The VanEck Fallen Angel High Yield Bond ETF (NYSEArca: ANGL), which tracks the BofA Merrill Lynch US Fallen Angel High Yield Index, is establishing some favorable traits. Those include proficiency at adding assets and, more importantly, out-performance of traditional high-yield corporate bond exchange traded funds.
ANGL has a notably longer duration of 6.29 years – duration is a measure of a bond fund’s sensitivity to changes in interest rates, so a longer duration translates to greater interest rate risk.
The fallen angel ETF tracks so-called fallen angel speculative-grade rated debt, or debt securities that were initially issued with an investment-grade rating but were later downgraded to junk territory. Fallen angel issuers tend to be larger and more established than many other junk bond issuers.
“Fallen angels can be a source of higher quality high yield for investors, given about 77% of the universe was concentrated in BB-rated bonds (just one ratings notch below investment grade) as of April 30, 2017,” said VanEck in a recent note. “This compares to the broader high yield bond universe’s 48% concentration in BB-rated bonds. Furthermore, this higher average credit quality has been accompanied by more attractive rising star and default rates, historically.”