US-based exchange-traded fund provider VanEck has reduced the net expense ratio of its VanEck Vectors Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL) from 0.40% to 0.35%.
‘Fallen angels’ are bonds that were rated as investment grade at the time of their original issuance, but which have since lost their investment-grade status.
The ETF invests in ‘fallen angels’ – a term used to describe bonds that were rated as investment grade at the time of their original issuance, but which have since lost their investment-grade status. Original-issue high yield bonds tend to offer relatively higher income and lower duration than fallen angels. These differences in bond characteristics as well as the overly negative sentiment surrounding a downgrade into junk status, causes fallen angels to be regularly oversold prior to their downgrade. In this way, the fund may provide investors with a value proposition.
ANGL has delivered a strong performance in 2016, returning 13.7% through to 31 May based on net asset value, compared to the BofA Merrill Lynch US High Yield Index, a proxy for the US high yield bond market, which has increased by 8.2% over the same period. Relative to the actively managed funds found in Morningstar’s US Open End Funds High Yield Bond category, the fund ranked in the first percentile since its inception (against 567 funds).
VanEck also reported in early March that the fund had topped $100m in assets under management (AUM); current AUM of over $190m, as of 20 June 2016, highlights the rising popularity of the fund’s strategy among investors.
Meredith Larson, product manager for the VanEck Vectors Fallen Angel High Yield Bond ETF, said in a statement: “ANGL’s unique approach and the exposure it provides for those seeking yield in today’s uncertain climate have truly resonated with investors and advisors this year….. By lowering the fund’s expenses, we think we will make ANGL even more attractive and that much more significant a tool in the portfolio construction process.”
The fund’s 30-day SEC yield is 6.2% and its weighted average duration is 5.8 years. The majority of the fund’s assets are invested in bonds just below investment grade status with 76.0% of net assets in bonds rated ‘BB’. ‘B’ rated bonds make up 9.0% of the fund’s assets, while 6.5% of assets are invested in bonds that have regained investment grade status, rated ‘BBB’. The largest sector weightings in the fund are energy (25.2%), materials (21.9%), financials (16.5%) and communications (13.0%).
ANGL is one of several income-focused ETFs provided by VanEck – also on offer are the VanEck Vectors Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM), the VanEck Vectors JP Morgan EM Local Currency Bond ETF (NYSE Arca: EMLC), and the VanEck Vectors High Income MLP ETF (NYSE Arca: YMLP).
UK-based investors wishing to access the US high yield ETF market may consider the following London-listed ETFs:
The Pimco Short-Term High Yield Corporate Bond Index Source ETF (STHY) has over $436m in AUM. The fund tracks the performance of the BofA Merrill Lynch 0-5 Year US High Yield Constrained Index. The index tracks the performance of short-term US dollar-denominated sub-investment-grade corporate debt issued in the US domestic market with less than five years remaining to final maturity, a fixed coupon schedule and a minimum amount outstanding of $100 million. Allocations to an individual issuer will not exceed 2%. The total expense ratio is 0.55%.
The iShares $ High Yield Corporate Bond UCITS ETF (SHYU) has over $3.4bn in AUM. The fund tracks the Markit iBoxx USD Liquid High Yield Capped Index. The index consists of the most liquid US dollar-denominated corporate bonds with a sub-investment-grade rating, while maintaining a focus on UCITs eligibility. The maximum original time to maturity is 15 years and the minimum time to maturity is three and a half years for new bonds to be included and three years for bonds that already exist in the index. For diversification purposes the weight of each issuer in the index is capped at 3%. The TER is 0.50%.