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Oil Boom Bolsters Fallen Angel Bond ETF

editor@etftrends.com (ETF Trends)

In 2015, high-yield corporate bond exchange traded funds were dragged lower by sagging oil prices and a spate of issuer defaults in the energy sector. This year, oil prices are rising, providing some relief to junk bond ETFs, but one of these funds is truly standing out.

The VanEck Fallen Angel High Yield Bond ETF (ANGL) benefited last year due to its then low weight to energy debt. This year, ANGL is benefiting because its energy exposure significantly increased, and at just the right time, as many former investment-grade issues from the energy patch became fallen angels.

ANGL tracks so-called fallen angel speculative-grade rated debt, or debt securities that were initially issued with an investment-grade rating but were later downgraded to junk territory.

Related: A Smart-Beta, High-Yield ETF Strategy for Quality

Fallen angel issuers tend to be larger and more established than many other junk bond issuers. Furthermore, since these fallen angels were formerly on the cusp of investment-grade status, the group of junk bonds typically has a higher average credit quality than many other speculative-grade debt-related funds.

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“The $212 million VanEck Vectors Fallen Angel High Yield Bond Exchange Traded Fund is winning its category this year by focusing almost exclusively on particular low-rated bonds: so-called fallen angels, or downgraded bonds that used to be investment grade but have since fallen from grace,” reports Trevor Hunnicutt of Reuters.

Last month, BlackRock introduced the iShares Fallen Angels USD Bond ETF (FALN) . That ETF came to market with a 0.35% expense ratio, which later prompted a fee cut to the same expense ratio by ANGL.

“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,” Meredith Larson, the Fund’s product manager, said in a statement. “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.”

Related: Good News for Investors – ETFs Are Getting Cheaper

“ANGL, which is outperforming the largest broad high-yield debt competitor over three years as well, was able to sidestep the rout in oil and gas company debt that accompanied the 74 percent drop in crude prices between June 2014 and Feb. 11, when oil bottomed out at $26.05 a barrel,” reports Reuters.

Click here to read the full story on ETF Trends.

VanEck Fallen Angel High Yield Bond ETF


The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.