U.S. Fixed Income
While many investors may have a dedicated allocation to the traditional elements of U.S. fixed income, they may be lacking exposure to more targeted areas of the space that could enhance yield and return across market conditions.
The VanEck Approach
The Fallen Angel High Yield Bond Strategy provides access to fallen angels high yield bonds, which are bonds that were originally issued with investment grade ratings before being downgraded to high yield. This gives them a unique value proposition that sets them apart from the broader high yield market.
- Fallen angels tend to get sold off prior to downgrade and index entrance, below what may be considered fair value. Fallen angel investing is therefore a contrarian approach to investing in bonds exposed to heavy selling, in order to capture their subsequent recovery. Its higher quality exposure helps decrease default risk and absorb broad market volatility.
The Investment Grade Floating Rate Strategy provides access to floating rate notes (FRNs), which offer a conservative, investment grade allocation with near-zero interest rate duration and the potential to benefit from higher short term interest rates through higher coupons.
- The Strategy includes only corporate and financial issuers, tilting its exposure towards longer maturity FRNs. The investment-grade focus ensures high credit quality to mitigate default risk, while the longer maturity profile allows investors to benefit from higher credit spreads.
- Market volatility and a sharp slowdown in growth have led to dislocations in hard hit areas of the economy and an increase in ratings downgrades. We expect record fallen angel volume this year, which may contribute to strong absolute returns and outperformance vs. broad high yield.
- Current discounts on incoming fallen angels are greater than the historical average over the life of the index.
- With rates expected to remain low in the near term, floating rate bonds can provide interest rate diversification against these longer duration options, without sacrificing yield.
VanEck’s passively managed fixed income strategies provide investors thoughtful exposure to potentially underrepresented asset classes or offer a differentiated approach to established investment categories.
The ability to take advantage across the credit spectrum and duration were the catalysts behind VanEck’s foray into passively managed approaches to fallen angel high yield and floating rate notes in the early 2010s.