Small Issues, Low Rating Post Highest Returns
February 7, 2000
The secondary high yield market was light last week, traders said, and even though the Federal Reserve raised the federal funds rate a quarter of a percentage point, there wasn't much direct impact.
Traders and portfolio managers had been expecting a raise in rates, in fact many are expecting more increases in the coming months, and it was largely factored into expectations, according to market observers.
Most of the high yield players commented on the fund flows last week instead, and it was not the typical gloom-and-doom thought process. Several portfolio managers said that they didn't think the market was as bad as the AMG numbers have been reflecting over the past several weeks.
Nobody had specific numbers to back up the claims - instead there were a lot of people relying on intuition - but some market participants said that between collateralized bond obligations and other new money being put to work in high yield, the weekly reporters to AMG are not the best gauge of the market.
David Hinman, a high yield portfolio manager at PIMCO, said that dedicated high yield mutual funds account for about $125 billion of the $600 billion in high yield assets outstanding. And furthermore, mutual funds that account for only about $68 billion - slightly more than 10% of the total high yield market - report their numbers weekly to AMG.
Even more illustrative, though, were his own numbers. He said his company has about $9.3 billion in high yield assets, and about one-third of that amount is in mutual funds.
Others, while not being so specific, agreed with the general notion while one investor noted that sometimes investors may get out of high yield mutual funds and put that money to work elsewhere in the high yield market via other instruments. And consequently, the cash is suddenly not counted in the official AMG numbers.
January Numbers Are Down
Questions concerning fund flows notwithstanding, the month of January was down. According to Lipper Inc., the average high yield fund returned a lackluster 0.35% in January, down from January 1999's average of 1.60%.