The High Yield Bond ETF With an Amazing Edge

Wealth managers have a love/hate relationship with high-yield bonds.

Junk bond funds gained popularity in the 1980s when investors realized they could diversify away risk by owning a broad basket of low-quality bonds.

While they offer better yields than treasuries, high-yield bonds come with more risk.

But it is the 5th most-searched high-yield bond ETF that caught our attention because this is the first time we’ve seen it appear in our Trackstar search data.

And it’s very different from every other high-yield bond ETF we’ve ever encountered.

Key Facts About ANGL

• Net assets: $2.9 billion
• 12-month trailing yield: 5.29%
• Inception: April 10, 2012
• Expense ratio: 0.35%
• Number of holdings: 139

Imagine a company like Xerox. Great decades ago. Now it’s garbage. 

VanEck’s Fallen Angel High Yield Bond ETF (ANGL) buys bonds in companies like Xerox – bonds that were rated as investment grade at the time of issuance but are now rated as junk. They also have to be denominated in U.S. dollars and issued in the U.S.

It’s a pretty specific subset of companies. However, it’s outperformed the broad high-yield bond market 14 of the last 19 calendar years, according to VanEck.

You’ll probably recognize a few names amongst the top holdings.

Source: VanEck

Obviously, not many bonds meet this specific criteria. But 139 holdings aren’t bad, though as you’ll find out below, typical funds hold 1,000-2,000.

Unsurprisingly, many consumer cyclical corporate bonds make up a large chunk of the portfolio, as discretionary items can quickly fall out of fashion.

Source: VanEck

Performance

Like all bonds, ANGL took a hit when the Fed raised interest rates. However, it’s overall performance through the decade is excellent.

Source: VanEck

Competition

To get a clear picture of how ANGL’s has performed, we stacked it up against the most popular high-yield bond ETFs.

• iShares iBoxx $ High Yield Corporate Bond ETF (HYG): Focuses on U.S. high-yield corporate bonds, offering exposure to a broad range of sectors for investors seeking higher income.
• SPDR Barclays High Yield Bond ETF (JNK):  Emphasizes high-yield, lower-credit-quality corporate bonds, catering to investors aiming for potentially greater returns with an increased risk profile.
• SPDR Portfolio High Yield Bond ETF ETF (SPHY): Provides diversified access to high-yield corporate bonds, with a slightly lower expense ratio, appealing to cost-conscious investors seeking yield.
• iShares Emerging Markets High Yield Bond ETF (EMHY): Offers exposure to high-yield bonds from emerging markets, presenting a unique blend of risk and return potential for investors interested in diversifying beyond traditional high-yield markets.

Despite it’s more limited holdings, ANGL has outperformed other more diversified high-yield bonds.

And interestingly, the blend of emerging market risk and junk bonds doesn’t provide better overall returns.

Our Opinion 10/10 

ANGL is a niche strategy that delivers better returns than its competitors.

Although past performance does not guarantee future results, we see a real edge with this investing strategy.

So, if you want to add an uncorrelated bond investment fund to your portfolio, you should consider ANGL.