”Fallen Angels” Once Again Present a Significant Value Proposition, Says
Market Vectors’ Fran Rodilosso
NEW YORK -- December 14, 2012
“Fallen angels,” below investment-grade corporate bonds that were rated
investment grade at the time of their issuance, have thus far outperformed the
broad high-yield corporate bond marketplace in 2012, signaling that the value
proposition inherent in these issuances was likely at work once again this
year, according to Fran Rodilosso, fixed income portfolio manager at Market
Year-to-date through December 12, 2012, the BofA Merrill Lynch U.S. Fallen
Angel High Yield Index (H0FA) gained 19.83 percent, versus 13.78 percent for
BofA Merrill Lynch U.S. High Yield Master II Index (H0A0). If this trend
continues, this would mark the fourth, out of the past five years, of
outperformance by fallen angels versus the overall high-yield space.
“Yes, it was a strong year for virtually every part of the high-yield
universe, but fallen angels are one category that performed particularly
well,” says Rodilosso. While the positive performance of the past year may
leave less scope for price appreciation in 2013, fallen angels still have a
yield-to-worst* just inside that of the broader high-yield market. Angels have
a longer duration* on average, but also a higher credit rating – nearly 76% of
the BofA Merrill Lynch U.S. Fallen Angel High Yield Index were rated BB or
above versus 41.12% of the BofA Merrill Lynch U.S. High Yield Master II Index,
as of December 12, 2012.”
“With credit metrics having leveled off mid-year before deteriorating slightly
in the second half of 2012, and with Europe likely providing additional
downgrades as well, it seems likely in my view that the fallen angel universe
will grow in 2013,” said Rodilosso. “There are actually fewer fallen angel
bonds at the end of 2012 than there were at the beginning, though price
appreciation has led to a higher overall market capitalization for the
“Several major names ascended out of the fallen angel category this year even
as others saw their debt ratings lowered to fallen-angel status. Among the
major departures from the fallen angels rolls this year were Ford, Pioneer
Natural Resources, El Paso Pipeline and Sunoco. As many companies left,
several interesting names joined the ranks of fallen angels in 2012,”
continued Rodilosso, “including Arcelor Mittal, Rockies Express,
Eksportfinans, Elepor, and subordinated debt issued by RBS, Lloyds and Credit
Agricole.” “Interestingly,” added Rodilosso, “the BofA Merrill Lynch U.S.
Fallen Angel High Yield Index, which underlies our fallen angel-focused ETF,
included 89 percent U.S.-domiciled issuers at the beginning of 2012. Currently
that percentage has dropped to 72 percent, making the Market Vectors Fallen
Angel High Yield Bond ETF (NYSE ARCA: ANGL) a potentially compelling way to
add exposure to European-based fallen angels that have been issued in the
Mr. Rodilosso has 20 years of experience trading and managing risk in fixed
income investment strategies, including 17 years covering emerging markets.
Among the Market Vectors ETFs under his watch are Fallen Angel High Yield Bond
ETF (NYSE Arca: ANGL), LatAm Aggregate Bond ETF (NYSE Arca: BONO), Emerging
Markets Local Currency Bond ETF (NYSE Arca: EMLC), Emerging Markets High Yield
Bond ETF (NYSE Arca: HYEM), International High Yield Bond ETF (NYSE Arca:
IHY), Renminbi Bond ETF (NYSE Arca: CHLC) and Investment Grade Floating Rate
ETF (NYSE Arca: FLTR). As of November 30, 2012, the total assets for these
ETFs amounted to approximately $1.4 billion.
*Yield-to-Worst measures the lowest of either yield-to-maturity or
yield-to-call date on every possible call date. Duration measures a bond’s
sensitivity to a rise or fall in interest rates.
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advice. Investors should discuss their individual circumstances with
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Please note that the information herein represents the opinion of the author
and these opinions may change at any time and from time to time. Not intended
to be a forecast of future events, a guarantee of future results or investment
advice. Current market conditions may not continue. Non-Van Eck Global
proprietary information contained herein has been obtained from sources
believed to be reliable, but not guaranteed.
About Market Vectors ETFs
Market Vectors exchange-traded products have been offered since 2006 and span
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The Fund may be subject to credit risk, interest rate risk and a greater risk
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Index returns assume the reinvestment of all income and do not reflect any
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BofA Merrill Lynch U.S. High Yield Master II Index (H0A0) is comprised of
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