Despite challenges from the energy patch, high-yield corporate bonds are off to a decent start this year, but the VanEck Vectors Fallen Angel High Yield Bond ETF (NASDAQ: ANGL) remains a standout. ANGL is higher by 2.28% while the largest traditional junk bond ETF is up just half a percent.
ANGL seeks to replicate as closely as possible the price and yield performance of the ICE BofAML US Fallen Angel High Yield Index. The index is comprised of below investment grade corporate bonds denominated in U.S. dollars that were rated investment grade at the time of issuance. ANGL has a duration of 6.2 years.
“Unlike with Investment Grade Corporates or Treasuries, there are no long-duration funds available in the high yield space, since few investors are willing to extend credit to questionable companies for that length of time,” according to the ETF Research Center. “The longest duration fund we cover is the VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL).”
The ANGL Of Angles
Fallen angel issuers tend to be larger and more established than many other junk bond issuers. Relative to the broader high-yield market, fallen angels have historically included greater concentration of higher quality or BB-rated speculative-grade bonds. Historically, fallen angels have outperformed the broader junk bond market.
“ANGL has a duration of 6.2 years, but this fund is a portfolio of bonds that were originally issued as Investment Grade, and subsequently fell into Junk territory,” said the ETF Research Center. “Importantly, however, these “Angels” still enjoy a higher average credit profile than comparable funds. The median credit rating for ANGL is Ba2, two notches higher than the SPDR Bloomberg Barclays High Yield Bond ETF (JNK), at B1.”
Relative to the broader high-yield market, fallen angels have historically included greater concentration of higher quality or BB-rated speculative-grade bonds. Due to the aforementioned higher credit quality, the $2 billion ANGL has 30-day SEC yield of 4.64%, which is less than the yields found on some higher rival, traditional junk bonds despite ANGL’s longer duration.
“This explains why despite its longer duration ANGL still offers a lower yield to maturity than JNK. Nonetheless, the market has viewed these favorably in recent years, with ANGL broadly outperforming JNK since inception in 2012,” according to the ETF Research Center.
ANGL has 191 holdings, nearly 77% of which are rated BB.
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