Not All High-Yield Bond ETFs Are Created Equal

Investors who are interested in high-yield bonds but are also wary about the credit risks may move up on the quality scale and utilize a so-called fallen angel bond exchange traded fund to meet their income needs.

On the upcoming webcast, Not All High-Yield Bonds Are Created Equal, Wayne Schmidt, chief investment officer for Gradient Investments, and Fran Rodilosso, senior investment officer for Van Eck Global, will discuss the potential opportunities in the high-yield bonds, notably fallen angel debt securities.

Fallen angels are corporate bonds that once held investment-grade credit ratings but, due to a variety of factors, were later downgraded to junk status. Fallen angel issuers tend to be larger and more established than many other junk bond issuers. Furthermore, since these fallen angels were formerly on the cusp of investment-grade status, this group of junk bonds typically has a higher average credit quality than many other speculative-grade debt-related funds.

For instance, the Market Vectors Fallen Angel High Yield Bond ETF (NYSEArca: ANGL) includes 1.1% BBB-rated bonds, 73.5% BB, 17.3% B, 5.2% CCC and 0.5% CC. In contrast the popular iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) holds BBB 0.7%, BB 48.7%, B 40.0% and CCC 9.7%. The SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) includes BBB 0.6%, BB 40.1%, B 45.1% and CCC or lower 14.2%. [Endorsing the Fallen Angel Bond ETF]

Due to its slightly higher quality profile, ANGL has a lower 4.7% 30-day SEC yield, whereas HYG has a 5.24% 30-day SEC yield and JNK has 5.68% 30-day SEC yield.