Fallen Angels Spread Wings in Bond Market
The bond market's fallen angels are flying high, thanks to the comeback in commodity prices.
The VanEck Vectors Fallen Angel High Yield Bond ETF
(ANGL) - Get Report is up 13% year to date. The ANGL boasts $167 million in assets and yields 5.14% as of the end of May. By comparison, the SPDR Barclays High Yield Bond ETF
(JNK) - Get Report has risen 4.3% so far in 2016 and yields 6.3%.
The ANGL seeks to track the price and yield performance of the BofA Merrill Lynch U.S. Fallen Angel High Yield Index. The index, which has been around for 12 years, is comprised of below-investment-grade corporate bonds denominated in U.S. dollars that were rated investment grade at the time of issuance.
Fran Rodilosso, fixed income portfolio manager for VanEck, said a number of investment grade bond fund managers were forced to sell their energy bonds in the wake of the collapse in oil prices. Those bonds fell into fallen angel status and were bid up once crude prices stabilized.
"Year-to-date energy and mining are the two sectors that are driving returns and they are certainly driving the outperformance versus the broader high-yield market," said Rodilosso.
Outside of the energy and mining sectors, Rodilosso said banks are a big weighting in the fallen angel index, but are not driving returns as much.
"There have not been as many angels in the retail, transportation and gaming sectors, but there have been recoveries in some issuers that had lagged for some time like a J.C. Penney
(JCP) - Get Report , for instance," said Rodilosso.
A lot of the new money streaming into the fund is coming from investors seeking to diversify their high-yield exposure, according to Rodilosso.
"We see it as a shifting of allocations within people's high yield allocation in their broad fixed income portfolio," said Rodilosso.