Not All Junk Bonds Are Created Equal

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December 16, 2016 12:41pm NYSE:ANGL

Analyst Paul Paul Weisbruch of Street One Financial examines another lesser-known Van Eck ETF today, one that focuses on high-yield bonds from companies that have fallen from grace.


Yesterday’s piece on Van Eck and specifically their MOAT (Van Eck Vectors Morningstar Wide Moat, Expense Ratio 0.49%, $845 million in AUM) spurred some questions and interest from our readers in regards to several other “off the beaten path” funds from the issuer.

ANGL (Van Eck Vectors Fallen Angel High Yield Bond, Expense Ratio 0.40%, $479 million in AUM) came up in conversation yesterday, and according to fund literature this fund tracks the “BofA Merrill Lynch U.S. Fallen Angel High Yield Index, 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.”

ANGL-2016-12-16

Thus, the name “Fallen Angel” becomes very clear after reading the index description, as the bonds contained in this portfolio are from former darlings of the investment grade world that have perhaps come upon hard times where their debt is now regarded as significantly more risky and basically “junk” debt. The yield in the fund is presently 5.20% and we see two hundred forty-one individual bond holdings within the portfolio, along with an impressive five-star Morningstar rating.

Fund literature also points out some key concepts regarding “Fallen Angels,” stating that “Fallen angels, high yield bonds originally issued as investment grade corporate bonds, have had historically higher average credit quality than the broad high yield bond universe.” Furthermore, “Fallen angels have outperformed the broad high yield bond market in 9 of the last 12 calendar years,” and “Fallen angels have historically offered a better risk/reward trade off than found with the broad high yield bond market.”

When we dissect the portfolio of ANGL we can see the debt of issuers that are now considered “Fallen Angels,” whom once were considered investment grade and we see the following holdings: 1) Sprint Capital Corp. (1.59%), 2) EMC Corp. (1.55%) 3) Softbank Group Corp. (1.51%), 4) Freeport-McMoran Inc. (1.47%), and 5) Teck Resources Ltd. (1.37%). Notably two of the top three holdings are domiciled in Japan, and Softbank for instance was recently in the news in terms of agreeing to invest $50 billion and create 50,000 new jobs in the U.S. under the Trump administration.


Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch
paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.


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