VanEck Fallen Angel High Yield Bond ETF (NASDAQ: ANGL)

Últimas noticias sobre VanEck Fallen Angel High Yield Bond ETF (NASDAQ:ANGL)

VanEck Fallen Angel High Yield Bond ETF

The Fund normally invests at least 80 percent of its total assets in securities that comprise the Funds benchmark index. The Fallen Angel Index is comprised of below investment grade corporate bonds denominated in U.S. dollars that were (a) rated investment grade at the time of issuance or (b) in certain limited circumstances, were original-issue high yield bonds from the same obligor entity whose bonds were already included in the Fallen Angel Index and are senior or senior secured only. Qualifying securities must be issued in the U.S. domestic market and have a below investment grade rating. Defaulted securities are removed from the Fallen Angel Index at the end of the month in which they default. The Fallen Angel Index is comprised of bonds issued by both U.S. and non-U.S. issuers.

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Anglogold Ashanti PLC

Entering this year, there were concerns about what the future held for high-yield corporate debt.
Fresh interest rate cuts by the Federal Reserve and an estimated $17 trillion in negative-yielding debt found around the world have prompted investors to revisit riskier corners of the corporate bond market.
<h3>What Happened</h3>
In recent years, junk bond ETFs have become alternatives, if not outright replacements, for individual issues among some high-level investors, explaining in large part substantial inflows to traditional junk bond exchange traded funds this year.
Investors would do well not to sleep on the VanEck Vectors Fallen Angel High Yield Bond ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/angl#NYSE">ANGL</a>).
The $1.2-billion ETF tracks the ICE BofAML US Fallen Angel High Yield Index and holds 194 corporate bonds that were born with investment-grade ratings but were later downgraded to junk status.
<h3>Why It&#39;s Important</h3>
ANGL offers investors outperformance potential due to some elements of the corporate bond market of which only professionals are aware.&nbsp;
&ldquo;The market tends to anticipate rating actions, so bonds are typically sold and prices driven down prior to the downgrade. Historically, prices have tended to recover fully during the six months, on average, following the downgrade,&rdquo; <a href="https://www.vaneck.com/blogs/etf-insights/fallen-angel-bonds-resurrecting-value-in-high-yield/?audience=fa">VanEck said in a recent note</a>.
&ldquo;This forced selling phenomenon and the higher quality tilt have driven long-term outperformance of fallen angels versus the broad high yield market.&rdquo;
Another ingredient in the fallen angel secret sauce is embracing issues from sectors that are close to or already have bottomed out.
&ldquo;Downgrades are often concentrated in certain sectors, which allows a fallen angel strategy to be overweight oversold sectors where fundamentals have bottomed out, and benefit from a potential recovery,&rdquo; according to VanEck.
&ldquo;The result has been an average of 250 basis points of outperformance versus the broader U.S. high yield market per year over the past 10 years, including outperformance in 11 of the last 15 calendar years.&rdquo;
<h3>What&#39;s Next</h3>
ANGL is living up to its standard of outperformance this year, topping the largest traditional junk bond ETF by 260 basis points while being only 50 basis points more volatile.
Assuming ANGL keeps up its trajectory, 2019 would mark&nbsp;the sixth year in the past seven that it has topped the largest high-yield ETF.
&ldquo;Since inception, ANGL has outperformed its Morningstar category average by over 300 basis points, as of 9/30/19, placing it at the top of the category,&rdquo; notes VanEck.
&ldquo;It has also outperformed active high yield bond strategies as measured by the Morningstar High Yield Bond category average over the same time period.&rdquo;
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ANGL

Fallen Angels: A Better Way To High Yield?

&ldquo;Adventurous&rdquo; usually isn&#39;t a word used in relation to fixed income investing, but <a href="https://www.benzinga.com/markets/bonds/19/08/14221728/10-year-treasury-yield-plunges-to-lowest-in-nearly-3-years-why-it-matters">with Treasury yields tumbling in the U.S.</a> and other major global central banks paring interest rates, it might require some sense of adventure to find adequate yield.
<h3>What Happened</h3>
Early Wednesday, 10-year Treasuries hit a yield of 1.63%. The iShares 20+ Year Treasury Bond ETF (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/tlt#NASDAQ">TLT</a>), one of the least risky bond funds out there, is the midst of a nine-day winning streak, underscoring the risk off mood permeating markets right now.
Although it&#39;s trading lower over the past week, the VanEck Vectors&nbsp;Fallen Angel High Yield Bond ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/angl#NYSE">ANGL</a>) is one way yield-thirsty investors can quench their thirst. The $1.1 billion ANGL tracks the ICE BofAML US Fallen Angel High Yield Index and has a 30-day SEC yield of 5.31%, or more than triple the yield on 10-year Treasuries.
<h3>Why It&#39;s Important</h3>
&ldquo;Fallen angel bonds, or high yield bonds originally issued with investment grade ratings, have outperformed the broad U.S. high yield market so far this year,&rdquo; said VanEck <a href="https://www.vaneck.com/blogs/etfs/fallen-angels-high-yield-bonds-late-cycle">in a recent note</a>. &ldquo;We believe the current environment of central bank easing will remain supportive of fallen angels and that fallen angels may be attractive as we enter the later stages of the credit cycle.&rdquo;
ANGL holds 201 bonds and while it is a junk bond fund, fallen angels typically have less representation the speculative CCC rating group than do bonds born as junk. Just over 6% of ANGL&#39;s holdings are rated CCC or CC, <a href="https://www.vaneck.com/etf/income/angl/overview/">according to issuer data</a>.
By comparison, the widely followed Markit iBoxx USD Liquid High Yield Index allocates about 10.4% of its weight to CCC-rated debt, but that benchmark&#39;s yield is roughly the same as ANGL&#39;s.
<h3>What&#39;s Next</h3>
ANGL&#39;s effective duration us 5.7 years, enough to put the fund in intermediate-term territory and enough to position the ETF to benefit from falling interest rates.
&ldquo;Although the longer duration can be a headwind in rising rate environments, fallen angels have actually outperformed the broad high yield market in seven out of the last nine years in which interest rates rose significantly,&rdquo; said VanEck. &ldquo;This is generally explained by the timing of rate increases, which tend to come later in the economic cycle and may coincide with higher fallen angel volumes, as well as the historical tendency of credit spreads to tighten in times of stronger economic growth.&rdquo;
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iShares Trust Barclays 20+ Year Treasury Bond Fund

A Bond ETF For Adventurous Investors

Shares of PG&amp;E Corp. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/pcg#NYSE">PCG</a>), the embattled California utility, have shed <a href="https://www.benzinga.com/analyst-ratings/analyst-color/19/01/13006477/analyst-cuts-pg-e-price-target-by-82-but-still-sees-som">a stunning 70 percent of their value</a> this year as the company is considering bankruptcy amid facing $30 billion in liabilities from the 2017 and 2018 California wildfires.
The specter of bankruptcy and those wildfire claims prompted ratings agencies to slash PG&amp;E&#39;s corporate credit rating.
<h3>What To Know</h3>
A corporate credit rating that was once BBB- is now C, the really speculative end of the highly speculative junk bond ratings spectrum.
While PG&amp;E bonds meet the definition of fallen angels, corporate bonds born with investment-grade ratings that are later downgrade to junk status, investors shouldn&#39;t expect to see the utility&#39;s debt appearing in the VanEck Vectors Fallen Angel High Yield Bond ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/angl#NYSE">ANGL</a>) in the near-term.
ANGL is the oldest and largest exchange traded fund dedicated to fallen angel bonds. The fund holds 225 bonds that once carried investment-grade ratings.
<h3>Why It&#39;s Important</h3>
ANGL, which turns seven years old in April, follows the ICE BofAML US Fallen Angel High Yield Index (H0FA). That benchmark &ldquo;is comprised of below investment grade corporate bonds denominated in U.S. dollars, issued in the U.S. domestic market and that were rated investment grade at the time of issuance,&rdquo; <a href="https://www.vaneck.com/etf/income/angl/overview/">according to VanEck</a>.
ANGL&#39;s index provider is opting against the inclusion of PG&amp;E bonds in its various benchmarks, meaning ANGL investors will not be seeing the utility operator&#39;s debt in the ETF anytime soon.
&ldquo;On January 15, ICE BofAML announced that, although the bankruptcy filing date would fall after the preview date for its high yield indexes, PG&amp;E&rsquo;s bonds would NOT be added to the ICE BofAML high yield indexes, including the US High Yield Index or the US Fallen Angel High Yield Index,&rdquo; <a href="https://www.vaneck.com/blogs/etfs/the-angel-that-wasnt">said VanEck in a recent note</a>.
As of the end of 2018, ANGL allocated just 6.65 percent of its weight to CCC-rated debt and the bulk of those bonds in ANGL are rated CCC+.
<h3>What&#39;s Next</h3>
While ANGL would miss out on any potential near-term rally in PG&amp;E bonds, it may be to the benefit of the ETF&#39;s investors that those bonds currently are excluded from the fund.
&ldquo;We believe the indexer has exercised discretion with regard to the index rules in a thoughtful and prudent manner,&rdquo; said VanEck. &ldquo;That is not to say the bonds in question are certain to fall further in value, that PG&amp;E investors have been saved from losses, or that the bonds cannot rally from here. Markets are quick to price in bad news, and the reorganization of PG&amp;E could, under reasonable assumptions, leave a high recovery value for the bonds.&rdquo;
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Photo credit:<a href="https://www.flickr.com/photos/44576730@N06/8372602918/"> Frank Deanrdo, Flickr</a>

PG&E Bonds Won't Be In This Bond ETF Anytime Soon

Amid fears of rising interest rates in the U.S. and talk that default rates are climbing, some bond market experts expected a rough year for high-yield corporate debt.
While there have been ample warnings regarding the health of the junk debt market, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/hyg#NYSE">HYG</a>), the largest junk bond exchange trade fund, is up half a percent year-to-date. Conversely, the VanEck Vectors Fallen Angel High Yield Bond ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/angl#NYSE">ANGL</a>) is lower by 1.1 percent.
<h3>What Happened</h3>
Over much of its more than six years on the market, ANGL has outperformed traditional junk bond benchmarks with less volatility due in part to the fact that fallen angels are high-yield bonds that were born as investment-grade fare.
&ldquo;Fallen angel bond performance is mainly driven by higher average credit quality, sector differentiation, and potential value from discounted bonds as they are downgraded to high yield status,&rdquo; <a href="https://www.vaneck.com/blogs/etfs/fallen-angel-bonds-rising-rates-geopolitics/">said VanEck in a recent note.</a>
Over 95 percent of ANGL&#39;s holdings are rated BB or B. By comparison, the Markit iBoxx USD Liquid High Yield Index allocates 87 percent of its weight to bonds with those ratings.
<h3>Why It&#39;s Important</h3>
Sector allocations are an important factor with fallen angels, particularly for bond investors monitoring developments in the oil market.
&ldquo;Top fallen angel sector contributors year to date have been the overweight in energy and underweight in media,&rdquo; said VanEck. &ldquo;Main detractors have been positions and overweights in the basic industry (e.g., materials) and telecom sectors.&rdquo;
As of May 31, energy was ANGL&#39;s largest sector allocations at 24.6 percent. The ETF&#39;s 30-day SEC yield is 5.61 percent, slightly below the 30-day SEC yield on HYG.
<h3>What&#39;s Next</h3>
ANGL devotes just 3.59 percent of its weight to highly speculative CCC-rated bonds. While those bonds are outperforming this year, the <a href="https://economictimes.indiatimes.com/markets/bonds/riskiest-junk-bonds-are-most-mispriced-since-2007-goldman/articleshow/64349506.cms">credit risk premium</a> on that debt is declining, indicating that speculative-grade junk bonds are potentially overvalued and due for a correction.
&ldquo;While not always the case, fallen angel bonds have tended to outperform the broad high yield bond market, on average, in calendar years when credit spreads widened meaningfully, as well as in the subsequent recovery periods,&rdquo; said VanEck.
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This Bond ETF Could Regain Its Angelic Status

Oil is one of this year&#39;s worst-performing commodities, a theme that has a tendency to pressure high-yield corporate bonds because the U.S. junk bond market is littered with issues from energy companies. However, the VanEck Vectors Fallen Angel High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>) has been mostly steady this year with a gain of 2.5 percent.
ANGL&#39;s durability in the face of volatile oil markets is not new. When oil slumped several years ago, traditional junk bond ETFs languished due to heavy exposure to speculative CCC-rated from exploration and production firms. During that period, ANGL lacked energy exposure, enabling it to weather the storm. But as more energy producers were downgraded to junk credit ratings, ANGL&#39;s exposure to energy debt increased, <a href="https://www.benzinga.com/trading-ideas/long-ideas/16/08/8296103/fallen-angel-etf-still-angelic-as-oil-prices-slump">allowing the ETF to benefit</a> as oil prices recovered.
ANGL turned five years old in April and tracks the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA), &ldquo;which is comprised of below investment grade corporate bonds denominated in U.S. dollars, issued in the U.S. domestic market and that were rated investment grade at the time of issuance,&rdquo; <a href="https://www.vaneck.com/etf/income/angl/overview/">according to VanEck</a>.
<h3>Keeping An Eye On Spreads</h3>
Helped by low default rates, buoyant equity markets and the Federal Reserve&#39;s measured approach to raising interest rates, junk bond credit spreads are narrowing this year. Additionally, the fallen angel market is dwindling in size.
&ldquo;Since last year, when commodity prices rebounded from the February 2016 lows, the fallen angel market size has diminished from what we view as credit-positive activity related to the extended spread tightening environment,&rdquo; said VanEck <a href="https://www.vaneck.com/blogs/etfs/fallen-angel-market-compressed-with-spreads/">in a recent note</a>. &ldquo;While the universe is smaller than a year ago, and could further decrease should credit spread tightening persist, the market size is currently within its historical range. As such, we believe fallen angels continue to present a viable option for income investors who may want to consider a higher quality concentration when allocating to high yield bonds.&rdquo;
ANGL holds 234 fallen angel bonds and has a 30-day SEC yield of 4.91 percent.
<h3>Continuing To Outperform</h3>
"Fallen angels have outperformed the broad high yield bond market by 66 bps (5.62% versus. 4.96%) year to date, primarily attributable to their sector overweights in telecommunications, banking, and technology,&rdquo; said VanEck. &ldquo;These sector differences are driven by fallen angel universe migration, which occurs mainly from credit cycles impacting sectors and individual issuers, as seen more acutely last year with the influx of energy and basic industry sector entrants.&rdquo;
ANGL has outperformed the largest junk bond ETF every year since it came to market.
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Commodities

Fallen Angel ETF Endures Oil Market Calamity

Some exchange-traded funds serve as reminders that what may seem like too much of a nuanced concept upon inception can ultimately be validated by the market and investors. The VanEck Vectors Fallen Angel High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>) may be a prime example of that theme.
Indeed, ETFs have made the world of high-yield corporate bond investing more accessible to a broader swath of investors. However, chances are many investors that were alive during the 1980s had at least heard of junk bonds. It is not a stretch to say that when ANGL debuted five years ago that a small percentage of the investment community, particularly non-professional investors, knew about fallen angel bonds.
<h3>The Transformational Power Of ANGL</h3>
ANGL, which is celebrating its fifth birthday, changed that. The ETF made an investing that is actually rather simple accessible to a broader audience. Fallen angel bonds are corporate debt born with investment-grade ratings that are later downgraded to junk territory. Historical data confirm that these bonds often outperform traditional junk bonds with less risk due in part to the fact that fallen angels often stand a better chance of <a href="https://www.benzinga.com/trading-ideas/long-ideas/16/07/8201486/another-boon-for-fallen-angel-bond-etfs">reclaiming investment-grade status</a> than regular high-yield corporates.
In 2015, ANGL benefited because its exposure to then controversial energy debt was well below that of traditional junk bond ETFs. Last year, the fallen angels from the energy patch that have entered ANGL are making the ETF a juggernaut when it comes to performance and <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/06/8076753/guess-what-junk-bond-etfs-love-oils-resurgence">asset-gathering proficiency</a>.
<h3>ANGL, Flying High</h3>
As of April 4, ANGL had $763.7 million in assets under management, according to VanEck data. Predictably, ANGL&#39;s success has inspired some competition, but the one ETF that is a direct competitor to ANGL has just $10.9 million in assets under management.
ANGL was the first ETF to focus on fallen angels, &ldquo;a category of high yield bonds that were originally issued as investment grade but which have since experienced a downgrade to junk status. Fallen angels have had historically higher average credit quality than the broad high yield universe, and the category has outperformed the broad high yield space in 10 of the last 13 years, including 2016,&rdquo; <a href="http://finance.yahoo.com/news/vaneck-marks-fifth-anniversary-fallen-130000236.html;_ylt=AwrTHRVK1etY6lgAja5XNyoA;_ylu=X3oDMTByZDNzZTI1BGNvbG8DZ3ExBHBvcwMyBHZ0aWQDBHNlYwNzYw--">according to VanEck</a>.
ANGL holds 235 bonds and has an effective duration of just under 6.4 years. Over 95 percent of the ETF&#39;s holdings are rated BB or B.
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News

A Big Milestone For This Bond ETF

The VanEck Fallen Angel High Yield Bond ETF (Market Vectors ETF Trust (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>)), one of this year&#39;s hottest fixed income exchange-traded funds, is undergoing an important change later this month.
In a move aimed at enhancing liquidity, ANGL&#39;s underlying index, BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA), is significantly increasing the amount outstanding required for individual issues to join the index from to a minimum of $250 million from a minimum of $100 million.
&ldquo;As a result, approximately 7.4 percent of the current Index will be eliminated. We see this as a positive move that should help improve the overall liquidity of the Index&rsquo;s universe, while imposing relatively minimal impact on potential performance and composition,&rdquo; said VanEck <a href="https://www.vaneck.com/blogs/etfs/fallen-angel-index-change-enhance-liquidity/">in a recent note</a>.
<h3>The Concern Over Liquidity</h3>
In various surveys polling institutional and other professional investors about fixed income ETFs, liquidity often appears as one their most frequently-cited concerns. That is particularly true with high-yield bonds, of which fallen angels are, because many individual issues this bond genre are not sufficiently liquid, a scenario that explains investors&#39; growing preference for ETFs over individual junk bonds.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/08/8296103/fallen-angel-etf-still-angelic-as-oil-prices-slump">Fallen Angel ETF Still Angelic As Oil Prices Slump</a></bzrelatedlink>
VanEck said ANGL&#39;s new expense ratio is 0.35 percent, or $35 per $10,000 invested. In March, VanEck revealed that ANGL topped <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/03/7742698/earning-its-wings-fallen-angel-etf-tops-100-million-in-assets"> $100 million</a> in assets under management. In less than three months, ANGL&#39;s assets have swelled to $330 million.
Fallen angel bonds are debt that comes to market with investment-grade ratings only to later be downgraded to junk status. There are tangible benefits to ANGL&#39;s index making the aforementioned change.
&ldquo;The rule change will help promote the Index&rsquo;s liquidity by eliminating a number of very small components that tend to be less liquid and difficult to trade relative to larger issues. This is likely to have two very positive effects.
&ldquo;First, market makers in the ANGL ETF will no longer see bond issues smaller than $250 million in creation and redemption baskets, with positive ramifications for their estimated cost of trading those baskets. Second, eliminating hard-to-trade smaller positions from the underlying Index could help improve ANGL&rsquo;s tracking error, as the ETF may now be more closely aligned with the Index&rsquo;s constituency,&rdquo; according to VanEck.
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An Important Change For The Fallen Angel ETF

Oil prices are slumping again, sending exchange traded products such as the United States Oil Fund LP (ETF) (NYSE: <a class="ticker" href="/stock/uso#NYSE">USO</a>) close to or into new bear markets. The recent slide in oil prices is renewing concerns about the high-yield corporate bond market, which was plagued last year amid a spate of energy-related credit downgrades and defaults.
<h3>Fancying Fallen Angels</h3>
For now at least, the VanEck&nbsp;Fallen Angel High Yield Bond ETF (Market Vectors ETF Trust (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>)) is finding ways to endure oil&#39;s most recent rough patch. Last year, ANGL benefited because, among junk bond ETFs at the time, its energy exposure was comparatively low. This year, ANGL is benefiting because, until recent weeks, oil prices were rebounding, lifting many of the fallen angel bonds from energy issuers that entered ANGL.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/07/8201486/another-boon-for-fallen-angel-bond-etfs">Another Boon For Fallen Angel Bond ETFs</a></bzrelatedlink>
Fallen angel bonds are debt that comes to market with investment-grade ratings only to later be downgraded to junk status. Year-to-date, ANGL is up nearly 15 percent, a performance that is nearly triple that of the largest traditional junk bond ETF. Indicating that it can endure another oil slump, ANGL is higher by 1.2 percent over the past month, while the aforementioned USO is down nearly 17 percent.
<h3>Fallen Angels And Oil</h3>
&ldquo;Fallen angels have maintained their sector biases year to date, being meaningfully overweight the basic industry and energy sectors and underweight the healthcare sector, which positively contributed to outperformance relative to the broad high yield bond market. In addition, fallen angels&#39; higher average credit quality and some notable tender offer activity positively contributed to outperformance.
&ldquo;<a href="http://www.vaneck.com/blogs/etfs/fallen-angels-boosted-bond-buyback-premiums-july-2016/">Read more about fallen angels&#39; 2016 bond buybacks</a>. Conversely, fallen angels&#39; overweight in the banking, utility, and insurance sectors negatively contributed to relative performance versus the broad high yield bond market,&rdquo; according to a recent <a href="http://www.vaneck.com/blogs/etfs/fallen-angels-outpace-pack-august-2016/"> VanEck note</a>.
ANGL, which has a 30-day SEC yield of just over 6 percent, allocates 47.3 percent of its weight to energy and materials issuers. Importantly, only 3.4 percent of the issues in ANGL are rated CCC, the problem area for junk bonds over the past year, particularly those issued by energy companies.
Last month, VanEck said ANGL&#39;s new expense ratio is 0.35 percent, or $35 per $10,000 invested. In March, VanEck revealed that ANGL topped<a href="http://www.benzinga.com/trading-ideas/long-ideas/16/03/7742698/earning-its-wings-fallen-angel-etf-tops-100-million-in-assets"> $100 million</a> in assets under management. In less than three months, ANGL&#39;s assets have swelled to $273.3 million. 
With ANGL, energy and materials &ldquo;are now meaningfully overweight, but have a higher average credit quality constituency, relative to the broad high yield bond market. This scenario is a prime example of the fallen angel thesis, and may help support how this subset of high yield bonds offers a sufficient combination of price appreciation and yield for a potentially optimal high yield bond allocation over the long term,&rdquo; added VanEck.
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Fallen Angel ETF Still Angelic As Oil Prices Slump

In a year in which investors have been led to believe exchange-traded funds holding U.S. government debt are scorching hot (they are), fallen angel bonds funds, such as the VanEck Vectors Fallen Angel High Yield Bond ETF (Market Vectors ETF Trust (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>)), are stealing the bond ETF show.
As has been previously noted in this space, 2016 is the second consecutive year in which ANGL can be seen as the right place, right time junk bond ETF. Last year, ANGL benefited because its exposure to then controversial energy debt was well below that of traditional junk bond ETFs. This year, the fallen angels from the energy patch that have entered ANGL are making the ETF a juggernaut when it comes to performance and <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/06/8076753/guess-what-junk-bond-etfs-love-oils-resurgence">asset-gathering proficiency</a>.
However, there are other reasons to consider an ETF like ANGL.
<h3>Other Appeals</h3>
&ldquo;A less obvious source of value for fallen angels can arise when the underlying corporation engages in a bond buyback, typically in the form of a public tender. Bond buybacks are a form of &#39;liability management&#39; that can help companies tidy up their balance sheets, improve their credit standings and ratings, and attract and retain investors. Companies use buybacks either to retire debt at a discount or to reduce costs simply by buying back a higher yielding bond and then issuing a new bond at a lower interest rate,&rdquo; said VanEck <a href="http://www.vaneck.com/blogs/etfs/fallen-angels-boosted-bond-buyback-premiums-july-2016/">in a recent note</a>.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/07/8201485/down-on-the-farm-looking-at-the-agribusiness-etf">Down On The Farm: Looking At The Agribusiness ETF</a></bzrelatedlink>
ANGL, which has a 30-day SEC yield of just over 6 percent, allocates 47.1 percent of its weight to energy and materials issuers. Importantly, only 3.4 percent of the issues in ANGL are rated CCC, the problem area for junk bonds over the past year, particularly those issued by energy companies.
Last month, VanEck said ANGL&#39;s new expense ratio is 0.35 percent, or $35 per $10,000 invested. In March, VanEck revealed that ANGL topped<a href="http://www.benzinga.com/trading-ideas/long-ideas/16/03/7742698/earning-its-wings-fallen-angel-etf-tops-100-million-in-assets"> $100 million</a> in assets under management. In less than three months, ANGL&#39;s assets have swelled to $219.2 million.
&ldquo;Companies recognize the value in buying back bonds for a variety of reasons; for investors it signals both the companies&#39; willingness and ability to meet their debt obligations. For fallen angels, bond buybacks have served as another source of value so far this year. We believe bond buybacks offer another compelling reason for investors to look at the potential of this asset class,&rdquo; added VanEck.
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Buybacks

Intraday Update

Another Boon For Fallen Angel Bond ETFs

The VanEck Vectors Fallen Angel Bond ETF (Market Vectors ETF Trust (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>)) is one of this year&#39;s fastest-growing exchange-traded funds of any variety, and VanEck is rewarding investors that are piling into ANGL with a lower annual expense ratio.
In a statement out Monday, VanEck said ANGL&#39;s new expense ratio is 0.35 percent, or $35 per $10,000 invested. In March, VanEck revealed that ANGL topped<a href="http://www.benzinga.com/trading-ideas/long-ideas/16/03/7742698/earning-its-wings-fallen-angel-etf-tops-100-million-in-assets"> $100 million</a> in assets under management. In less than three months, ANGL&#39;s assets have swelled to $194.2 million as of June 17.
<h3>Favorable Fallen Angels</h3>
Fallen angels are corporate bonds that came to market with investment-grade ratings, but were later downgraded to junk status. One way of looking at ANGL is that the ETF is benefiting from the very issuers that were thorns in the sides of traditional junk ETFs last years: energy and materials companies.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/06/8122960/ishares-expands-high-yield-bond-etf-lineup">iShares Expands High-Yield Bond ETF Lineup</a></bzrelatedlink>
&ldquo;ANGL has returned 13.67 percent year to date through May 31 based on net asset value (NAV), far outpacing the broad high yield bond market, as represented by the BofA Merrill Lynch US High Yield Index (H0A0), which returned 8.15 percent over the same period. Furthermore, relative to the actively managed funds in Morningstar&rsquo;s Open End Funds &ndash; U.S. &ndash; High Yield Bond category, ANGL&rsquo;s total returns ranked in the first percentile over the 1-year period (against 772 funds) and since its inception (against 567 funds), as of May 31, 2016,&rdquo; according to VanEck.
<h3>A Little Competition</h3>
Last week, ANGL got its first direct competitor in the form of the iShares Fallen Angels USD Bond ETF (NASDAQ: <a class="ticker" href="/stock/faln#NASDAQ">FALN</a>). Time will tell which one of these ETFs will rule the fallen angel ETF kingdom in asset-gathering terms, but it can be argued that in a niche segment of the ETF market such as this, ANGL&#39;s first mover advantage will be tough to beat. FALN also charges 0.35 percent per year.
This particular segment of the high-yield corporate bond market has been soaring this year because many of the newest fallen angels hail from the energy patch and after being battered amid 2015&#39;s plunging oil prices, rebounding energy prices are <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/06/8076753/guess-what-junk-bond-etfs-love-oils-resurgence">lifting fallen angels in 2016</a>.

FALN

Amid Asset Surge, Fallen Angel Bond ETF Trims Fees

BlackRock Inc. (NYSE: <a class="ticker" href="/stock/blk#NYSE">BLK</a>)&#39;s iShares unit, the world&#39;s largest issuer of exchange traded funds, added to its already sizable lineup of fixed income ETFs Thursday with the debut of two focused high-yield corporate bond funds.

	iShares introduced its take on fallen angel bonds with the iShares Fallen Angels USD Bond ETF (NASDAQ: FALN). Fallen angel bonds are corporate bonds that came to market as investment-grade issues, but were later downgraded to junk status.

	That particular segment of the high-yield corporate bond market has been soaring this year because many of the newest fallen angels hail from the energy patch and after being battered amid 2015&#39;s plunging oil prices, rebounding energy prices are <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/06/8076753/guess-what-junk-bond-etfs-love-oils-resurgence">lifting fallen angels in 2016</a>.

	<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/06/8122924/loving-latin-america-etfs">Loving Latin America ETFs</a></bzrelatedlink>

	FALN faces intense competition from the VanEck Vectors Fallen Angel High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>). ANGL is the first ETF dedicated to fallen angel bonds and one of this year&#39;s fastest-growing bond ETFs.

	The other new addition from iShares is the iShares iBoxx $ High Yield ex Oil &amp; Gas Corporate Bond ETF (NASDAQ: HYXE). As its name implies, the iShares iBoxx $ High Yield ex Oil &amp; Gas Corporate Bond ETF excludes debt issued by oil and gas firms.

	iShares also said it lowered the expense ratio on the iShares 0-5 Year Investment Grade Corporate Bond ETF (NASDAQ: <a class="ticker" href="/stock/slqd#NASDAQ">SLQD</a>) to 0.08 percent per year from 0.15 percent. The issuer also pared the annual fee on the iShares Convertible Bond ETF (BATS: ICVT) to 0.2 percent from 0.35 percent.

	iShares bond ETFs have garnered $20 billion in new assets this year, or half of the total amount of new capital that has flowed into all bond ETFs year-to-date.

New ETFs

SLQD

iShares Expands High-Yield Bond ETF Lineup

In news that is not exactly stunning to seasoned followers of the high-yield corporate bond market, junk bonds and the related exchange-traded funds are enjoying oil&#39;s rebound. After all, it was slumping oil prices and the specter of high-yield energy sector defaults that dragged on junk bond ETFs last year.
Knowing that there is an overt correlation between oil prices and high-yield corporate bonds and that crude touched its highest levels of 2016 on Monday, the takeaway is that junk bond ETFs are back in style.
 Well, sort of.
<h3>Junk Bond ETFs And Oil</h3>
&ldquo;The extra spread required by investors to hold high yield oil and gas bonds is the most overt indicator of improving investor sentiment in the asset class, as that gauge of credit risk has halved from the highs seen in mid-February. At that time, investors required an all-time high of 1674bps of extra yield in order to hold dollar denominated bonds issued by non-investment grade rated oil and gas firms when WTI oil traded at its $26 per barrel lows,&rdquo; said <a href="http://www.markit.com/Commentary/Get/06062016-Credit-Oil-recovery-lifts-high-yield-bonds">Markit</a> in a new research piece.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/05/7963599/be-realistic-with-junk-bond-etfs">Be Realistic With Junk Bond ETFs</a></bzrelatedlink>
That does not mean investors are universally enthusiastic about high-yield ETFs. Although the United States Oil Fund LP (ETF) (NYSE: <a class="ticker" href="/stock/uso#NYSE">USO</a>), which tracks front month West Texas Intermediate crude prices, is up nearly 9.5 percent year-to-date, investors have yanked nearly $845 million from the iShares iBoxx $ High Yid Corp Bond ETF (NYSE: <a class="ticker" href="/stock/hyg#NYSE">HYG</a>).
<h3>HYG, JNK And ANGL</h3>
HYG, the largest high-yield bond ETF, has also suffered some massive one-day outflows in recent weeks. Data suggest investors are missing out.
&ldquo;This improving sentiment is translating into real returns for holders of high yield oil and gas bonds as the Markit iBoxx USD Liquid High Yield Oil &amp; Gas Index has delivered over 54 percent in total returns from its February lows. This phenomenal rebound has put the asset class into positive territory for the year, with the index now up by over 20 percent year to date (ytd) on a total return basis,&rdquo; added Markit.
Investors are not eschewing all high-yield corporate ETFs. HYG&#39;s primary rival, the SPDR Barclays Capital High Yield Bnd ETF (NYSE: <a class="ticker" href="/stock/jnk#NYSE">JNK</a>) has more exposure to energy debt than does HYG so perhaps it is not a coincidence that JNK has hauled in $2.1 billion in new assets this year.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/05/7942103/yes-this-junk-bond-etf-is-sufficiently-liquid">Yes, This Junk Bond ETF Is Sufficiently Liquid</a></bzrelatedlink>
Although it has not taken in the most assets, the VanEck Vectors Fallen Angel High Yield Bond ETF (Market Vectors ETF Trust (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>)) is arguably the biggest beneficiary of oil&#39;s rebound among high-yield bond ETFs. For most of last year, ANGL&#39;s big advantage was its low energy exposure.
<h3>The Flip Side</h3>
Now, the reverse is true. Due to a spate of energy issuer credit downgrades, turning bonds born as investment-grade into junk bonds or fallen angels, ANGL&#39;s combined energy and materials exposure is over 47 percent.
Investors have certainly been enthusiastic about ANGL. The ETF <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/03/7742698/earning-its-wings-fallen-angel-etf-tops-100-million-in-assets">topped $100 million in assets</a> under management in March and the ETF now has $185 million in AUM.

Guess What? Junk Bond ETFs Love Oil's Resurgence

High-yield corporate bond exchange-traded funds are back in style this year. That much is confirmed by the rising tide of assets into these ETFs coupled <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/04/7828099/jumping-for-junk-high-yield-bond-etf-volume-rises">with the surge in volume</a>.
Of course, the pillars of the junk bond ETF community are raking in the assets and garnering plenty of attention in the financial media, but the Market Vectors Fallen Angel High Yield Bond ETF (Market Vectors ETF Trust (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>)) merits a place in this conversation.
<h3>Fallen Angels</h3>
Fallen angel bonds, such as the nearly 250 held by ANGL, are bonds that when issued had investment-grade ratings but eventually get downgraded to junk territory. Getting down to what really matters, in this case that being yield and returns, investors do not sacrifice any of either with ANGL.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/03/7742698/earning-its-wings-fallen-angel-etf-tops-100-million-in-assets">Earning Its Wings: Fallen Angel ETF Tops $100 Million In Assets</a></bzrelatedlink>
Fallen angels &ldquo;have significantly outperformed the broad corporate high yield bond market in 2016. As of March 18, 2016, the BofA Merrill Lynch US Fallen Angel High Yield Index returned 7.1 percent year to date, nearly twice the 3.6 percent return from the BofA Merrill Lynch US High Yield Index. Fallen angels&rsquo; outperformance in 2016 had been due primarily to their greater exposure to the basic industry and energy sectors and higher average credit quality,&rdquo; according to a statement <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/03/7742698/earning-its-wings-fallen-angel-etf-tops-100-million-in-assets">issued by Market Vectors</a>.
<h3>ANGL</h3>
Plus, ANGL carries a 30-day SEC yield of 7.31 percent. That is better than what investors will find on some traditional high-yield bond ETFs.
In some ways, ANGL can be seen as an &ldquo;all-weather&rdquo; high-yield bond ETF. ANGL stood tall last year when its more traditional rivals floundered as junk debt from energy and materials issuers plagued the high-yield market. But many of those issues became fallen angels, gaining them entry into ANGL. Now that those bonds are rebounding, ANGL is benefiting as highlighted by a year-to-date gain of almost 7 percent.
&ldquo;Relative to the broad high yield bond market, fallen angels&#39; recent outperformance was primarily due to their higher average allocations to the basic industry and energy sectors. Both of these sectors&#39; bonds appreciated in the first quarter, as oil prices recovered approximately 46 percent since mid-February,&rdquo; according to a recent <a href="http://www.vaneck.com/blogs/efts/high-yield-recovers-fallen-angels-soar-april-2016/">Market Vectors note</a>.
Energy&#39;s footprint in the high-yield bond market is growing, but that growth is especially pronounced within ANGL, meaning this is one bond ETF that would benefit from a sustained rally in oil prices.
&ldquo;Over the first quarter, fallen angels&#39; energy allocation grew from about 13 percent to 25 percent, while the broad high yield bond market&#39;s went from approximately 11 percent to 13 percent,&rdquo; added Market Vectors. &ldquo;The overweight bias occurred as a result of the energy sector&rsquo;s struggles in 2015, which led to investment grade energy companies suffering credit deterioration being downgraded to high yield.&rdquo;
Image Credit: <a href="https://pixabay.com/en/angel-knife-nature-flash-clouds-749625/">Public Domain</a>

A Heavenly High-Yield Destination

In what was supposed to be a tricky environment for high-yield, corporate bond exchange-traded funds, investors are flocking to those ETFs. In fact, the SPDR Barclays Capital High Yield Bnd ETF (NYSE: <a class="ticker" href="/stock/jnk#NYSE">JNK</a>) is this year&#39;s seventh best asset-gathering ETF with nearly $2 billion worth of inflows.
Other high-yield corporate bond ETFs are getting in on the act, including the Market Vectors Fallen Angel High Yield Bond ETF (Market Vectors ETF Trust (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>)). ANGL is now a member of the $100 million club. To be precise, ANGL had $111.4 million in assets under management as of March, <a href="http://www.vaneck.com/funds/ANGL.aspx">according to Market Vectors data</a>.
<h3>Fallen Angels</h3>
Fallen angels are corporate bonds that came to market with investment-grade ratings but were later downgraded to junk status. One way of looking at ANGL is that the ETF is benefiting from the very issuers that were thorns in the sides of traditional junk ETFs last years: energy and materials companies.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/03/7719385/high-yield-bond-etfs-are-hot-again">High-Yield Bond ETFs Are Hot Again</a></bzrelatedlink>
Fallen angels &ldquo;have significantly outperformed the broad corporate high yield bond market in 2016. As of March 18, 2016, the BofA Merrill Lynch US Fallen Angel High Yield Index returned 7.1 percent year to date, nearly twice the 3.6 percent return from the BofA Merrill Lynch US High Yield Index. Fallen angels&rsquo; outperformance in 2016 had been due primarily to their greater exposure to the basic industry and energy sectors and higher average credit quality,&rdquo; according to a statement issued by Market Vectors.
Issues from the basic materials and energy sectors combine for just over 30 percent of ANGL&#39;s weight. At 16.6 percent, basic materials is the ETF&#39;s second-largest sector allocation behind financial services. 
ANGL&#39;s asset-gathering proficiency is impressive on percentage basis. Entering Monday, the ETF had added nearly $50 million in new assets this year, meaning it had almost doubled in size in less than 90 days. 
<h3>Additional Benefit For ANGL</h3>
Another ANGL advantage is that the ETF skirts risky CCC-rated and worse debt. Just 4.1 percent of the ETF&#39;s lineup is rated CCC or CC while nearly 74 percent carries a rating of BB, which is toward the upper end junk territory.
Even with that, investors do not make a yield sacrifice with ANGL as highlighted by the ETF&#39;s 30-day SEC yield of 7.2 percent. ANGL has a yield-to-worst of 7.3 percent with an effective duration of 5.66 years.
&ldquo;Fallen angels have outperformed the broad high yield bond market in 9 of the last 12 calendar years,&rdquo; according to Market Vectors.
Image Credit: <a href="https://pixabay.com/en/angel-angelic-sadness-tomb-stone-316352/">Public Domain</a>

Earning Its Wings: Fallen Angel ETF Tops $100 Million In Assets

In the current market environment, anyone who has avoided exposure to the havoc that is the <a href="http://www.benzinga.com/topic/energy">energy sector</a> is certainly breathing a sigh of relief. Investors in the high-yield bond market that chose &ldquo;fallen angels&rdquo; as opposed the broader market are also feeling relieved. Fallen angels corporate bonds are bonds that were investment grade at one point, but have since fallen to below investment grade.

	The bonds typically have less exposure to the energy sector than their standard high-yield counterparts, despite the large presence that energy has in the high-yield bond market, which has grown from 8 to 16 percent in 2014.

	The two respective categories are tracked by the Bank of America Merrill Lynch US Fallen Angel High Yield Index and the Bank of America Merrill Lynch US High Yield Master II Index. The former is up 7.3 percent year-to-date, while the latter is lagging with a gain of 2.1 percent.

	<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/stock-articles/angl/insider-trades">Market Vectors Fallen Angel High Yield Bond Insider Trades</a></bzrelatedlink>

	Below is a closer look at how investors in related ETFs fared this year.
<h3>
	Fallen Angel High-Yield Bond</h3>

	The Market Vectors Fallen Angel High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>) is made up of 146 below-investment-grade corporate bonds denominated in U.S. dollars that were investment grade at their time of issuance and have since fallen.

	ANGL is distributed across 13 countries and nine sectors. The U.S. is the most heavily weighted country at 64 percent and <a href="http://www.benzinga.com/topic/financials">financials</a> make up 31 percent of the sector breakdown. Energy bonds only account for a 4.6 percent weighting in the portfolio.

	As far as bond rating goes: 74.5 percent of the bonds in the ETF are rated BB, while 16 percent are B.

	ANGL is down 1.6 percent year-to-date and down 6 percent over the last six months. The ETF has an expense ratio of 0.40 percent.
<h3>
	iShares iBoxx $ High Yield Corporate Bond</h3>

	The iShares iBoxx $ High Yid Corp Bond (ETF) (NYSE: <a class="ticker" href="/stock/hyg#NYSE">HYG</a>) follows 1,008 high yield corporate bonds. The ETF is distributed across 13 sectors with consumer services at 15 percent, oil &amp; gas at 14 percent and <a href="http://www.benzinga.com/topic/telecommunications">telecommunications</a> coming in at 13 percent being the most heavily weighted sectors.

	The majority of the bonds (48 percent) have a rating of BB at 48 percent, followed by a rating of B at 31 percent. HYG is down 4 percent year-to-date, down 7 percent over the last six months, and has an expense ratio of 0.50 percent.
<h3>
	SPDR Barclays Capital High-Yield Bond</h3>

	The SPDR Barclays Capital High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/jnk#NYSE">JNK</a>) consists of 774 corporate high-yield bonds rated BB or lower. The ETF is distributed across three sectors with <a href="http://www.benzinga.com/topic/industrials">industrials</a> making up 88 percent of the portfolio, finance with an 8 percent weighting and utilities at 4 percent.

	The ratings breakdown has 40 percent of the bonds rated BB, 43 percent are rated B and the remaining 16 percent are CCC or lower.

	JNK is down 6.5 percent year-to-date and 8.5 percent over the last six months. The high-yield bond ETF has an expense ratio of 0.40 percent.

Opportunity In Junk Bond ETFs

Rising interest rates have, predictably, imperiled various corners of the bond market and scores of bond ETFs.

	Soaring Treasury yields have prompted billions in outflows from ETFs that hold U.S. government debt, particularly longer duration fare.

	Substantial outflows have been seen from U.S. high-yield bond funds and investment-grade corporate bond ETFs have offered little shelter from the storm. Emerging markets bond ETFs <a href="http://www.benzinga.com/markets/bonds/13/08/3839585/finally-some-hope-for-em-bond-etfs">been trounced on tapering chatter</a> and diminishing risk appetite in the fixed income space.

	While all signs point to current environment being a tricky one to navigate for bond investors, some compelling opportunities remain among bond ETFs for those with an appetite for risk and a thirst for yield.

	"While BBB and BB bonds are only one level apart in terms of credit rating, they have very different yield characteristics. For the 12 months ended July 2013, spreads above the five-year treasury yield ranged from 160 to 216 basis points (bps) for BBB rated bonds and ranged from 256 to 421 bps for BB rated bonds," according to S&amp;P Global Fixed Income Research.

	In a new research note, S&amp;P Capital IQ points out that investors are demand higher yields to be involved with bonds that are rated at the higher end of the junk spectrum.

	Related: <a href="http://www.benzinga.com/markets/bonds/13/08/3868709/nifty-new-bond-etf-has-low-duration-high-yield">Nifty New Bond ETF Has Low Duration, High Yield</a>.

	"The most common way for a bond to drop from investment grade to speculative, also known as becoming a falling angel, is to be downgraded one notch from BBB- to BB+. Through August 8 of this year, there were 17 U.S. companies that fell to speculative grade in Standard &amp; Poor's Ratings, 13 of them have fallen one notch. Meanwhile, in the other four instances, the credit ratings fell multiple notches," said S&amp;P Capital IQ in the note.

	Investors can access fallen angel bonds with the Market Vectors Fallen Angel High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>). Nearly two-thirds of ANGL's holdings are rated BB and over 48 percent of the fund has maturities ranging from one to five years.

	Fallen angel bonds offer some benefits to investors that are often overlooked. First, <a href="http://www.benzinga.com/markets/bonds/13/01/3229283/junk-bond-etfs-keep-on-trucking">these bonds have better credit profiles</a> than traditional junk bonds because fallen angels once had investment-grade ratings. As such, fallen angels have lower default and offer the potential for robust capital appreciation because they earn promotions back to investment-grade status more often than bonds that were born as junk. ANGL has a 30-day SEC yield of 5.14 percent.

	Another option for investors looking to explore bonds with "B" ratings is the iShares Baa - Ba Rated Corporate Bond ETF (NYSE: <a class="ticker" href="/stock/qltb#NYSE">QLTB</a>). Over 64 percent of QLTB's 372 holdings are rated BBB+, BBB or BBB-, so this is not a pure junk bond ETF. That is reflected in the 12-month trailing yield of 3.61 percent, 286 basis points below that of the iShares iBoxx $ High Yield Corporate Bond ETF (NYSE: <a class="ticker" href="/stock/hyg#NYSE">HYG</a>), the largest junk bond ETF.

	QLTB, which was rated Marketweight by S&amp;P Capital IQ, has an effective duration of 6.19 years and annual fees of 0.3 percent. Top-10 holdings include issues from Ford (NYSE: <a class="ticker" href="/stock/f#NYSE">F</a>), Citigroup (NYSE: <a class="ticker" href="/stock/c#NYSE">C</a>) and American International Group (NYSE: <a class="ticker" href="/stock/aig#NYSE">AIG</a>).

	The SPDR BofA Merrill Lynch Crossover Corporate Bond ETF (NYSE: <a class="ticker" href="/stock/xovr#NYSE">XOVR</a>) also goes overlooked for the simple reason that some investors do not know exactly what a crossover bond is.

	"Crossover" corporate debt generally means corporate debt rated at levels where the lower end of investment grade debt and the higher end of high yield debt meet. Qualifying securities must be rated BBB1 through BB3, inclusive (based on an average of Moody's, S&amp;P and Fitch). Qualifying securities must have at least one year remaining term to maturity, a fixed coupon schedule and a minimum amount outstanding of $250 million," <a href="https://www.spdrs.com/library-content/public/ETF-XOVR_20130630_081546.pdf">according to State Street</a>.

	XOVR, also rated Marketweight by S&amp;P Capital IQ, has lost 5.7 percent since May 22 when Federal Reserve tapering chatter started in earnest. The fund's modified adjusted duration is almost 5.6 years, which is well below that of the largest investment-grade corporate bond ETF. XOVR's current yield is 5.3 percent with an average yield to worst of 4.36 percent. Yield to worst is a measure of the lowest possible yield an investor can garner without the issuer defaulting.

	For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.

	Disclosure: Author owns none of the securities mentioned here.

Analyst Color

Short Ideas

Dividends

Analyst Ratings

QLTB

XOVR

Overlooked Bond ETFs for Risk-Takers And Yield-Hunters

Emerging markets bonds, even the investment-grade issues, share a couple of things in common with junk bonds. Of course, both are prized for yields that are superior to developed markets government debt. Both were among investors' <a href="http://www.benzinga.com/markets/bonds/12/11/3120114/another-emerging-market-bond-etf-sees-assets-soar">most favored bond ETF destinations in 2012</a>.

The similarities do not end there. Albeit to a less extent than U.S. high-yield corporates, emerging markets bonds are dealing with bubble talk. Plug the phrase "emerging markets bond bubble" into Google <a href="https://www.google.com/#hl=en&amp;sugexp=les%3B&amp;gs_rn=1&amp;gs_ri=hp&amp;tok=3NCRLTc1Mxk1jGMxE1hm-g&amp;cp=24&amp;gs_id=7e&amp;xhr=t&amp;q=emerging+markets+bond+bubble&amp;es_nrs=true&amp;pf=p&amp;tbo=d&amp;sclient=psy-ab&amp;oq=emerging+markets+bond+bu&amp;gs_l=&amp;pbx=1&amp;bav=on.2,or.r_gc.r_pw.r_qf.&amp;bvm=bv.41248874,d.cGE&amp;fp=365e1585d5b3f592&amp;biw=1366&amp;bih=649">and nearly 1.7 million results are returned in less than a third of a second</a>.

That does not mean there are no more opportunities with developing markets debt. Quite the contrary in the eyes of one portfolio manager. <a href="http://www.benzinga.com/markets/bonds/12/05/2565731/the-definitive-guide-to-non-usd-em-bond-etfs">Non-dollar denominated issues could represent the best opportunities</a> for bond investors this year.

"That is a positive part of the value proposition we today – emerging markets currencies are not undergoing the same monetary experiment that could lead to a debasement of the world's reserve currencies," said Market Vectors portfolio manager Fran Rodilosso. 

Dollar-denominated emerging markets bond ETFs not only soared in terms of returns last year, two of this sub-segment's largest funds also surged in popularity with investors. The PowerShares Markets Sovereign Debt ETF (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>) is up about 15.3 percent in the past year and has seen its assets under management total jump <a href="http://www.invescopowershares.com/products/overview.aspx?ticker=PCY">to almost $3.1 billion as of January 18</a> from $2.5 billion in early November 2012.

The rival iShares J.P. Morgan USD Emerging Markets Bond Fund (NYSE: <a class="ticker" href="/stock/emb#NYSE">EMB</a>) has returned nearly 12 percent in the past year. EMB had $6.2 billion in AUM in early November, but that number is now north of $7 billion.

Amid rampant developed market monetary easing and currency debasement, this year could be different for dollar-denominated bonds.

"The first step for investors is to realize that many traditional fixed income investments are not likely to deliver the same types of returns we saw in 2012," said Rodilosso in a statement. 

"Although one approach some investors might apply this year is to add leverage, doing so has often proven to be a perilous proposition. Instead, I believe the time may be right to consider emerging markets destinations that offer more attractive yields on top of currency and credit fundamentals that appear to me to be on much more solid footing than the U.S. dollar, euro or yen investments."

Rodilosso is the portfolio manager for the popular Market Vectors Emerging Markets Local Currency Bond ETF (NYSE: <a class="ticker" href="/stock/emlc#NYSE">EMLC</a>), so some might argue that his preference for non-dollar developing world bonds should be taken with a grain of salt. However, there is no denying that ETFs such as EMLC have caught investors' attention.

EMLC, which has a 30-day SEC yield of 4.76 percent, crossed the $1 billion in AUM mark in the fourth quarter and now has $1.27 billion in AUM, <a href="http://vaneck.com/funds/EMLC.aspx">according to Market Vectors data</a>. Importantly, this fund and others like it do not represent significant increases in credit risk. For example, nearly 60 percent of EMLC's holdings carry investment-grade ratings. 

Brazil, Poland, South Africa and Mexico each receive allocations of 10 percent in EMLC. The ETF has gained almost nine percent in the past year. Rodilosso noted that the J.P. Morgan GBI-EMG Core Index (GBIEMCOR), EMLC's underlying index, rebalanced to include Nigeria at the end of last year. Africa's largest oil producer now receives a three percent weight in EMLC. Romania is now eligible for inclusion and Romanian debt will begin entering the index on March 1st, according to the portfolio manager.

Other local currency funds have proven adept at attracting investors' cash. The iShares Emerging Markets Local Currency Bond Fund (NYSE: <a class="ticker" href="/stock/lemb#NYSE">LEMB</a>) <a href="http://www.benzinga.com/analyst-ratings/analyst-color/12/11/3111740/em-bond-etf-sees-amazing-inflows">had $207 million in AUM at the end of October</a>, but that total now stands at $405.4 million. South Korean and Brazilian issues combine for 34 percent of LEMB's weight and the bulk of the fund's 80 holdings garner investment-grade ratings from Moody's Investors Service.

Even with the soaring inflows to local currency funds, Rodilosso still sees money managers as under-allocated to the space and that could spell more upside for these funds this year as more professional investors warm to the ideas of emerging markets' significantly lower debt-to-GDP ratios, fiscal deficits and higher interest rates.

"It is still my belief that global asset managers remain under-allocated when it comes to local currency emerging markets debt," he said. "Perhaps this is due to some investors' tendencies to associate emerging markets in general with past boom/bust cycles. Add to that the fact that the relative strength of emerging markets may in itself be something that many investors are finding difficult to digest, let alone believe in enough to allocate significant capital, and that may very well be why we're seeing value remaining in these markets."

Other ETF ideas in the local currency emerging markets space include the WisdomTree Asia Local Debt ETF (NYSE: <a class="ticker" href="/stock/ald#NYSE">ALD</a>), <a href="http://www.benzinga.com/markets/bonds/13/01/3229035/this-local-debt-etf-is-an-economic-growth-play">which tracks a region with some of the emerging world's</a> best growth prospects for 2013. 

Rodilosso also serves as the manager for the MarkVectors Fallen Angel High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>), the Market Vectors Emerging Markets High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/hyem#NYSE">HYEM</a>) and the Market Vectors Renminbi Bond ETF (NYSE: <a class="ticker" href="/stock/chlc#NYSE">CHLC</a>), among others.

For more on ETFs, click <a href="www.benzinga.com/etfs">here</a>.

Emerging Market ETFs

Currency ETFs

Global

CHLC

iShares JPMorgan USD Emerging Markets Bond Fund

Market Vectors Emerging Markets Local Currency Bond ETF

EMLC

HYEM

LEMB

PowerShares Emerging Markets Sovereign  Portfolio

Rodilosso Says Opportunities Remain in EM Bonds

Another one of the more prominent themes among bond ETFs last year was growing speculation that high-yield bonds were approaching bubble territory. Calls for asset bubbles is an old investing avocation, and since the global financial crisis, it seems that every time an asset class's popularity rises too quick for the comfort of some, a bubble must be right around the corner.

Talk of a junk bond bubble seemed to start in earnest in the second quarter of 2012, <a href="http://www.benzinga.com/analyst-ratings/analyst-color/12/09/2950302/are-junk-bond-etfs-topping-out">prompting a spate of coverage of the topic</a>. Later in the year, there were reports of redemptions from popular junk bond ETFs such as the iShares iBoxx $ High Yield Corporate Bond Fund (NYSE: <a class="ticker" href="/stock/hyg#NYSE">HYG</a>).

Those reports may have fueled the fire of the junk bond bubble prediction, but most mainstream media coverage of the issue ignored the fact that while HYG saw some modest outflows here and there, <a href="http://www.benzinga.com/markets/bonds/12/12/3144876/following-redemptions-junk-bond-etfs-at-multi-week-highs">some other new high-yield bond ETFs became home to soaring inflows</a>.

In other words, some important points about the efficacy of a junk bond bubble in the current environment are being missed, according to Market Vectors Portfolio Manager Fran Rodilosso. 

"I think there is a difference so far between what we are seeing at the beginning of 2013 and the types of credit bubbles we have seen historically," said Rodilosso. "A bubble is built on excessive leverage, and modern bubbles have been fueled by leveraged buyouts, real estate speculation, and structured products with a high degree of embedded leverage."

While 2013 is still young, investors to this point, have scoffed at talk of junk bond bubble, sending major high-yield bond ETFs modestly higher to start the new year. HYG, the largest junk bond ETF by assets, is 0.7 percent to start the new year while its primary rival, the SPDR Barclays High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/jnk#NYSE">JNK</a>) has gained 0.1 percent. 

Noteworthy is the fact that the SPDR Barclays Short Term High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/sjnk#NYSE">SJNK</a>), JNK's short duration equivalent, now has almost $668.6 million in assets under management, <a href="https://www.spdrs.com/product/fund.seam?ticker=SJNK">according to State Street data</a>. That is up from $518.7 million on December 4.

Clearly, quantitative easing, which has depressed yields on U.S. Treasuries, has contributed to a yield chase. However, as Rodilosso notes, credit spreads between junk bonds and Treasuries are not at concerning levels.

"Yields have been pushed down by a highly aggressive central bank policy, with the result that yield-oriented investors have been pushed into owning lower-rated credits," said Rodilosso. "As a result, the yields on riskier debt are as low as they have been. But the credit spreads, the difference between the yield on high yield bond and a Treasury security, are actually closer to their historic average."

One issue that may be fueling the junk bubble chatter is new issuance, which rose to an <a href="http://soberlook.com/2012/11/2012-high-yield-debt-issuance-hits-all.html">all-time high of $306 billion through the end of October</a>. 

In years past, that might have implied increased leveraged buyout activity or companies using debt to fund dividends, but Rodilosso highlights a different possibility.

"Whereas during a more ‘classic' bubble a vast majority of debut issuance has historically funded takeovers, dividends, and massive capital spending, 2012's record issuance was still, for the most part done for the purpose of refinancing. That refinancing was done at lower interest rates, reducing the cost of debt for many borrowers, while reducing the amount to be paid back over the next two years."

Rodilosso oversees $1.4 billion in assets across several Market Vectors ETFs, including the Market Vectors Fallen Angel High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>) and the Market Vectors Emerging Markets Local Currency Bond ETF (NYSE: <a class="ticker" href="/stock/emlc#NYSE">EMLC</a>).

For more on bond ETFs, click <a href="http://www.benzinga.com/markets/bonds/12/08/2845080/some-new-obscure-bond-etfs-merit-consideration">here</a>.

Events

SJNK

Junk Bond ETFs Keep on Trucking

Van Eck Global, the parent company of Market Vectors, has filed plans with the Securities and Exchange Commission to possibly introduce the Market Vectors High Yield/Treasury Bond ETF. That ETF would use U.S. Treasuries as a hedge against the interest rate sensitivity inherent in high-yield bonds. News of the new ETF was reported by <a href="http://www.indexuniverse.com/sections/news/15191-market-vectors-inks-hedged-junk-bond-etf.html">Index Universe</a> earlier Monday.

The ETF will track the Market Vectors High-Yield/Treasury Bond Index. The Index includes bonds issued by both U.S. and non-U.S. issuers. The country of risk of qualifying issuers must be a member of the Group of Ten, a Western European nation or a territory of the United States, <a href="http://www.sec.gov/Archives/edgar/data/1137360/000093041312006194/c71647_485apos.htm">according to the filing</a>.

Typically, junk bonds have lower durations than Treasuries or high-grade corporates because they have shorter maturities. Many high-yield bonds are issued with maturities of a decade or less and many are called in just half that time. That is to say high-yield bonds are more sensitive to credit risk than interest rate risk.

As the Van Eck filing notes, "Bonds are also subject to interest rate risk. Interest rate risk refers to fluctuations in the value of a bond resulting from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most bonds go down. When the general level of interest rates goes down, the prices of most bonds go up."

The filing did not include a ticker or expense ratio for the Market Vectors High-Yield/Treasury Bond ETF.

Market Vectors already counts three high-yield bond funds among its 50-ETF lineup. The firm introduced the Market Vectors Fallen Angel High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>), the Market Vectors Emerging Markets High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/hyem#NYSE">HYEM</a>) and the Market Vectors International High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/ihy#NYSE">IHY</a>) this year. Combined, those new ETFs have over $210 million in assets under management.

For more on junk bond ETFs, click <a href="http://www.benzinga.com/markets/bonds/12/11/3103574/global-funds-impress-as-u-s-junk-bond-etfs-see-redemptions">here</a>.

Van Eck Files Plans For Hedged Junk Bond ETF

Van Eck, the parent company of the Market Vectors ETF business, has filed plans with the Securities and Exchange Commission to possibly introduce the Market Vectors-Altman Defaulted &amp; Distressed Bond ETF. The passively managed fund will track the Market Vectors-Altman Defaulted &amp; Distressed Bond Index and trade on the New York Stock Exchange.

A ticker and expense ratio were not included <a href="http://www.sec.gov/Archives/edgar/data/1137360/000093041312005935/c71493_485apos.htm#c71493a008_v1">in the filing.</a>

The index includes both U.S. and foreign bonds and to be included in the index, bonds must have below investment-grade ratings. Van Eck warned of the risks associated with these bonds in the filing. The index is comprised of bonds with no less than a 10 percent spread to comparable U.S. Treasuries. Issuers are capped at five percent in the index.

"Defaulted and distressed bonds are subject to greater risk of loss of income and principal than higher rated securities and are considered speculative. The prices of defaulted and distressed bonds are likely to be more sensitive to adverse economic changes or individual issuer developments than higher rated securities. During an economic downturn or substantial period of rising interest rates, distressed security issuers may experience financial stress that would adversely affect their ability to service their principal and interest payment obligations, to meet their projected business goals or to obtain additional financing. In the event of a default, the Fund may incur additional expenses to seek recovery," according to the filing.

The firm also noted the fund "expects to effect a portion of its creations and redemptions for cash," meaning the ETF could be less tax efficient than traditional ETFs.

Market Vectors has introduced several new ETFs this year with exposure to high-yield bonds including the Market Vectors Fallen Angel High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/angl#NYSE">ANGL</a>), the Market Vectors High Yield Bond Emerging Markets ETF (NYSE: <a class="ticker" href="/stock/hyem#NYSE">HYEM</a>) and the Market Vectors International High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/ihy#NYSE">IHY</a>).

For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.

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