Another high-yield option to consider is the VanEck Fallen Angel High Yield Bond ETF (NYSEArca: ANGL), which tracks the BofA Merrill Lynch US Fallen Angel High Yield Index.
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.
Related: 4 Appealing Floating Rate ETFs for Rising Rates
Although default rates have recently been low, some market observers believe that metric is destined to tick higher due in part to the flailing retail sector.
“Another catalyst likely to precipitate higher defaults is the retail sector. J. Crew Group’s July distressed debt exchange drove the retail TTM default rate to 2.9%,” according to Fitch. “There have been only three retail bond defaults tallying just under $1 billion this year. However, Fitch’s Bonds of Concern list reveals a few likely default candidates, among them Sears Holdings Corp. and Claire’s Stores Inc. Fitch predicts a 9% retail default rate for 2017 if both Claire’s and Sears default.”
For more on bond ETFs, visit our Fixed Income category.
Tom Lydon’s clients own shares of HYG and JNK.