflow on record in the most recent reporting week, according to data released on Thursday.

It was the funds’ third straight setback after four weeks of gains,

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $5.683 billion more left the weekly reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday, March 15.

It was the largest net outflow so far this year, surpassing the $ 2.119 billion loss record last week, ended March 8, and the second-largest largest cash drain the junk funds have ever seen, exceeded only by the massive $7.068 billion outflow recorded during the week ended Aug. 6, 2014.

This week’s huge outflow followed the aforementioned $2.119 billion cash loss reported last Thursday by the Arcata, Calif.-based unit of Thomson Reuters Corp.’s Lipper analytics division for the seven-day period ended March 8. Before that was a considerably more modest $240 million cash downturn during the week ended March 1.

The three weeks of outflows – totaling $8.042 billion – follow four weeks of inflows totaling $1.739 billion.

Year-to-date outflow widens

According to a Prospect News analysis of the data, this week’s outflow was the fifth so far this year, against six inflows, and also was the fifth loss in the last 10 weeks dating back to the Jan. 11 week, versus five inflows during that stretch.

It sharply widened the year-to-date net outflow number to $6.424 billion from last week’s $741 million.

The latest week’s plunge established a new cumulative net outflow level for the year, eclipsing the former mark set last week.

The fund flows’ relatively strong start this year – before their recent headlong plunge into negative territory – had been in sharp contrast to 2016, which had opened up with three consecutive outflows totaling $4.959 billion. Outflows were seen in five out of the first six weeks of last year, before a six-week surge that generated more than $13 billion of inflows during that time swung the cumulative total into positive territory, where it stayed for the remainder of the year.

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 huge outflow

Another fund-tracking service, the Cambridge, Mass.-based EPFR Global, meanwhile saw a net outflow during the week which a market source described as having been “very close” to the number reported by AMG/Lipper.

It was the second consecutive big weekly outflow number for the service. The market source said that last week, EPFR had seen an outflow of $2.678 billion – its first downturn after six weeks of net inflows, including a cash gain during the week ended March 1 which he said had been “over five times” the size of the outflow recorded that week by AMG/Lipper.

The source also said that the inflow the week before that, ended Feb. 22, had been “a little north of $1 billion,” while it had been “close to $1 billion” during the week ended Feb. 15.

EPFR’s methodology differs from AMG/Lipper’s as its fund universe includes many mutual funds and ETFs domiciled outside the United States, such as strictly European junk funds and broader global funds, versus AMG/Lipper’s solely domestic orientation.

Because of that difference, while the two services’ respective weekly results usually point pretty much in the same direction, as they did this week and last week, their actual numbers may sometimes vary widely. Occasionally, the two companies’ numbers may even diverge completely, with one service reporting an inflow in a given week while the other sees an outflow.

Taking those differences into account, EPFR has now seen eight inflows so far this year and three outflows, versus AMG/Lipper’s six cash gains and five losses.

IG corporates rise again

Looking at fund flows for other asset classes during the week, investment-grade corporate funds posted their 13th consecutive gain overall and their 11th straight inflow so far this year, with no outflows yet recorded for 2017.

The Lipper data indicated that the funds saw net inflows of $452 million this week.

That followed the $3.482 billion inflow seen last week, ended March 8, and before that in the recent past, inflows of $3.045 billion in the week, ended March 1, a $2.566 billion inflow during the week Feb. 22, a $3.054 billion inflow during the week ended Feb. 15, and a massive $4.932 billion inflow during the week ended Feb. 8.

The latest inflow brought the year-to-date surge so far up to an estimated $29.886 billion this week – the peak 2017 cumulative inflow level so far, versus $29.434 billion last week, the previous high point.

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