Junk funds see $3.08 billion weekly loss, first 2018 outflow after two inflows

By Paul Deckelman

New York, Jan. 18 – Cash flows for high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – turned sharply negative this week for the first time in the New Year, after two straight weeks before that on the plus side, according to numbers released on Thursday.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $3.08 billion more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday, Jan. 17.

It was the biggest cash exit those funds had seen since the $4.44 billion cash loss recorded in the week ended Nov. 15, 2017.

The year’s first net outflow followed two straight weeks of net inflows totaling $2.84 billion which had opened the year: a $186 million inflow reported by the Arcata, Calif.-based unit of Thomson Reuters Corp.’s Lipper analytics division for the seven-day period ended Jan. 3 followed by a $2.65 billion inflow reported last Thursday for the week ended Jan. 10.

According to a Prospect News analysis of the data, last week’s big inflow was the largest cash infusion the junk funds had seen since the week ended Dec. 14, 2016, when $3.75 billion more came into the funds than left them.

It topped the largest inflow seen in all of 2017 – the nearly $2.38 billion cash gain recorded in the week ended last April 5.

This year’s two inflows directly followed the three straight outflows adding up to $2.27 billion with which the funds had closed out 2017 – a $240 million cash loss for the week ended Dec. 27 and before that cash drains of $1.11 billion during the week ended Dec. 20 and $922 million during the week ended Dec. 13.

Recent trend is negative

According to the Prospect News analysis, this week’s outflow was the sixth cash loss seen in the last 10 weeks, dating back to the Nov. 15 week, versus four cash gains seen during that time.

Besides this week’s outflow, the inflows over the previous two weeks and the aforementioned three outflows before that, the 10-week stretch includes a pair of inflows totaling $527 million – a $217 million cash improvement during the week ended Dec 6. and a $310 million inflow for the week ended Nov. 29.

And before that came two consecutive weeks of outflows totaling $4.65 billion: an outflow of $209 million during the week ended Nov. 22 and an enormous $4.44 billion cash loss during the Nov. 15 week.

That outflow was the second-biggest cash drain seen last year, according to the Prospect News analysis, surpassed only by the $5.68 billion cash hemorrhage seen during the week ended March 15. The Nov. 15 outflow was also the fourth-biggest plunge ever recorded since AMG/Lipper began tracking fund flows back in 1992.

The Nov. 15 and Nov. 22 outflows, in turn, were part of a four-week streak of outflows totaling $6.47 billion, which also included a $1.2 billion downturn during the week ended Nov. 1 and a $622 million outflow recorded in the Nov. 8 week, both of which fall outside of the specified last-10-weeks time period.

Into the red for the year-to-date

With three reporting weeks in the books for 2018 so far, this week’s big outflow pushed the year-to-date funds flow number into the red for the first time this year – a net deficit of $239 million, versus the estimated $2.84 billion year-to-date inflow total seen last week, the funds’ peak cumulative inflow level.

According to the Prospect News analysis, 2017 meantime saw 28 weeks of outflows versus 24 weeks of inflows – but the cumulative funds-flow figure was considerably more lopsided than that, with an estimated final net outflow number for the year of some $15.21 billion that more than reversed the estimated total net inflow of $11.12 billion which had been recorded in 2016.

. Last year’s huge cash plunge was the first full-year outflow seen since the $7.05 billion cash loss posted in 2015 and, counting the $6.27 billion cumulative net outflow the funds saw in 2014, was the third yearly outflow the funds had seen in the last four years, according to the analysis.

Before their headlong plunge into negative territory seen for most of last year, the fund flows had shown a relatively strong start to 2017, posting six inflows during the first 10 reporting weeks of the year, reaching a peak cumulative net inflow total of $1.62 billion during the week ended Feb. 22.

They were still in positive territory for the year-to-date during the week ended March 1, with a $1.38 billion net inflow, before falling into the red the following week, ended March 8, and staying there after that, 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 turns negative

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meanwhile saw its first net outflow for the year this week, after having opened the New Year with two straight weeks of net inflows.

A market source said that EPFR’s outflow was “about half a billion dollars less” than the outflow reported by AMG/Lipper.

The market source also said that the amount of money that came into the junk funds EPFR follows last week rather than leaving them was “a little over half” of the Lipper number.

That followed an $860 million cash infusion seen during the Jan. 3 week.

The two straight weeks of inflows that had opened 2018 followed outflows seen over the last nine straight weeks of 2017 dating back to the Nov. 1 week, according to a Prospect News analysis of the data, including the downturn seen in the final week of 2017, which the market source said was roughly double the $240 million outflow reported for that week by AMG/Lipper.

EPFR’s methodology differs from 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 Lipper’s solely domestic orientation.

The market source said that the U.S. funds and the non-U.S. funds respectively each accounted for roughly half of this week’s overall outflows.

In contrast, the source said that most of money that came into the funds last week had moved into U.S.-domiciled funds.

The two services’ overall respective weekly results usually – but not always – point pretty much in the same general direction in terms of a given week having an inflow or an outflow, according to the Prospect News analysis of the data.

Sometimes their numbers track fairly closely, as happened to be the case during the Nov. 8 week, when EPFR saw a $645 million outflow, not far off from the $622 million cash loss Lipper posted, or the Nov. 15 week, when both services recorded truly huge outflows – $4.44 billion for Lipper, as noted, and over $6 billion for EPFR.

Other times, the numbers may vary widely such as this week, when the difference between the two was some $500 million, or last week, when, as noted, Lipper reported an inflow roughly double the size of EPFR’s. The week before that, EPFR’s reported inflow was almost five times as great as the one seen by Lipper.

And occasionally, the two companies’ numbers may even diverge completely, as happened during the Dec. 6 and Nov 29 weeks, when EPFR recorded outflows both weeks while Lipper saw a pair of modest inflows in each of those weeks.

Taking those differences into account, EPFR saw 25 inflows last year versus 27 outflows, while Lipper, as noted, saw 24 cash gains and 28 cash losses in the year’s 52 weeks.

IG corporates extend gains

Looking at fund flows for other asset classes during the week, investment-grade corporate funds posted their third straight gain for the year so far this week and their 18h consecutive weekly gain following a rare two straight weekly losses, according to a Prospect News analysis of the data.

The Lipper calculations indicated that the funds saw a net inflow of $3.92 billion during the reporting week ended Wednesday, not too far down from last week’s reported upturn of $4.19 billion – one of the largest weekly inflows ever recorded for the IG funds.

The year had started off with a $965 million advance.

The inflows seen over the past 18 weeks followed net outflows of $25 million recorded during week ended Sept. 13 and $43 million during the week ended Sept. 6, which had been the first loss of the year after 35 straight weekly net inflows last year before that and a total of 37 weekly inflows overall dating back to the week ended Dec. 21, 2016 according to the Prospect News analysis.

This week’s inflow establishes an estimated year-to-date net inflow figure of $9.07 billion, a second consecutive new peak for the year so far, up from last week’s $5.15 billion.

Last year ended with an estimated $117.35 billion net inflow total for the year, the 14th consecutive new 2017 cumulative peak level, the analysis indicated.

© 2015 Prospect News.
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