Junk funds see $1.81 billion outflow, ending four-week inflow streak

By Paul Deckelman

New York, May 5 - High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – posted their first net outflow in five weeks, market sources said Thursday.

That breaks a string of four consecutive weeks during which more cash came into those funds than flowed out of them, according to a Prospect News analysis of the figures.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said on Thursday that some $1.807 billion 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 sharp contrast to the $296 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 April 27.

Before that were inflows of $1.181 billion during the week ended April 6, $84.6 million in the week ended April 13 and $409.9 million during the week ended April 20.

Inflows over those four weeks totaled nearly $1.972 billion.

They followed the $545 million net outflow recorded for the week ended March 30, which had been had been the first cash loss after six consecutive inflow weeks before that, dating back to the week ended Feb 17 and totaling $13.404 billion, the analysis indicated.

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. It thus surpassed the previous record-holder, the $4.25 billion inflow seen during the week ended Oct. 26, 2011.

The latest week’s outflow was the seventh cash loss seen in the 18 weeks since the start of the year, versus 11 inflows in that time.

ETFs dominate outflows

This week’s big outflow came as no surprise – a secondary market trader presciently said before the numbers were released that he was “looking for an outflow in the area of $1 to $2 billion.”

The outflow is totally attributable to redemptions from high-yield exchange-traded funds; after modest inflows were seen to both the ETFs and the more traditional actively managed mutual funds last Thursday, a portfolio manager said that outflows from the ETFs from Friday through Wednesday totaled $2.6 billion, only partially offset by aggregate inflows to mutual funds during that time.

He added that the outflow total just over those four days wiped out approximately one-third of all the inflows that high-yield ETFs have seen since the current junk market rally began in mid-February.

“There was a lot of timer money in the ETFs because people thought that the market was cheap,” the manager remarked.

On Wednesday alone, the manager said, ETFs saw $737 million of outflows, most of them coming from the single largest ETF, Black Rock Inc.’s iShares iBoxx High Yield Corporate Bond ETF, commonly known to investors as HYG.

It accounted for $669 million of Wednesday’s outflow total, he said.

Year-to-date inflow reduced

With 18 reporting weeks in the books for 2016, the year-to-date net inflow figure fell to $7.857 billion, the Prospect News analysis indicated, from $9.664 billion last week, which had been the fourth consecutive new peak level for the year so far.

The fund flows – which started the year off with a string of outflows – reached their peak net outflow level for the year during the week ended Feb. 10, when they showed cumulative red ink of $5.165 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 a cash loss of close to $2 billion.

That was in sharp contrast to last week, when the source had reported an inflow of around $500 million, the fourth consecutive weekly cash addition.

The latest outflow brings the total for the year seen by EPFR up to nine, evenly matched against nine weekly inflows.

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.

As was the case with the AMG/Lipper numbers, this week’s outflow can be blamed squarely upon redemptions taking place in the high-yield ETFs in its fund universe; a market source said that after modest inflows last Thursday to both the actively traded funds and the passive ETF funds, the ETFs racked up nearly $2.5 billion of redemptions over the next four sessions, only partially offset by the modest inflows seen by the active funds

Corporates, loan funds see inflows

Looking at fund flows for other asset classes, investment-grade corporate funds saw a net inflow this week of $2.098 billion, the Lipper data indicated, bringing its year-to-date net inflow up to $7.883 billion

Leveraged loan participation funds – which have mostly seen outflows so far this year – actually saw an $84.2 million inflow on the week.

That cut the loan funds’ year-to-date net outflow to $5.275 billion, the data showed.

-Paul A. Harris contributed to this report

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