Bond Value Investors Behold: ANGL

by on May 7, 2012 | ETFs Mentioned:

The expansion of the ETF universe continues to bring forth innovative products for investors of all walks and styles. The latest addition to the growing lineup of fixed income products comes from Van Eck in the form of a first-to-market “junk bond” fund; the recently launched Market Vectors Fallen Angel High Yield Bond ETF (ANGL) offers investors a creative, and potentially safer, way for tapping into this asset class [see also Bond ETFs For Every Obective].

ANGL is designed to replicate the price and yield performance of the BofA Merrill Lynch US Fallen Angel High Yield Index, which provides exposure to a unique segment of the high yield bond market. This new ETF focuses on corporate debt that was originally rated as investment grade credit quality at the time of issuance, but has since been demoted to “junk” status [see also High Yield ETFdb Portfolio]. 

What’s The Appeal?

Given the looming uncertainties over the global economy coupled with a historically ultra-low rate environment, the investment thesis offered by ANGL is quite compelling against the current economic backdrop. The primary appeal of the “fallen angel” bond class is fairly straightforward; these securities offer a relatively high yield, while also giving investors the peace of mind that comes with knowing that the underlying debt securities were actually investment-grade when they were originally issued. That’s not to say that “fallen angel” bonds are just as safe as AAA-rated debt; this asset class is simply comprised of formerly high-quality debt that has been downgraded for any number of reasons [ANGL is included in the Pure Value ETFdb Portfolio].

ANGL presents itself as somewhat of a value play in the fixed income space. Most ETFs in the High Yield Bonds ETFdb Category don’t screen based on the rating status at the time the debt was issued, which makes ANGL unique in that respect. Value investing revolves around the notion of identifying fundamentally sound companies which are for whatever reason undervalued by the market; as such, ANGL can serve as an appealing instrument for those who wish to employ a value-focused strategy in the fixed income market. 

Fallen angel issuers tend to have greater debt financing flexibility when compared to securities which were originally issued from below-investment grade issuers. Perhaps the greatest appeal of investing in “fallen angel” bonds is the potential to generate a juicy yield while also minimizing some of the risk associated with investing in this asset class. Furthermore,  these securities offer potential outperformance over traditional high yield debt. According to research from Van Eck, historically, this asset class has offered a more attractive risk/return profile than other high yield corporate debt notes [see also What's In Your Dividend ETF?]. 

Under The Hood

The underlying portfolio of ANGL is comprised of roughly 400 securities, featuring an average yield-to-worst of 7.48% and an average modified duration of 5.49 years. The basket of holdings is heavily tilted towards “BB” rated bonds, which is the highest rating for junk bonds [see ANGL Fact Sheet]. From a sector breakdown perspective, this ETF is dominated by debt from industrial companies, with financial firms making up the next biggest chunk along with minimal exposure to debt from utility companies [see also Better-Than-AGG Total Bond Market ETFdb Portfolio]. 

ANGL charges 0.40% in expense fees, which is below the industry average in the high yield debt space, making this a compelling offering given its unique methodology. This ETF is worth a closer look for anyone looking to enhance their portfolio’s current income without taking on excessively risky investments. 

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Disclosure: No positions at time of writing.