Junk funds see $2.453 billion outflow, second loss in three weeks

By Paul Deckelman

New York, Sept. 15 – High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – turned sharply negative this week, more than completely offsetting the modest-sized cash gain recorded last week.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said Thursday that $2.453 billion left those weekly-reporting-only domestic funds in the form of investor redemptions during the reporting week ended Wednesday.

That was a sharp deterioration from the $610 million net inflow reported last Thursday by the Arcata, Calif.-based unit of Thomson Reuters Corp.’s Lipper analytics division for the seven-day period ended Sept. 7.

That inflow had followed a $387 million net outflow during the week ended Aug. 31.

That cash loss, in turn, had followed three straight weeks of inflows totaling $2.706 billion – a $162 million inflow during the week ended Aug. 24 and before that inflows of $889 million during the week ended Aug. 17 and $1.655 billion during the week ended Aug. 10.

According to a Prospect News analysis of the data, this week’s outflow was the second cash exodus in the last three weeks, and the largest in more than a month. It was also the fourth downturn in the last 10 weeks, dating back to the week ended July 13.

On a longer-term basis, this week’s outflow was the 16th seen so far this year, against 21 inflows.

Since May, the flows have been inconsistent and choppy, mostly with one or two weeks of inflows alternating with a like number of outflows.

Recent weeks had seen several extremely large fund flows.

Among them was the $4.351 billion cash injection seen during the week ended July 13. The Prospect News data indicated that this was the second-largest cash surge on record.

There was also a $2.464 billion outflow recorded during the week ended Aug. 3 – a slightly wider cash loss than this week’s big outflow.

Outflow is no surprise

This week’s big outflow was about what the junk market was expecting.

A trader said that on Friday and again on Monday, he had “seen big numbers out on outflows” from the funds on a daily basis that add up cumulatively to the weekly numbers.

Tuesday, he said, was not as big as Friday and Monday, but was still in negative territory.

Before the week’s numbers were published, he estimated an outflow of “probably at least $1.5 billion to over $2 billion.”

Year-to-date inflow reduced

With 37 reporting weeks now in the books for 2016, the year-to-date cumulative net inflow fell this week to $7.529 billion from last week’s $9.982 billion – which had established a new peak level for the year so far, surpassing the previous high-water mark, the $9.759 billion cumulative inflow seen during the Aug. 24 week.

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 outflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meanwhile recorded a net inflow “more than $1 billion bigger” than the cash loss reported by AMG/Lipper, according to a market source.

That contrasted with the inflow that the service reported last week, which the source said was “a little under three times” the AMG/Lipper inflow amount, or approximately $1.8 billion.

He also said that last week’s inflow amount just for high-yield funds domiciled in the United States was “more than double” the AMG/Lipper total, or somewhere north of around $1.2 billion.

(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).

This week’s outflow broke a winning streak of five consecutive overall cash gains reported by the funds that EPFR tracks.

Because EPFR’s methodology does differ from AMG/Lipper’s and it includes 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 they may diverge completely, with one service reporting an inflow in a given week while the other sees an outflow, or vice versa.

So far this year, EPFR has tabulated 20 inflows, versus 17 outflows, while AMG/Lipper, as noted, has seen 21 inflows and 16 outflows.

IG corporate funds continue gains

Looking at fund flows for other asset classes, investment-grade corporate funds scored their 11th straight weekly gain, with a $569 million net inflow, the Lipper data indicated.

That followed a $2.804 billion inflow during the week ended March 7.

The high-grade funds’ most recent outflow was $638.599 million, during the week ended June 29 – which had been the first cash loss seen after 16 consecutive weeks of cash gains for the IG corporate funds.

This week’s inflow brought the funds’ year-to-date net inflow up to an estimated $33.473 billion, versus last week’s $32.904 billion.

This week’s total established an 11th consecutive new peak level for the year, according to Prospect News’ analysis of the data.

© 2015 Prospect News.
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