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Market Vectors Launches First U.S. Listed “Fallen Angel” ETF

Stocks in this article: BONO CHLC EMLC IHY

Market Vectors ETF Trust has added another first-of-its-kind exchange-traded fund (ETF) to its rapidly growing fixed income ETF family, it was announced today. Trading began this morning on Market Vectors Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL), a fund designed to focus on the U.S. dollar denominated “Fallen Angels” segment of the corporate high yield bond market, which currently accounts for approximately 15 percent of the U.S. dollar denominated high yield bond universe.

ANGL seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of The BofA Merrill Lynch U.S. Fallen Angel High Yield Index (H0FA), which 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.

Among issuers of bonds considered Fallen Angels are some of the best-known names in American business, including Ford, JC Penney, and The New York Times Company. 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.

Fallen Angel issuers tend to be larger, more well-established companies than original issue high yield issuers.* “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. “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.”**

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