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Income Investing: Ideas to Beat the BankSM

In an ever-changing interest rate environment, keeping tabs on the numerous corners of the yield market can be difficult for investors. To help investors stay informed, we offer monthly insights on income investing, covering the latest news, trends and investment opportunities.

May 2020
Authored by: Michael Cohick, Senior ETF Product Manager

Yields for many investment categories declined in April as security prices rebounded from the March selloff and the benchmark 10-year Treasury bond ended the month hovering around historic lows. With uncertainty around the impact of the global pandemic on the U.S. economy, Federal Reserve actions will likely continue to be dovish, sending income investors on the hunt for yield once again. In this month’s update, we take a quick look at two areas of the yield market that may offer compelling opportunities for investors in the current environment: municipal bonds and fallen angel high yield bonds.

Longer-dated investment grade municipals are generating yields comparable to taxable corporate bonds. When these municipal bond yields are calculated on a tax-equivalent basis, many can produce after-tax income greater than corporates for investors in high tax brackets. In short, this convergence in yield is largely due to a combination of rising supply expectations and limited demand, which has pushed up yields on the long end of the curve. The last time tax-exempt bonds traded close to corporates was during an outflow cycle in December 2016. This is a rare occurrence and an opportunity for a broad range of investors to generate tax-advantaged income from high quality municipal debt.

Fallen angel high yield debt is another area of the market that income investors may want to consider in the current environment, as spreads are up over 300 basis points since the beginning of the year. Fallen angels are bonds that were originally issued with investment grade ratings but have since been downgraded to high yield. These bonds typically experience forced selling prior to downgrade, to prices below what may be considered fair value, offering a unique value proposition that sets them apart from the broader high yield market. Fallen angels also tend to offer higher BB and lower CCC exposure, which can help decrease default risk and absorb broad market volatility. With the sharp increase in credit downgrades so far this year, fallen angel bond volume has increased dramatically, greatly expanding the investible universe. This is important to note as strong returns and outperformance have historically followed high volumes of fallen angels. Additionally, these new fallen angel bonds have exhibited deeper discounts than the historical average, which may lead to higher subsequent price recovery. For investors seeking exposure to high yield in these turbulent times, fallen angel bonds may offer a compelling opportunity to do just that with higher credit quality, compared to broad high yield, and potential for price appreciation.

VanEck Vectors Income ETFs

Ticker Fund Name 30 Day SEC Yield (%)3 Duration (Yrs) Gross Expense Net Expense
Municipal Income
ITM AMT-Free Intermediate Municipal Index ETF 1.67 5.831 0.24 0.24
MLN AMT-Free Long Municipal Index ETF 2.53 7.441 0.24 0.24
SMB AMT-Free Short Municipal Index ETF 1.26 2.971 0.20 0.20
XMPT CEF Municipal Income ETF 4.51 -- 1.86 1.86
HYD High-Yield Municipal Index ETF 4.97 9.991 0.35 0.35
MAAX Municipal Allocation ETF 1.92 2.971 0.38 0.38
SHYD Short High-Yield Municipal Index ETF 3.75 4.781 0.35 0.35
Corporate Bond
ANGL Fallen Angel High Yield Bond ETF 6.22 5.952 0.45 0.35
FLTR Investment Grade Floating Rate ETF 3.27 0.022 0.40 0.14
Equity Income
BIZD BDC Income ETF 14.51 -- 9.68 9.62
EINC Energy Income ETF 9.36 -- 0.45 0.45
DURA Morningstar Durable Dividend ETF 3.99 -- 1.14 0.29
MORT Mortgage REIT Income ETF 18.84 -- 0.49 0.42
PFXF Preferred Securities ex Financials ETF 6.05 -- 0.46 0.41
International Bond
CBON ChinaAMC China Bond ETF 1.94 2.642 2.25 0.50
EMAG Emerging Markets Aggregate Bond ETF 4.51 5.402 0.92 0.35
HYEM Emerging Markets High Yield Bond ETF 8.97 3.412 0.46 0.40
GRNB Green Bond ETF 2.39 5.082 1.02 0.20
IHY International High Yield Bond ETF 7.25 3.662 0.54 0.40
EMLC J.P. Morgan EM Local Currency Bond ETF 5.20 5.192 0.41 0.30
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Source: VanEck (as of 04/30/20).
1Duration to Worst. 2Effective Duration. 330-Day SEC Yield is calculated daily, and is a standard yield calculation developed by the Securities and Exchange Commission that allows for fairer comparisons primarily among bond funds. It is based on the most recent 30-day period. This yield figure reflects the interest earned during the period after deducting the Fund's expenses for the period. It does not reflect the yield an investor would have received if they had held the Fund over the last 12 months assuming the most recent NAV. In the absence of temporary expense waivers or reimbursements, the 30-Day SEC Yields on 04/30/20 would have been as follows - XMPT: 4.51%MAAX: 1.92%ANGL: 6.14%FLTR: 3.02%BIZD: 14.42%DURA: 3.55%MORT: 18.78%PFXF: 6.03%CBON: -1.82%EMAG: 2.82%HYEM: 8.86%GRNB: 1.50%IHY: 6.86%EMLC: 5.26%. Expenses for VanEck Vectors Equity and Income ETFs are contractually capped. Expense caps exclude acquired fund fees and expenses, interest expense, trading expenses, taxes and extraordinary expenses. Expense Caps: ANGL: 0.35%FLTR: 0.14%BIZD: 0.40%DURA: 0.29%MORT: 0.40%PFXF: 0.40%CBON: 0.50%EMAG: 0.35%HYEM: 0.40%GRNB: 0.20%IHY: 0.40%EMLC: 0.30%. Expenses for VanEck Vectors Municipal ETFs are unitary fees. Van Eck Associates Corporation (the “Adviser”) will pay all expenses of these Funds, except for the fee payment under the investment management agreement, acquired fund fees and expenses, interest expense, offering costs, trading expenses, taxes and extraordinary expenses. Expense ratios are as of the most recent prospectus. Past performance is no guarantee of future results. Please see the prospectus of each fund for more detailed information on expenses.

Morningstar ETF Category Flows

Estimated Net Flow ($M)
Morningstar Category Name 1-Mo QTD YTD 1-Yr
High Yield Bond 7,757 7,757 5,241 14,645
Short-Term Bond 3,691 3,691 1,247 8,594
Long Government 1,700 1,700 116 7,635
Short Government 1,542 1,542 10,498 9,746
Ultrashort Bond 1,519 1,519 10,305 20,301
Muni National Interm 248 248 659 5,867
Emerging Markets Bond 240 240 -1,524 -1,216
Long-Term Bond 150 150 -150 2,463
Bank Loan 111 111 -2,508 -1,598
Muni National Short 101 101 323 1,141
World Bond -92 -92 -331 -559
Muni National Long -141 -141 92 539
High Yield Muni -327 -327 -371 417
Intermediate Government -1,419 -1,419 1,362 18,553
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Source: Morningstar (as of 04/30/20). Not representative of fund or fund indices.

Investment Category Yields

Yield to Worst (%)
Category 04/30/20 03/31/20 04/30/19
EM USD High Yield Aggregate 13.61 14.20 7.78
Global High Yield Corporates 8.08 9.44 5.88
U.S. High Yield Corporates 8.06 9.24 6.17
EM USD Sovereigns 6.80 7.00 6.01
EM USD High Yield + Investment Grade Corporates 6.08 7.03 5.14
High Yield Municipals 5.67 5.24 4.66
EM Local Currency Sovereigns 4.86 5.36 6.22
Preferred Securities 3.06 5.77 2.94
U.S. Corporates 2.67 3.43 3.60
Municipals 2.25 2.01 2.30
U.S. Aggregate 1.31 1.59 2.97
Global Aggregate 1.00 1.22 1.81
Treasury Inflation Protected Securities 0.73 0.93 2.64
10 Year Treasuries 0.62 0.68 2.50
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FactSet (as of dates indicated). See bottom of page for Index names. Not representative of fund or fund indices. Please see standard performance for these categories below. Past performance is no guarantee of future results.

U.S. Yield Curves

Treasury Yield Curve

Muncipal AAA Yield Curve

Source: Bloomberg (as of 04/30/20).

Global 10-Year Sovereign Yields (%)

Source: FactSet and Bloomberg (as of 04/30/20). Based on local currency prices. Past performance is no guarantee of future results.

Investment Category Total Returns (%)

Month-End 04/30/2020 Quarter-End 03/31/2020
Investment Category 1 MO* YTD* 1 YR 3 YR 5 YR
U.S. Aggregate 1.78 4.98 8.86 4.81 3.35
U.S. High Yield Corporates 3.80 -9.82 -7.40 0.55 2.66
Global High Yield Corporates 4.54 -10.20 -8.21 0.32 2.65
EM USD High Yield Aggregate 3.47 -15.00 -13.72 -2.74 2.84
EM USD High Yield + Investment Grade Corporates 3.66 -6.45 -2.82 1.60 3.41
EM Local Currency Sovereigns 3.92 -11.89 -6.47 -0.80 0.25
EM USD Sovereigns 2.25 -11.44 -6.79 0.42 2.81
U.S. Corporates 5.24 1.42 4.94 4.19 3.34
U.S. REITs 3.37 -3.16 0.92 3.03 2.89
Global Aggregate 1.96 1.63 4.16 3.54 2.63
Treasury Inflation Protected Securities 2.78 4.52 6.80 3.45 2.66
Municipals -1.26 -1.88 3.82 3.95 3.18
High Yield Municipals -3.37 -10.02 -0.73 4.40 4.18
10 Year Treasuries 0.70 12.72 18.10 7.25 4.07
Preferred Securities 6.84 -2.23 -1.50 2.62 3.86
U.S. Dividend Stocks 9.58 -22.58 -21.55 -3.13 2.72
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VanEck Vectors Income ETF Total Returns (%)

Month-End 04/30/20 Quarter-End 03/31/20
Ticker Fund Name 1 MO* YTD* 1 YR 3 YR 5 YR LIFE Commenced
Municipal Income
HYD High-Yield Municipal Index ETF -3.98 -11.23 -2.64 2.92 3.17 6.63 02/04/09
ITM AMT-Free Intermediate Municipal Index ETF -1.71 -1.64 4.58 4.40 3.34 4.32 12/04/07
MAAX Municipal Allocation ETF -0.30 -9.30 -- -- -- -5.85 05/15/19
MLN AMT-Free Long Municipal Index ETF -2.93 -2.91 5.61 5.27 4.06 4.20 01/02/08
SHYD Short High-Yield Municipal Index ETF -2.17 -7.09 -1.06 2.61 1.59 2.23 01/13/14
SMB AMT-Free Short Municipal Index ETF -0.15 -0.69 1.77 1.74 1.35 2.20 02/22/08
XMPT CEF Municipal Income ETF -3.96 -10.52 1.55 3.55 3.86 5.43 07/12/11
Corporate Bond
ANGL Fallen Angel High Yield Bond ETF 5.95 -7.98 -6.52 0.53 4.04 6.15 04/10/12
FLTR Investment Grade Floating Rate ETF 3.44 -1.87 -2.47 0.76 1.01 0.96 04/25/11
Equity Income
BIZD BDC Income ETF 19.57 -31.58 -37.19 -13.90 -4.78 -2.48 02/11/13
DURA Morningstar Durable Dividend ETF 10.02 -11.87 -10.60 -- -- -2.52 10/30/18
EINC Energy Income ETF 33.85 -32.30 -50.05 -22.93 -23.24 -18.14 03/12/12
MORT Mortgage REIT Income ETF 19.01 -49.13 -54.24 -19.43 -9.19 -1.26 08/16/11
PFXF Preferred Securities ex Financials ETF 12.78 -7.39 -11.45 -1.19 1.05 3.09 07/16/12
International Bond
CBON ChinaAMC China Bond ETF 1.60 2.11 -0.49 3.46 1.21 0.94 11/10/14
EMAG Emerging Markets Aggregate Bond ETF 2.92 -8.79 -4.28 0.63 1.73 1.53 05/11/11
EMLC J.P. Morgan EM Local Currency Bond ETF 3.34 -11.59 -8.84 -2.46 -0.99 -0.50 07/22/10
GRNB Green Bond ETF 2.81 2.68 3.19 3.16 -- 3.41 03/03/17
HYEM Emerging Markets High Yield Bond ETF 4.79 -11.10 -10.07 -1.51 2.68 3.15 05/08/12
IHY International High Yield Bond ETF 5.70 -9.56 -8.87 -0.23 2.28 3.16 04/02/12
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Month-End 04/30/20 Quarter-End 03/31/20
Ticker Fund Name 1 MO* YTD* 1 YR 3 YR 5 YR LIFE Commenced
Municipal Income
HYD High-Yield Municipal Index ETF 5.23 -13.30 -13.30 -0.99 0.72 5.52 02/04/09
ITM AMT-Free Intermediate Municipal Index ETF -2.11 -3.63 3.03 3.94 2.95 4.18 12/04/07
MAAX Municipal Allocation ETF -1.92 -9.92 -- -- -- -4.87 05/15/19
MLN AMT-Free Long Municipal Index ETF -2.85 -4.82 3.49 4.52 3.63 4.04 01/02/08
SHYD Short High-Yield Municipal Index ETF -1.66 -11.47 -5.89 1.01 0.67 1.41 01/13/14
SMB AMT-Free Short Municipal Index ETF 1.35 -0.66 0.55 1.33 1.12 2.09 02/22/08
XMPT CEF Municipal Income ETF -3.90 -10.45 1.62 3.57 3.88 5.44 07/12/11
Corporate Bond
ANGL Fallen Angel High Yield Bond ETF 8.06 -7.32 -7.26 0.20 3.99 6.06 04/10/12
FLTR Investment Grade Floating Rate ETF 4.16 -2.20 -3.38 0.35 0.88 0.86 04/25/11
Equity Income
BIZD BDC Income ETF 20.17 -31.61 -37.46 -14.01 -4.86 -2.50 02/11/13
DURA Morningstar Durable Dividend ETF 9.94 -11.83 -10.47 -- -- -2.42 10/30/18
EINC Energy Income ETF 35.21 -31.76 -50.44 -23.14 -23.43 -18.24 03/12/12
MORT Mortgage REIT Income ETF 18.87 -49.11 -54.29 -19.44 -9.22 -1.26 08/16/11
PFXF Preferred Securities ex Financials ETF 11.35 -7.78 -10.26 -0.75 1.20 3.25 07/16/12
International Bond
CBON ChinaAMC China Bond ETF 2.66 3.00 -0.96 3.53 1.25 0.81 11/10/14
EMAG Emerging Markets Aggregate Bond ETF 0.07 -11.09 -3.96 0.87 1.74 1.60 05/11/11
EMLC J.P. Morgan EM Local Currency Bond ETF 2.42 -13.04 -9.15 -2.74 -1.18 -0.57 07/22/10
GRNB Green Bond ETF 2.60 2.93 3.87 3.40 -- 3.63 03/03/17
HYEM Emerging Markets High Yield Bond ETF 2.96 -12.14 -9.22 -1.17 3.03 3.30 05/08/12
IHY International High Yield Bond ETF 3.52 -11.32 -8.35 -0.20 2.41 3.18 04/02/12
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