A Look At The Fallen Angel Bond ETF (ANGL, IHY, HYG)

Following last week's introduction of the Market Vectors International High Yield Bond ETF IHY, Van Eck Global's Market Vectors unit is again adding to its bond ETF with the debut of the Market Vectors Fallen Angel High Yield Bond ETF ANGL. ANGL tracks the Bank of America Merrill Lynch U.S. Fallen Angel High Yield Index and features and expense ratio of 0.4%, the same as IHY. ANGL's index is comprised of below investment-grade corporate bonds denominated in U.S. dollars that were rated investment grade at time of issuance. Bonds may have been issued by either U.S. or non-U.S. issuers, but qualifying securities must be issued in U.S. dollars in the U.S. domestic market for inclusion in the index, according to a statement issued by Market Vectors. So-called fallen angel issuers are different from the usual suspects in the junk bond universe for several reasons. First and foremost, fallen angel companies are typically large, familiar companies that have lost investment-grade status where as many companies issuing high-yield bonds are smaller, more obscure and have never had investment-grade status. Market Vectors noted familiar fallen angels include Ford F and J.C. Penney JCP. “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,” said Fran Rodilosso, Fixed Income Portfolio Manager at Van Eck, in the statement. “Many investors overlook Fallen Angels, but historical data shows that in six of the past nine years ending in 2011, the U.S. dollar denominated Fallen Angels, as represented by The BofA Merrill Lynch U.S. Fallen Angel High Yield Index, have outperformed general U.S. dollar denominated corporate high yield bonds, as represented by The Barclays Capital High Yield Very Liquid Index," Rodilosso added. Market Vectors data show $10,000 invested in ANGL's index in 2003 would be worth over $26,700 today while the same amount invested in the Barclay High Yield Very Liquid Index would be worth just $24,554 today. Fallen Angel bonds are typically more concentrated in the BB area of the ratings spectrum while other junk bonds are found more in the B and CCC areas. Nearly 48% of the issues in ANGL are rated BBB. Nearly a third of fallen angels find their way to investment -grade status, according to Market Vectors. ANGL's top-10 holdings include issues from Ford, J.C. Penney, Masco MAS, Limited Brands LTD and Frontier Communications FTR. ANGL is the 47th Market Vectors ETFT and the firm's 14th bond fund. The Market Vectors family currently totals $23.7 billion in assets under management, making it the fifth largest ETF family in the U.S. and the ninth largest worldwide. With over $14.3 billion in AUM, the iShares iBoxx $ High Yield Corporate Bond Fund HYG is the largest junk bond ETF listed in the U.S.