Forbes: Go Where the Yield Is
February 24, 2023
Read Time 1 MIN
Head of Fixed Income ETF Portfolio Management Fran Rodilosso’s philosophy is “Go where the yield is.” In this Forbes feature, Fran explains what this means and the process behind VanEck’s fallen angel high yield bond strategy.
Fallen angels stand apart from original-issue high yield bonds, offering a higher quality, high yield bond strategy that has historically outperformed the broad high yield bond market.1 Unlike other high yield bonds, fallen angel bonds are issued by larger and more established companies, which have a higher likelihood of being upgraded to investment grade. This makes them a contrarian investment option for those seeking exposure to high yield bonds that have been subjected to significant selling pressure.
Attractive Opportunity Set in Fallen Angel High Yield Bonds
The distinction between the high yield bond market and the much larger investment grade market, with unique investor bases and issuers, creates a structural inefficiency when a bond crosses over from one category to the other. Historically, bonds have experienced a drop in value prior to being downgraded to high yield, followed by a recovery once they have been downgraded. This dynamic creates a compelling opportunity for a rules-based approach.
Benefits of a Systematic Approach
Investing in fallen angels requires thick skin. Catching angels as they fall means buying into sectors that most other investors are avoiding. The VanEck Fallen Angel High Yield Bond ETF (ANGL) portfolio is completely rules-based, which may mean going against the market—and your instincts. ANGL mechanically buys bonds as soon as they get downgraded from high-quality to junk and sells any bond that gets upgraded from junk to high-quality. In aggregate, this systematic approach has been a reliable method for fallen angel investors to achieve outperformance compared to the broader high yield market historically.
Read the full article here: How to Make Money on Sickly Bonds.
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1 Fallen angel bonds represented by the ICE US Fallen Angel High Yield 10% Constrained Index (H0CF) and Broad U.S. High Yield represented by the ICE BofA High Yield Index (H0A0).
Past performance is not a guarantee of future results. Performance current to the most recent month end is available by clicking here.
An investment in the Fund may be subject to risk which includes, among others, high yield securities, foreign securities, foreign currency, credit, interest rate, restricted securities, market, operational, call, energy sector, consumer discretionary sector, information technology sector, financials sector, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and concentration risks, all of which may adversely affect the Fund.
ICE US Fallen Angel High Yield 10% Constrained Index (H0CF, Index) is a subset of the ICE BofA US High Yield Index (H0A0, Broad Index) and includes securities that were rated investment grade at time of issuance.
ICE BofA US High Yield Index (H0A0, Broad Index) is comprised of below-investment grade corporate bonds (based on an average of various rating agencies) denominated in U.S. dollars.
Index data on and prior to February 28, 2020 reflects that of the ICE BofA US Fallen Angel High Yield Index (H0FA). From February 28, 2020 forward, the index data reflects that of the Fund's underlying index, the ICE US Fallen Angel High Yield 10% Constrained Index (H0CF). Index history which includes periods prior to February 28, 2020 links H0FA and H0CF and is not intended for third party use.
ICE Data Indices, LLC and its affiliates (“ICE Data”) indices and related information, the name "ICE Data", and related trademarks, are intellectual property licensed from ICE Data, and may not be copied, used, or distributed without ICE Data's prior written approval. The licensee's products have not been passed on as to their legality or suitability, and are not regulated, issued, endorsed, sold, guaranteed, or promoted by ICE Data. ICE Data MAKES NO WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO THE INDICES, ANY RELATED INFORMATION, ITS TRADEMARKS, OR THE PRODUCT(S) (INCLUDING WITHOUT LIMITATION, THEIR QUALITY, ACCURACY, SUITABILITY AND/OR COMPLETENESS).
Performance and characteristics of the ICE US Fallen Angel High Yield 10% Constrained Index (H0CF) are quoted throughout this material. H0CF is not representative of the entire Fallen Angels high yield corporate bond market. H0CF does not represent the performance or yield of the Fund.
Bonds and bond funds will decrease in value as interest rates rise.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.
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