Junk funds see $545 million outflow, snapping six weeks of inflows

By Paul Deckelman

New York, March 31 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – moved over to the downside this week, posting their first net outflow after six consecutive weeks during which inflows had been seen, five of those of considerable size.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said on Thursday that some $545 million 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 in stark contrast to the $2.156 billion net inflow which had been reported last Thursday by the Arcata, Calif.-based unit of Thomson Reuters Corp.’s Lipper analytics division for the seven-day period ended March 23.

That inflow was part of a six-week winning streak, dating back to the week ended Feb. 17, according to a Prospect News analysis of the figures.

One of those inflows had been the mammoth $4.967 billion cash injection during the week ended March 2 – which was not only the largest funds gain seen so far this year, easily surpassing the previous mark of $2.74 billion seen the week before that, ended Feb. 24, but was also the single largest inflow ever recorded since AMG/Lipper began tracking fund flows back in 1992.

Together, the last six weeks of inflows had totaled $13.404 billion, the analysis indicated.

The latest week’s outflow was the sixth such cash loss seen in the 13 weeks since the start of the year, versus seven outflows.

Year-to-date inflow cut

With 13 reporting weeks now in the books for 2016, the year-to-date net inflow figure declined to $7.692 billion, the Prospect News analysis indicated, from $8.237 billion last week, which had been its fourth consecutive new peak level for the year.

The fund flows, which started the year with a string of outflows, reached their peak net outflow level for the year on Feb. 10, when they showed cumulative red ink of $5.165 billion.

For all of 2015, meanwhile, there were 28 inflows and 24 outflows, the 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 big outflow

Another fund-tracking service, Cambridge. Mass.-based EPFR Global, meanwhile also recorded a sizable outflow this week, with a market source seeing “the inflow streak ended, with an outflow in the $800 million range.”

That was in sharp contrast to last week, when the source had reported “inflows of over $2.5 billion for the fourth week running.”

Overall, last week’s inflow had been the fifth in a row seen by EPFR, going back to the week ended Feb. 24. That stretch included a cash injection in the March 2 week which the source characterized as “record-setting inflows tied strongly to U.S. HY funds.”

Before that had come seven straight weekly outflows since the start of the year, with this week’s outflow now bringing that total up to eight.

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 have diverged twice so far this year, and several times last year.

Corporate funds stay positive

Looking at fund flows for other asset classes, investment-grade corporate bond funds managed to stay on the positive side of the ledger this week – though not by that much.

Those investment-grade funds saw net inflows of $112 million during the reporting week, their fourth consecutive cash gain, although it was not even one-tenth of the net inflow of $1.344 billion seen last week, ended March 23.

That large inflow, in turn, had followed the $1.986 billion inflow seen in the week ended March 16 and a $2.176 billion injection during the week ended March 9, the biggest cash addition so far this year.

The most recent outflow from the funds had been in the week ended March 2, when they had declined by a net of $761.406 million.

With 13 Thursday-to-Wednesday reporting weeks of the new year complete, there have now been six inflows, versus seven outflows year, with the $1.451 billion outflow reported during the week ended Feb. 3 the biggest downturn so far this year.

The year-to-date outflow total for 2016 fell to $519.935 million from last week’s $631.935 million.

Loan funds back on the slide

Meanwhile, leveraged loan participation funds, which struggled all of the last two years and which have remained under pressure for most of this year, went back to their losing ways this week, after three straight weeks during which they had shown net inflows.

That three-week surge followed 32 consecutive weeks of losses, according to the latest Lipper data.

Some $119 million more left those funds in the form of investor redemptions than came into them during the week ended Wednesday.

That was in contrast to the $126.155 million inflow seen last week, on top of the $176.1 million net gain the funds saw during the week ended March 16 and $55 million of inflows the week before that, ended March 9. The most recent previous cash loss before this week was the $356.852 million net outflow in the March 2 week.

The elongated losing streak which had been snapped by those three straight inflows dated back to the week ended last July 29.

Those three modest weekly inflows were the only ones seen so far this year, versus the nine straight outflows that opened the year, plus this week’s 10th outflow.

The latest week’s outflow raises the year-to-date net outflow total to $4.786 billion from $4.667 billion last week. The peak cumulative loss for the year so far, according to a Prospect News analysis of the data, was $5.024 billion in the March 2 week.

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