Advertisement
investing

A Unique Strategy to Prosper From Junk Bonds

Market Vectors Fallen Angel High Yield Bond ETF has topped most junk funds by owning bonds that were once high-grade.

Junk bonds appeal to investors who are willing to accept more risk in exchange for superior yields. But a subset of the high-yield universe—bonds that were issued with investment-grade ratings but have since descended to junk status—has delivered blissful results of late. Over the past five years, an index of these “fallen angel” bonds has returned an annualized 10.6%, crushing the broad U.S. bond market by an average of 6.5 percentage points per year and traditional junk bonds by 3.6 points per year.

A way to play formerly high-grade IOUs is Market Vectors Fallen Angel High Yield Bond ETF (symbol ANGL). The exchange-traded fund holds debt from 162 issuers. Nearly three-fourths of its assets are in bonds that occupy the highest rung of the junk ladder (those rated double-B), more than twice that of the typical high-yield bond ETF. “Weak balance sheets, poor management, a loss of market share or other troubles brought these fallen angels into the index,” says manager Fran Rodilosso. “But the companies still tend to have valuable assets.”

Advertisement - Article continues below

Thanks to the collapse of oil prices, several energy companies earned their wings as fallen angels this year. As a result, the fund’s stake in bonds issued by energy firms, such as Transocean and DCP Midstream Partners, has increased in recent months. Other top holdings include bonds of loan servicer Sallie Mae and aluminum maker Alcoa.

growth portfolio graphic
K7I-ETF SPOTLIGHT.indd

Thinkstock

Advertisement

Most Popular

2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Searching for the Perfect Place to Retire
Empty Nesters

Searching for the Perfect Place to Retire

We home in on two places with less traffic and lower costs. 
July 2, 2020

Recommended

10 Stocks to Invest in the Health Care Revolution
healthcare stocks

10 Stocks to Invest in the Health Care Revolution

These companies are fighting disease and improving our standard of care.
July 2, 2020
17 Wonderful Work-From Home Stocks
stocks

17 Wonderful Work-From Home Stocks

Is the run in work-from-home stocks over? The pros don't think so. These 17 "WFH" stocks appear poised to continue climbing on the longer-term remote-…
July 1, 2020
Cash In With This Gaming ETF
Technology

Cash In With This Gaming ETF

Cash in on the video gaming craze with this fund.
July 1, 2020
13 Best Vanguard Funds for the Next Bull Market
mutual funds

13 Best Vanguard Funds for the Next Bull Market

Optimistic that the bounce since March is indeed the start of the next bull market? Here are the 13 best Vanguard funds to help you make the most of i…
June 25, 2020