VanEck 

How fallen angels may complement high yield portfolios

Income investors may want to consider fallen angels as a complement to their high yield bond allocations given their higher credit quality. Fallen angels’ higher average credit quality than original-issue high yield bonds may help absorb more of the potential broader market volatility that may occur in stressed markets. At the same time, investors should consider the group’s overweights to the energy and basic industry sectors, and factor in views on oil prices, which have meaningfully influenced returns in these two sectors. Historically, differences in sector allocations versus broad market high yield bonds have, on average, helped offset some of the negative impact from rising interest rates. VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL) received a three-year and overall five-star rating from Morningstar, as of March 31, 2017.[8.Morningstar ratings: ©Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. For each fund with at least a three-year history, Morningstar calculates a Morningstar RatingTM based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. As of March 31, 2017, ANGL was rated against 596 high yield bond funds over the last three years. ANGL received a Morningstar Rating of 5 stars for the 3-year and overall rating. Past performance is no guarantee of future results.] ANGL was rated against 596 funds in Morningstar’s high-yield bond category based on total returns. Past performance is no guarantee of future results. Additional resources and information on VanEck Vectors Fallen Angel High Yield Bond ETF

Market Realist

Risk-adjusted returns

Fallen angel bonds have higher risk-adjusted returns than high-yield bonds, treasury bonds, and the S&P 500. And risk-adjusted returns are measured by the Sharpe ratio.

But the higher returns and lower volatility of these bonds relative to the S&P 500 (SPY) (SPX-INDEX) have translated into the highest Sharpe ratios for fallen angel bonds. Notably, VanEck reduced the fees on fallen angel bonds (ANGL) from 0.40% to 0.35% in June 2016.

Will Fallen Angel Bonds Continue to Capture Solid Returns?

The effect of OPEC’s production cut on oil prices

The US imported 10.1 million barrels per day in 2016. OPEC (Organization of the Petroleum Exporting Countries) accounted for 34% of these imports, with the top five countries accounting for US oil imports.

To be sure, the extension of the production cut decision between OPEC and non-OPEC countries will play a vital role in shaping the future trajectory of oil prices.

Will Fallen Angel Bonds Continue to Capture Solid Returns?

On May 15, 2017, the energy ministers of Saudi Arabia and Russia announced a production cut, extending from the middle of 2017 to March 2018. This cut has caused Brent crude futures (BNO) and US West Texas Intermediate crude futures (UCO) to rise 1.6% each. However, the US did not support the initiative and has recorded a growth of 10% in crude production since mid-2016.

Will Fallen Angel Bonds Continue to Capture Solid Returns?

The importance of policies and fundamentals

Meanwhile, US President Donald Trump’s tax reform plans, trade policies, and energy policies could be deciding factors in the fate of energy companies—if he can get these measures passed. The measures include his proposed border adjustment tax, trade barriers with Mexico, and pro-non-renewable energy policies. After all, the most oil dominant country is not 100 percent self-reliant.

Will Fallen Angel Bonds Continue to Capture Solid Returns?

The growth in the non-farm payroll and the dip in the unemployment rate in April have meanwhile strengthened the possibility of a Fed rate hike in June 2017.

While fallen angel bonds strike a perfect balance between high-yield bonds (SJNK) (PHB) and junk bonds (HYS) (SHYG), however, investors need to monitor index performances closely and analyze changing fundamentals before investing.

Latest articles

This year, Pfizer (PFE) stock has fallen 0.34% and Bristol-Myers Squibb (BMY) stock has fallen 6.48%. Both companies are focused on strengthening their position in the high-growth oncology and immunology markets. Let's take a closer look at each.

Walt Disney’s (DIS) latest movie, Toy Story 4, has reportedly broken records in the opening weekend with $118 million in sales. However, the opening weekend collection was behind analysts’ expectations of at least $150 million in the first weekend.

24 Jun

Will Home Depot’s Upward Momentum to Continue?

WRITTEN BY Rajiv Nanjapla

As of June 21, Home Depot (HD) was trading at $209.39, which implies a rise of 9.7% since the announcement of its first-quarter earnings on May 21. Also, the company was trading at a premium of 32.4% from its 52-week low of $158.09 and a discount of 2.8% from its 52-week high of $215.43.

On June 21, Aurora Cannabis (ACB) made an announcement that indicated that it will move towards higher margin vape products. In addition, the company also believes concentrates and edibles will command higher margins. In anticipation of this development, the company announced the expansion of its facility to capitalize on growth related to these segments.

Shares of Mondelēz International (MDLZ) are scaling new heights thanks to its stellar gains so far this year. Mondelēz stock is up 38.0% on a YTD (year-to-date) basis, and it closed at $55.25—just a shade lower than its 52-week high of $55.71—on June 21.

24 Jun

How Long Will Facebook's Libra Fuel Bitcoin Rally?

WRITTEN BY Mayur Sontakke, CFA, FRM

Ever since the news about Facebook’s (FB) cryptocurrency project broke, Bitcoin has rallied on the hope that Facebook’s entry in the space will help make cryptocurrencies mainstream. Facebook’s cryptocurrency will be called Libra and will be governed by an association with 28 founding members across industries.

172.31.38.64