Opportunity In Junk Bond ETFs
In the current market environment, anyone who has avoided exposure to the havoc that is the energy sector is certainly breathing a sigh of relief. Investors in the high-yield bond market that chose “fallen angels” as opposed the broader market are also feeling relieved. Fallen angels corporate bonds are bonds that were investment grade at one point, but have since fallen to below investment grade.
The bonds typically have less exposure to the energy sector than their standard high-yield counterparts, despite the large presence that energy has in the high-yield bond market, which has grown from 8 to 16 percent in 2014.
The two respective categories are tracked by the Bank of America Merrill Lynch US Fallen Angel High Yield Index and the Bank of America Merrill Lynch US High Yield Master II Index. The former is up 7.3 percent year-to-date, while the latter is lagging with a gain of 2.1 percent.
Below is a closer look at how investors in related ETFs fared this year.
Fallen Angel High-Yield Bond
The Market Vectors Fallen Angel High Yield Bond ETF (NYSE: ANGL) is made up of 146 below-investment-grade corporate bonds denominated in U.S. dollars that were investment grade at their time of issuance and have since fallen.
ANGL is distributed across 13 countries and nine sectors. The U.S. is the most heavily weighted country at 64 percent and financials make up 31 percent of the sector breakdown. Energy bonds only account for a 4.6 percent weighting in the portfolio.
As far as bond rating goes: 74.5 percent of the bonds in the ETF are rated BB, while 16 percent are B.
ANGL is down 1.6 percent year-to-date and down 6 percent over the last six months. The ETF has an expense ratio of 0.40 percent.
iShares iBoxx $ High Yield Corporate Bond
The iShares iBoxx $ High Yid Corp Bond (ETF) (NYSE: HYG) follows 1,008 high yield corporate bonds. The ETF is distributed across 13 sectors with consumer services at 15 percent, oil & gas at 14 percent and telecommunications coming in at 13 percent being the most heavily weighted sectors.
The majority of the bonds (48 percent) have a rating of BB at 48 percent, followed by a rating of B at 31 percent. HYG is down 4 percent year-to-date, down 7 percent over the last six months, and has an expense ratio of 0.50 percent.
SPDR Barclays Capital High-Yield Bond
The SPDR Barclays Capital High Yield Bond ETF (NYSE: JNK) consists of 774 corporate high-yield bonds rated BB or lower. The ETF is distributed across three sectors with industrials making up 88 percent of the portfolio, finance with an 8 percent weighting and utilities at 4 percent.
The ratings breakdown has 40 percent of the bonds rated BB, 43 percent are rated B and the remaining 16 percent are CCC or lower.
JNK is down 6.5 percent year-to-date and 8.5 percent over the last six months. The high-yield bond ETF has an expense ratio of 0.40 percent.
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