If You Must Junk, Go For The Best Junk


  • Fallen angels have been flying steady amid the recent high-yield turbulence.
  • There is a major difference between low-quality and high-quality junk bonds.
  • The BB-focused ANGL has outperformed three much more popular high-yield ETFs.
  • I believe that this Morningstar 5 star-rated ETF deserves much more attention from the Seeking Alpha community.


(Source: Villains Wiki)

The Market Vectors Fallen Angel Bond ETF (NYSEARCA:NASDAQ:ANGL) tracks the BofA Merrill Lynch US Fallen Angel High Yield Index (HOFA). This index is comprised of below-investment grade ("junk") corporate bonds that were rated investment grade at the time of issuance. All bonds are denominated in U.S. dollars and are issued in the U.S. domestic market.

Earlier this year, I provided an introduction to ANGL in the article, "Harvesting Higher Yields With The Fallen Angel Bond ETF". The article gave information as to the credit composition, historical performance and other statistics regarding ANGL compared to two junk bond ETFs, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA:HYG) and the SPDR Barclays High Yield Bond ETF (NYSEARCA:JNK), and an investment-grade corporate bond ETF, the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA:LQD).

Later, Seeking Alpha author Sajit Kapurvalapil wrote an article entitled, "Why Fallen Angels Fly Above Ordinary Junk", that enumerated several reasons why fallen angel bonds might be expected to outperform regular junk bonds. A summary of this thesis is presented below (emphasis mine), interested readers are encouraged to read Sajit's full article linked above.

1. Discount to Par

Fallen angels are by definition required to trade at discount to face value, this is because any bond that was issued at investment grade yield can reach the higher yields of non-investment grade bonds only by trading far below its face value... This gap in market-to-par value between two types of comparably yielding bonds is why fallen angels are able to deliver higher risk-adjusted returns.

2. Higher Upside

All else being equal, a bond that trades significantly below par obviously has an upside potential that is absent in a bond that trades close to par.

3. Lower Downside

In theory, the two debt security types of

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4) Dividend Seeker: Dividend Seeker began investing, as well as his career in Financial Services, in 2008, at the height of the market crash. This experience gave him a lot of perspective in a short period of time, and has helped shape his investment strategy today. He follows the markets passionately, investing mostly in sector ETFs, fixed-income CEFs, gold, and municipal bonds. He has worked in the Insurance industry in Funds Management, helping to direct conservative investments for claims reserves. After a few years, he moved in to the Banking industry, where he worked as a junior equity and currency analyst. Most recently, he took on an Audit role, supervising BSA/AML Compliance teams for one of the largest banks in the world. He has both a Bachelors and MBA in Finance. He is the "Macro Expert" of the CEF/ETF Income Laboratory.

Disclosure: I am/we are long ANGL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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