Junk funds see $1.35 billion inflow in week, snapping four-week skid

By Paul Deckelman

New York, May 21 – High-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends, turned strongly positive this week, snapping a losing streak that had seen outflows in each of the previous four weeks, market sources said Thursday.

That upturn strengthened the already solidly positive year-to-date net inflow position, although it remains below its high point for the year so far.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $1.35 billion more came into those weekly-reporting-only funds than left them during the week ended Wednesday.

They said that the overall inflow consisted of a net $906 million flowing into traditional high-yield managed mutual funds and $445 million seen having gone into the ETFs.

The big gain was the first seen since the week of April 15, when a $791.6 million inflow was recorded.

In the interim, there were four consecutive weeks of outflows, most recently the $89 million cash loss reported last Thursday by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., for the seven-day period ended May 13.

That setback followed on the heels of the $2.75 billion cash hemorrhage seen in the week ended May 6 – the biggest cash loss seen so far this year, surpassing the $1.96 billion outflow that was seen during the week ended March 11.

Those two most recent inflows followed earlier downturns of $859.1 million during the week ended April 29 and $162.2 million during the week ended April 22.

The four outflows, totaling $3.85 billion, in turn followed, and offset, four consecutive weekly gains totaling $3.31 billion of net inflows during that time, according to a Prospect News analysis of the figures.

Besides the aforementioned inflow during the week ended April 15, in the week before that, ended April 8, the funds had seen a gain of $1.35 billion, which in turn had followed inflows of $315.2 million and $856 million during the weeks ended April 1 and March 25, respectively.

Year’s net inflow strengthens

With 20 weeks in the books so far this year, the current week’s inflow marked the 12th gain seen so far in 2015 against a total of eight outflows.

It raised the year-to-date net inflow total to an estimated $8.97 billion from $7.62 billion last week.

The year-to-date total remained below the $11.48 billion seen during the week ended April 15, the peak cumulative inflow total so far.

With two outflows seen in the first three weeks of 2015, the cumulative fund flows figure for the nascent year had started in the red, only getting back into the black in late January, according to the Prospect News analysis of the data – but it has stayed in positive territory ever since then.

In 2014, inflows had been seen in 31 weeks, versus 21 weeks of outflows, the analysis indicated.

However, despite that roughly 3-to-2 numerical edge for the inflows, cumulative fund flows for the year were negative, finishing the year $6.27 billion in the red.

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.

Inflows propel primary

Although the mutual funds and ETFs represent only a relatively small percentage of the total amount of investor money coming into or leaving the more than $1.5 trillion junk market, their flows are very observable and quantifiable – more so than those of other, larger cash sources – and they thus are suited to act as a fairly reliable proxy for overall junk market liquidity trends.

Analysts said that the sustained flows of fresh cash into junk from all sources was a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past several years.

Although secondary market performance did turn erratic during the 2014 third quarter after a strong start and deteriorated over several weeks late in the year, declining sharply in line with big energy-sector losses, last year’s new issuance ran slightly ahead of 2013’s near-record pace for much of the latter part of the year, only to finally fall behind the year-earlier totals as the year came to a close.

Earlier this year, with inconsistent and indecisive fund flows, the secondary market initially struggled, producing only modestly positive results, although it seems to have lately found its footing, with annualized returns near their highs for the year so far, a little below the 4% mark.

According to data compiled by Prospect News, primary issuance of $153.47 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers had priced in 242 tranches as of Thursday’s close, running 10.3% ahead of the new-deal pace seen a year ago, when $139.12 billion had priced in 255 tranches by this point on the calendar.

© 2015 Prospect News.
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