The fallen angel bond ETF may also come with an embedded value characteristic. Before being included in the BofAML US Fallen Angel Index, a debt security that has been downgraded to speculative-grade status would have already experienced significant price deterioration.
ANGL’s risk profile includes 1.1% BBB-rated bonds, 73.5% BB, 17.3% B, 5.2% CCC and 0.5% CC. Due to its slightly higher quality profile, ANGL has a lower 4.7% 30-day SEC yield than other more junkier speculative-grade bond funds.
Moreover, fallen angel bonds have historically provided more attractive risk-adjusted returns than the broad high-yield bond market. Specifically, Rodilosso points to the 1.84 Sharpe Ratio from the BofAML US Fallen Angel Index, compared to the 1.27 Sharpe Ratio in the BofAML Original Issue High Yield Index and 1.11 reading from the Barclays High Yield Very Liquid Index – typically a higher Sharpe Ratio reflects a more attractive risk-adjusted return.
The fallen angel group has also outperformed over the past year. As of March 31, the BofAML US Fallen Angel Index has increased 7.2%, whereas the BofAML US High Yield Index gained 2.1%. The outperformance may be partly due to the higher credit quality and lower aveage energy sector allocations.
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For more information on the speculative-grade debt market, visit our junk bonds category.