- Fixed-income investors who want to squeeze out a little more yield can look to a high-yield bond exchange traded fund
- ANGL tracks so-called fallen angel, speculative-grade debt, or bonds that started out with investment-grade ratings but were later downgraded to junk territory
- ANGL includes a hefty 73.9% tilt toward BB-rated debt, along with 11.5% B, 4.0% CCC and 3.6% non-rated debt
With an uptick in volatility and lingering concerns over the market, fixed-income investors who want to squeeze out a little more yield can look to a high-yield bond exchange traded fund that leans toward higher quality speculative-grade debt.
The Market Vectors Fallen Angel High Yield Bond ETF (NYSEArca: ANGL) tracks so-called fallen angel, speculative-grade debt, or bonds that started out with investment-grade ratings but were later downgraded to junk territory.
ANGL provides “old-school opportunistic investing with some rules built around it,” Edward Lopez, Marketing Director with Van Eck, told ETF Trends in a call.
Before being included in the underling BofA Merrill Lynch US Fallen Angel High Yield Index, a debt security that has been downgraded to speculative-grade status would have already experienced significant price deterioration. Fallen angel issuers also 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, the group of junk bonds typically has a higher average credit quality than many other speculative-grade debt-related funds.
Specifically, ANGL includes a hefty 73.9% tilt toward BB-rated debt, along with 11.5% B, 4.0% CCC and 3.6% non-rated debt.
In comparison, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG), the largest junk bond ETF, has a smaller 49.8% position in BB-rated debt, and larger weights toward lower quality B 37.6% and CCC 10.6%.
The higher quality tilt has helped ANGL outperform its high-yield ETF competitors. Year-to-date, ANGL is up 6.4% while HYG is 2.4% higher.
“Fallen angels have historically offered a better risk/reward trade off than found with the broad high yield bond market,” according to VanEck Vectors ETFs.
The outperformance has also helped ANGL almost double its assets this year, with the fund recently breaking above $100 million in assets under management.
ANGL has held up during the energy-sector default scare as oil prices plunged toward 13-year lows. While ANGL includes a large 13.7% tilt toward energy names, its oil exposure is different than other junk bond funds as ANGL tends to own higher rated junk bond issues from midstream master limited partnerships, which are less affected by falling oil prices, and does not own distressed exploration and production names.
ANGL has a 5.6 year effective duration and a 7.40% 30-day SEC yield.
Market Vectors Fallen Angel High Yield Bond ETF