Historically low interest rates are making for a challenging fixed income environment. VanEck offers three bond ETFs that can still thrive.
The environmental, social, and governance (ESG) investing trend looks like it has the staying power. The space is starting to provide the debt market with unique investing opportunities, opening up pathways for the VanEck Vectors Green Bond ETF (GRNB).
GRNB seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the S&P Green Bond U.S. Dollar Select Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index.
GRNB gives investors:
- Access to bonds issued for financing projects that have a positive environmental impact
- An ESG solution to complement a core bond portfolio
- An index including only U.S. dollar-denominated bonds designated as “green” by the Climate Bonds Initiative
One way to extract more yield is to look toward riskier assets. One option is emerging markets with the VanEck Vectors Emerging Markets High Yield Bond ETF (HYEM).
HYEM seeks to replicate the ICE BofAML Diversified High Yield US Emerging Markets Corporate Plus Index, which is comprised of U.S. dollar-denominated bonds issued by non-sovereign emerging market issuers that have a below investment grade rating and that are issued in the major domestic and Eurobond markets.
- A focus on the non-sovereign segment of the high-yield emerging markets bond market
- Yield pickup and currently lower duration versus U.S. high yield corporate bonds
- Issuer and country diversification to a U.S.-only high-yield exposure
Another angle on high yield is the VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL). ANGL seeks to replicate as closely as possible the price and yield performance of the ICE BofAML US Fallen Angel High Yield Index, which is comprised of below investment grade corporate bonds denominated in U.S. dollars that were rated investment grade at the time of issuance.
The fund focuses on debt that has fallen out of favor and is now repurposed for high-yield returns with the downgraded-to-junk status.
- Higher Quality High Yield: Fallen angels, high-yield bonds originally issued as investment grade corporate bonds, have had historically higher average credit quality than the broad high yield bond universe.
- Outperformed Broad High Yield Bond Market: Fallen angels have outperformed the broad high-yield bond market in 13 of the last 17 calendar years
- Higher Risk-Adjusted Returns than Broad High-Yield Bond Market: Fallen angels have historically offered a better risk/reward trade off than found with the broad high yield bond market.
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