Van Eck Global, a New York-based ETF provider, has announced the launch of the Market Vectors Fallen Angel High Yield Bond ETF (ANGL), the first US-listed ETF focused on so-called “Fallen Angels”.
Fallen Angel bonds include some of America's best-known names in business, including Toys R Us, Ford and JC Penney.
The fund is designed to invest in US dollar-denominated Fallen Angels, namely corporate bonds that were originally rated investment grade, but which have subsequently been downgraded to non-investment-grade, or junk status. Fallen Angels currently account for approximately 15% of the dollar-denominated high-yield corporate bond universe.
The fund’s underlying benchmark, the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA), is comprised of below investment-grade corporate bonds denominated in dollars that were rated investment grade at time of issuance. Bonds may have been issued by either US or non-US issuers, but qualifying securities must be issued in dollars in the US domestic market for inclusion in the index.
Among issuers of bonds considered Fallen Angels are some of the best-known names in American business, including Ford, JC Penney, Toys R Us, The New York Times Company and Sprint. Historically, Fallen Angels have been concentrated mostly at the higher end of the high-yield credit spectrum and, according to Moody’s, are considered more likely to be upgraded in the future than original issue high-yield bonds in some instances.
Despite being a subset of high-yield corporate bonds, Fallen Angels could arguably be treated as a separate asset class from original issue high-yield bonds. Fallen Angels are generally more concentrated in the higher rated BB rating, while conventional high yield is weighted more towards B and CCC-rated bonds. Fallen Angels tend to be larger, more well-established companies than original issue high-yield issuers.
Commenting on the launch, Fran Rodilosso, Fixed Income Portfolio Manager at Van Eck, said: “Although they were downgraded from investment grade status, many Fallen Angel issuers still retain a capital structure similar to investment-grade issuers, which may enable Fallen Angel issuers to enjoy greater financing flexibility than original issue high yield issuers.”
Rodilosso added: “Many investors overlook Fallen Angels, but historical data shows that in six of the past nine years ending in 2011, the US dollar-denominated Fallen Angels, as represented by the BofA Merrill Lynch US Fallen Angel High Yield Index, have outperformed general US dollar-denominated corporate high-yield bonds, as represented by the Barclays Capital High Yield Very Liquid Index.”
ANGL expands Van Eck’s existing suite of Market Vectors ETFs that already includes a number of international bond funds, such as the Emerging Markets Local Currency Bond ETF (EMLC), the LatAm Aggregate Bond ETF (BONO), the Renminbi Bond ETF (CHLC), the International High Yield Bond ETF (IHY), as well as a range of US municipal bond ETFs.
ANGL is listed on NYSE Arca and has a net expense ratio of 0.40%, which is capped at least until 1 September, 2013. The Van Eck Market Vectors family of ETFs totals $23.7 billion in assets under management, making it the fifth largest ETF provider in the US and the ninth largest worldwide as of 31 December, 2011.