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

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:JNK) is this year'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:ANGL)). 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, according to Market Vectors data.

Fallen Angels

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.

Fallen angels 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 outperformance in 2016 had been due primarily to their greater exposure to the basic industry and energy sectors and higher average credit quality, according to a statement issued by Market Vectors.

Issues from the basic materials and energy sectors combine for just over 30 percent of ANGL's weight. At 16.6 percent, basic materials is the ETF's second-largest sector allocation behind financial services.

ANGL'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.

Additional Benefit For ANGL

Another ANGL advantage is that the ETF skirts risky CCC-rated and worse debt. Just 4.1 percent of the ETF'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'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.

Fallen angels have outperformed the broad high yield bond market in 9 of the last 12 calendar years, according to Market Vectors.

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