On the other hand, investors who focused on fallen angel bonds may have witnessed less volatility. Relative to the broader high-yield market, fallen angels have historically included greater concentration of higher quality or BB-rated speculative-grade bonds. However, potential investors should keep in mind that while fallen angels have a higher quality tilt, the group comes with a lower average yield and higher average duration – the Fallen Angel ETF has a 6.43% 30-day SEC yield and a 5.71 year duration.
Rodilosso also pointed out that over the past 12 months, fallen angel growth has primarily come out of energy and basic industry issuers. So far this year, stabilizing commodity prices have helped bolster energy and basic industries.
Related: Rising Corporate Defaults Could Keep a Lid on Junk Bond ETFs
On a survey of advisors participating on the webcast, 40.7% of respondents revealed they prioritize credit quality and 49.6% look for performance. ANGL leans toward higher quality speculative-grade debt, including low investment-grade BBB 6.5%, along with speculative-grade BB 75.8%, B 9.5%, CCC 3.7%, CC 0.1% and non-rated 2.9%. Additionally, the ETF has been among the best performing high-yield funds, rising 12.8% year-to-date.
Looking ahead, the majority of surveyed respondents believe Federal Reserve rate hikes will be the greatest risk to credit markets for the rest of the year. Rodilosso outlined three possible scenarios that fixed-income investors should keep in mind. If the Federal Reserve acts on a tightening labor market and rising core inflation, high yield credit spreads could tighten. If U.S. growth slows, corporate credit could disappoint. Lastly, if the Federal Reserve acts with a slow and steady hand, high-yield debt could continue to perform.
For more information on speculative-grade debt, visit our junk bonds category.
Financial advisors who are interested in learning more about the speculative-grade debt market can watch the webcast here on demand.