More investors are looking at riskier assets in order to obtain increasingly elusive yield. ETF provider VanEck is seeing strong inflows in three of its ETFs that focus on high yield debt.
One fund that is highly sought after 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.
ANGL gives investors exposure to:
- 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.
- Outperformance in the Broad High Yield Bond Market: Fallen angels have outperformed the broad high yield bond market in 12 of the last 16 calendar years.
- Higher Risk-Adjusted Returns: Fallen angels have historically offered a better risk/reward trade off than found with the broad high yield bond market.
- Junk Status: Debt that has fallen out of investment-grade favor and is now repurposed for high yield returns with the downgraded-to-junk status.
Emerging Markets and Munis
Niche high yield bond ETF exposure can be attained in emerging markets via the VanEck Vectors EM High Yield Bond ETF (HYEM). In addition, high yield municipal bond exposure is available via the VanEck Vectors High Yield Muni ETF (HYD).
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.
- Focuses solely on the non-sovereign segment of the high yield emerging markets bond market
- Currently lower average duration when compared with high yield U.S. corporate bonds
- Lower historical default rates compared to high yield U.S. corporate bonds
HYD seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Bloomberg Barclays Municipal Custom High Yield Composite Index. The fund normally invests at least 80% of its total assets in securities that comprise the benchmark index.
The index is comprised of publicly traded municipal bonds that cover the U.S. dollar denominated high yield long-term tax-exempt bond market. Overall, HYD offers:
- A High-Yield Muni Focus: The underlying Index is comprised of highest-yielding municipal bonds with income generally exempt from federal taxes.
- Enhanced Liquidity Features: HYD’s index includes 25% BBB investment-grade exposure for enhanced liquidity.
- Diverse Sector Exposure and Low Default Rates: The index covers wide range of muni sectors and securities with historically low default rates.
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