VanEck Fallen Angel HiYld Bd ETF’s management team is just average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's sensible investment philosophy merits an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in corporate bonds and an underweight in B rated bonds compared with category peers. The team managing the passive strategy earns the strategy an Average People Pillar rating. The strategy's parent organization is industry standard, albeit with some strong attributes like overall reasonable fees, but is held back by a pattern of portfolio manager churn. This earns the firm an Average Parent Pillar rating.

Analyst Rating

VanEck Fallen Angel HiYld Bd ETF earns an Above Average Process Pillar rating. Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. The leading factor in the rating is the fund's strong long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category average, which suggests that the process was successful over that period. This fund tracks an index, which also increases its process rating. Historical data, like Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Lastly, the process is limited by its parent firm's inferior risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 2.7 stars. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

The investment strategy as stated in the fund's prospectus is: 

The investment seeks to replicate as closely as possible, before fees and expenses, and the price and yield performance of ICE US Fallen Angel High Yield 10% Constrained Index (the "Fallen Angel Index").  The fund normally invests at least 80% of its total assets in securities that comprise the fund's benchmark index. The index is comprised of below investment grade corporate bonds denominated in U.S. dollars that were rated investment grade at the time of issuance.  

 This strategy's 12-month yield is 5.0%, lower than its average peers' 6.0%. In addition, it has a 7.0% 30-day SEC yield (a measure similar to yield-to-maturity). While a lower yield may deliver less income, it also tends to indicate lower credit risk. The portfolio holds assets with a higher average surveyed credit quality of BB, compared with the category average of B. Lower-credit-risk strategies are often able to navigate bear markets more effectively. In terms of interest-rate risk, compared with others in the High Yield Bond category, this fund maintains a significantly elevated average effective duration of 5.0 years compared to the category's 3.3 years. The longer a strategy's duration, the more sensitive it is to shifts in interest rates. This fund, with a 5.0-year duration, is expected to gain 5.0% of its net asset value if interest rates drop by 1 percentage point, and vice versa.

Above Average

Process

VanEck’s team is valuable but does not stand out as one of the industry's best, warranting an Average People Pillar rating. The fund takes a solo manager approach, with Francis Rodilosso as the only listed manager at the helm, who brings 20 years of portfolio management experience to the table. They manage a total of 11 strategies, with a Bronze asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate. With only one manager listed on the strategy, the passive strategy is vulnerable to key-person risk.However, they have built history managing the strategy, it has not changed hands within the last five years. 

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Average

People

VanEck’s ownership structure and specialization make it unique among industry peers. The firm’s founding family and namesake still have control, and its product lineup still reflects its legacy as a specialist in niche market segments. VanEck earns an Average Parent Pillar rating. 

Founded by John van Eck in 1955, the firm staked its claim in the industry by capitalizing on burgeoning markets. Starting with the opening of Western Europe to U.S.-based investors in the wake of the Marshall Plan, VanEck’s largest and most successful products provide exposure to areas of the market that are off the beaten path, such as hard assets, emerging-markets debt, and below-investment-grade-rated corporate debt.

Through its history, VanEck has taken an opportunistic approach to product development. For instance, since 2018, VanEck has launched strategies that provide exposures ranging from international REITs to companies involved in video game development. Regardless of where their reach takes them, however, VanEck builds a case that the strategy will be relevant over the long term and that its risks must be easy to understand. However, not all its products catch on, and the firm has shuttered several offerings in the last decade. 

VanEck remains a privately held firm, wholly owned by CEO Jan van Eck and his family. Although this enables the firm to focus on the long term and the firm offers some employees participation in profits, the firm hasn’t used equity as a recruiting and retention tool and introduces some key-person risk in the executive suite.

Parent

VanEck Fallen Angel High Yield Bond ETF

ANGL tracks a market-value-weighted index of bonds that were rated investment grade at issuance but later downgraded to sub-investment grade.

High-yield corporate debt, also known as junk bonds, represent a significant chunk of the broader fixed income market. That heft is reflected in the population of ETFs offering exposure to this asset class.

ANGL Sensible Avenue for Junk Bonds Exposure

Fallen Angel bonds are those securities that are investment grade when issued. They are subsequently downgraded when the issuer runs into financial troubles. Today, we cover an ETF that caters to the buyers of these bonds.

Don't Call Me ANGL

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ETFs continue to open up avenues of opportunity for individual investors by capturing institutional investor strategies in an easily, widely accessible wrapper. One such strategy, that of collateralized loan obligations (CLOs), offers investors attractive income and yield with lower default risk.

CLOs: An Institutional Strategy for the Masses

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VettaFi's platforms touch advisors and investors in many ways on a daily basis. Through our digital properties, which include content on Advisor Perspectives, ETF Database, and ETF Trends, as well as near-daily webcasts, we had a whopping eight million engagements in the last three months.

High Yield ETFs Worth Exploring With VettaFi

iShares Fallen Angels USD Bond ETF

FALN and ANGL both invest in fallen angels or recently downgraded non-investment grade corporate bonds. ANGL is the larger, more well-known of the pair, but I think FALN is the stronger investment.

3 Reasons Why FALN Is Better Than ANGL

ANGL invests in recently downgraded high-yield corporate bonds. The fund has outperformed since inception, and by a very hefty margin.

ANGL And Fallen Angels: Recent Developments

The VanEck Fallen Angel High Yield Bond ETF has returned 6.4% annually over the past 11 years since inception, and the current yield of 7.3% suggests even stronger future returns. ANGL's underperformance relative to the S&P 500 over this period has been the result of rising equity valuation multiples, which now face downside risks.

ANGL: 7.3% Yield To Drive Outperformance Vs. Stocks

Despite fears of elevated default rates, high interest rates, and the possibility of a recession, high yield corporate debt is delivering for fixed income investors this year. That includes both fallen angels and traditional junk bonds.

Assessing the Fallen Angel Bond Landscape

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It's not the best of times nor is it the worst for high-yield corporate bonds as the Markit iBoxx USD Liquid High Yield Index is higher by 1% year-to-date. Still, some advisors and investors are pensive about allocating to junk bonds, amid fears that rising interest rates and higher default rates will punish the asset class.

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Recent uncertainty, instigated by the issues seen across the financial sector, has led to a change in investment flows seen across exchange traded funds. A change in investment flows can be seen over the month of March as equity market volatility has increased.

ETF Flows, The Winners And Losers In Volatile Markets

Fran Rodilosso, VanEck's head of fixed income ETF portfolio management, discusses the benefits of fallen angel bond ETFs.

Why Fallen Angels Outperform Consistently

The iShares Fallen Angels USD Bond ETF (FALN) invests based on the Bloomberg Barclays US High Yield Fallen Angel 3% Capped Index. The VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL) invests based on the ICE US Fallen Angel High Yield 10% Constrained Index.

FALN And ANGL: Fallen Angel ETF Tax Swap

ANGL tracks an index of fallen angel bonds: bonds that were investment grade at issuance but have been downgraded to junk status. Fallen angels tend to outperform both investment grade and junk bonds overall due to forced selling as they are downgraded.

ANGL: Better Than JNK But Watch Credit Spreads

ANGL invests in bonds that can be described as "fallen angels" These bonds used to be investment-grade credits, but were downgraded to "junk" status, a.k.a. high yield bonds.

ANGL: The Devil Is In The Details, And They Said Avoid This ETF For Now

Downgraded bonds have lower default rates.

Fallen Angel ETFs Show Their Good Side

Credit spreads, which gauge differences in yield between two bonds with the same maturities and different credit quality, are currently surprisingly tight given rising interest rates. That could be a sign opportunity beckons with some corners of the high-yield bond market.

Spreads Could Indicate Fallen Angel Opportunity

Before 2022, advisors and investors spent years questioning where the income was in fixed income. Five interest hikes by the Federal Reserve this year, and bond yields are at multi-year highs.

Assess ANGL as Income Returns to Forefront

Last week, the Federal Reserve unveiled its fifth interest rate hike of 2022, and with more on the way, it's not surprising that fixed income exchange traded funds of nearly all varieties are faltering. Junk bonds are certainly part of that dubious mix.

Junk Bond ETFs May Be Getting Interesting

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True, a recession could be coming. But the underlying math of low defaults, solid companies with cleaned-up balance sheets, and higher yields creates an opportunity for investors.

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Amid a series of interest rate hikes by the Federal Reserve in the first half of this year, fixed income exchange traded funds languished, providing investors with no protection from slumping equity prices. The Fed continued its rate hiking, inflation fighting campaign on Wednesday, raising interest rates by 75 basis points.

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Investors flocked to fixed income ETFs on June 13 even as the yield on the 10-year Treasury yield spiked above 3.4% on rapid anticipation that the Federal Reserve would more aggressively raise interest rates later that week. Fixed income exchange traded products traded $58 billion last Monday — more than double the 20-day average daily [.

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ANGL invests in Fallen Angels or recently downgraded non-investment grade corporate bonds. Fallen Angels have a decades-long track record of market-beating returns, a trend which I expect will continue into the future.

ANGL: Outstanding Corporate Bond ETF, 4.6% Yield

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News for VanEck Fallen Angel High Yield Bond ETF ETF (ANGL)