Junk funds see $1.66 billion inflow; upturn follows two outflows

By Paul Deckelman

New York, Aug 11 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – were back on the upside this week, posting their first net inflow after two straight weeks of net outflows, one of them the largest cash loss seen so far this year.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said Thursday that $1.655 billion more came into those weekly-reporting-only domestic funds than left them in the form of investor redemptions during the week ended Wednesday.

It was a solid rebound from the $2.464 billion outflow reported last Thursday by the Arcata, Calif.-based unit of Thomson Reuters Corp.’s Lipper analytics division for the seven-day period ended Aug. 3.

According to a Prospect News analysis of the figures, last week’s outflow was the biggest cash loss seen so far this year, topping the net $2.107 billion that left the funds during the week ended Jan. 13. It was also the largest outflow the funds had experienced since the week ended Dec. 16, 2015, when a $3.811 billion cash hemorrhage was recorded.

AMG/Lipper had also recently recorded a $175.43 million outflow during the week ended July 27.

Those two most recent outflows, totaling $2.639 billion, had followed three straight weekly inflows before that totaling $6.471 billion, the analysis indicated.

There was a $322 million inflow during the week ended July 20 – which had followed a near-record huge inflow reported 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/Lipper since it began tracking fund flows in 1992.

The latest week’s inflow is the 18th weekly cash addition to the funds since the start of the year versus 14 outflows, according to the Prospect News analysis.

With 32 reporting weeks now in the books for 2016, the year-to-date net inflow increased to $8.708 billion, Lipper said, up from last week’s $7.053 billion, although it remained below the $9.694 billion seen during the July 20th week, the year-to-date peak inflow total.

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 large inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meanwhile recorded a “similar” sized inflow as AMG/Lipper did in the latest week, a market source said.

That cash gain stood in contrast to last week, when the service reported a $3 billion global outflow, with $1.9 billion of that attributable to funds domiciled in the United States, according to the market source. (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.)

Last week’s outflow was the first cash loss that EPFR had seen since the week ended June 29, when it had posted a $3.36 billion cash bleed.

After that earlier outflow, 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.

Because EPFR’s methodology does differ from AMG/Lipper’s, including a much broader range of funds in its universe, that 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.

So far this year, EPFR has tabulated 16 inflows, matched by 16 outflows, while AMG/Lipper has reported 18 inflows and 14 outflows.

IG corporate funds continue gains

Looking at fund flows for other asset classes, investment-grade corporate funds scored their sixth straight weekly gain, with a $2.518 billion net inflow, the Lipper data indicated.

That followed inflows of $2.472 billion during the week ended Aug. 3 and, before that, $1.475 billion during the week ended July 27.

During those two previous weeks, the high-grade funds saw sizable inflows – while their speculative-grade cousins saw investor money fleeing those junk funds, indicating an apparent flight-to-safety on the part of many investors.

This week’s inflow brought the funds’ year-to-date net inflow up to $25.79 billion, Lipper said, versus last week’s $23.271 billion.

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

Loan funds stay strong

Meanwhile, loan participation funds – which have been consistently negative for much of this year so far – posted their second consecutive inflow this week, after an outflow the week before that.

Lipper said that the loan funds had a net inflow of $96.426 million in the week ended Wednesday, with that cash gain coming on the heels of last week’s $60.438 million advance.

Those inflows stood in contrast to the $15.422 million net outflow during the July 27 week, which had followed a rare two straight weeks of relative strength.

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, despite the improvement the last two weeks.

This week’s inflow cut the cumulative net outflow figure to $5.236 billion from last week’s $5.332 billion, Lipper said.

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