ETFdb Logo
  • ETF Database
  • Channels
    • Themes
      • Active ETF
      • Alternatives Channel
      • Artificial Intelligence
      • China Insights
      • Climate Insights
      • Core Strategies
      • Crypto
      • Disruptive Technology
      • Energy Infrastructure
      • ETF Building Blocks
      • ETF Education
      • ETF Investing
      • ETF Strategist
      • Faith-Based Investing
      • Financial Literacy
      • Fixed Income
      • Free Cash Flow
      • Innovative ETFs
      • Invest Beyond Cash
      • Leveraged & Inverse
      • Modern Alpha
      • Portfolio Strategies
      • Tax Efficient Income
    • Asset Class
      • Equity
        • U.S. Equity
        • Int'l Developed
        • Emerging Market Equities
      • Alternatives
        • Gold/Silver/Critical Materials
        • Crypytocurrency
        • Currency
        • Volatility
      • Fixed Income
        • Investment Grade Corporates
        • US Treasuries & TIPS
        • High Yield Corporates
        • Int'l Fixed Income
    • ETF Ecosystem
    • ETFs in Canada
    • Market Outlook
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Database Categories
    • Indexes
    • Scenario Analysis
    • Watchlists
    • Head-To-Head ETF Comparison Tool
    • Mutual Fund To ETF Converter
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
  • Research
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF of the Week Podcast
    • Gaining Perspective Podcast
    • ETF Prime Podcast
    • Video
  • Company
    • About VettaFi
    • Get VettaFi’ed
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Beyond Basic Beta Channel
  2. Spreads Might Indicate Fallen Angel Opportunity
Beyond Basic Beta Channel
Share

Spreads Might Indicate Fallen Angel Opportunity

Tom LydonOct 28, 2022
2022-10-28

Credit spreads, which gauge differences in yield between two bonds with the same maturities and different credit quality, are currently surprisingly tight given rising interest rates. That could be a sign opportunity beckons with some corners of the high-yield bond market. One way of capitalizing on that scenario is with the VanEck Fallen Angel High Yield Bond ETF (ANGL A-).

ANGL, which tracks the ICE US Fallen Angel High Yield 10% Constrained Index, holds bonds that were born as investment-grade fare that were later downgraded to junk status.

In other words, ANGL has a better quality profile than a standard junk bond ETF. That’s a pertinent trait today because quality may be one of the reasons credit spreads are tighter than expected.

“There are some possible explanations. First, the quality of the high-yield corporate market is noticeably better than just prior to the pandemic and noticeably different than 10 years ago. Another possible explanation is morale hazard. For the first time, the Fed intervened in the corporate bond market during the pandemic and investors may be assuming that the central bank will do it again if there are financial stability issues or a recession,” according to Moody’s Investors Service.

If banks commence a round of tighter lending standards, thereby making credit less accessible, corporate bond spreads could widen. That might not be ideal for standard junk bonds, but investors still need income, indicating that ANGL could be a viable option in an environment where credit spreads could widen with little advanced warning.

“Spreads should widen soon as banks continue to tighten lending standards. The correlation coefficient between the net percentage of banks tightening lending standards on commercial and industrial loans and the U.S. high-yield corporate bond spread is 0.73,” added Moody’s. “With banks tightening the screws, odds are high that high-yield corporate bond spreads will resume widening.”

The $2.8 billion ANGL offers other advantages. For example, more than 27% of the ETF’s holdings are issued by energy companies. Not only are oil prices high, but the industry is home to many companies that have increasingly strong balance sheets and some that are generating ample amounts of free cash flow, indicating solid abilities to service debt obligations, even in a recession. That’s relevant in any environment, especially one in which a recession could be nearing.

“The share of banks tightening lending standards on C&I loans breached the threshold that has been consistent with a recession in the past. We doubt recession fears will vanish soon and this should also boost high-yield corporate bond spreads,” concluded Moody’s.

For more news, information, and strategy, visit the Beyond Basic Beta Channel.

Loading Articles...
Our Sites
  • VettaFi
  • Advisor Perspectives
  • ETF Trends
Tools
  • ETF Screener
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Database Pro
More Tools
  • Financial Advisor & RIA Center
Explore ETFs
  • ETF News
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Information
  • Contact Us
  • Terms of Use and Privacy Policy
  • © 2025 VettaFi LLC. All rights reserved.

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X