This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

”Fallen Angels” Once Again Present A Significant Value Proposition, Says Market Vectors’ Fran Rodilosso

Stocks in this article: ANGL BONO CHLC EMLC FLTR HYEM IHY

“Fallen angels,” below investment-grade corporate bonds that were rated investment grade at the time of their issuance, have thus far outperformed the broad high-yield corporate bond marketplace in 2012, signaling that the value proposition inherent in these issuances was likely at work once again this year, according to Fran Rodilosso, fixed income portfolio manager at Market Vectors ETFs.

Year-to-date through December 12, 2012, the BofA Merrill Lynch U.S. Fallen Angel High Yield Index (H0FA) gained 19.83 percent, versus 13.78 percent for BofA Merrill Lynch U.S. High Yield Master II Index (H0A0). If this trend continues, this would mark the fourth, out of the past five years, of outperformance by fallen angels versus the overall high-yield space.

“Yes, it was a strong year for virtually every part of the high-yield universe, but fallen angels are one category that performed particularly well,” says Rodilosso. While the positive performance of the past year may leave less scope for price appreciation in 2013, fallen angels still have a yield-to-worst* just inside that of the broader high-yield market. Angels have a longer duration* on average, but also a higher credit rating – nearly 76% of the BofA Merrill Lynch U.S. Fallen Angel High Yield Index were rated BB or above versus 41.12% of the BofA Merrill Lynch U.S. High Yield Master II Index, as of December 12, 2012.”

“With credit metrics having leveled off mid-year before deteriorating slightly in the second half of 2012, and with Europe likely providing additional downgrades as well, it seems likely in my view that the fallen angel universe will grow in 2013,” said Rodilosso. “There are actually fewer fallen angel bonds at the end of 2012 than there were at the beginning, though price appreciation has led to a higher overall market capitalization for the sector.”

“Several major names ascended out of the fallen angel category this year even as others saw their debt ratings lowered to fallen-angel status. Among the major departures from the fallen angels rolls this year were Ford, Pioneer Natural Resources, El Paso Pipeline and Sunoco. As many companies left, several interesting names joined the ranks of fallen angels in 2012,” continued Rodilosso, “including Arcelor Mittal, Rockies Express, Eksportfinans, Elepor, and subordinated debt issued by RBS, Lloyds and Credit Agricole.” “Interestingly,” added Rodilosso, “the BofA Merrill Lynch U.S. Fallen Angel High Yield Index, which underlies our fallen angel-focused ETF, included 89 percent U.S.-domiciled issuers at the beginning of 2012. Currently that percentage has dropped to 72 percent, making the Market Vectors Fallen Angel High Yield Bond ETF (NYSE ARCA: ANGL) a potentially compelling way to add exposure to European-based fallen angels that have been issued in the U.S.”

1 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs