What is ANGL? (Pros, Cons, and Strategies)

With the growing complexities of the financial markets, diversifying investment portfolios has never been more crucial. One unique and compelling option to consider is ANGL, the VanEck Fallen Angel High Yield Bond ETF. If you're seeking higher yields with a measure of risk, ANGL could be a viable option. In this blog post, we’ll break down what ANGL is, examine its pros and cons, and outline some strategies for effective investment.

What is ANGL?

ANGL stands for the VanEck Vectors Fallen Angel High Yield Bond ETF. The term "fallen angels" refers to bonds that were originally issued with an investment-grade rating but have since been downgraded to junk status. These bonds often provide higher yields compared to other fixed-income investments, making them an attractive option for yield-seeking investors.

ANGL tracks the ICE BofA US Fallen Angel High Yield Index, which aims to measure the performance of U.S. dollar-denominated “fallen angel” high yield corporate bonds.

Key Features of ANGL

• Investment-Grade Fallen to High Yield: Focuses on bonds that have been downgraded from investment-grade to high yield.
• Diversification: Includes a diverse range of issuers and sectors, making it less risky compared to investing in a single high-yield bond.
• Higher Yield: Typically offers higher yields than traditional high-yield or investment-grade ETFs.

The ETF comprises corporate bonds predominantly from sectors such as energy, telecommunications, and consumer goods, providing an easily accessible way to invest in a broad array of high-yield instruments.

ANGL Composition

The VanEck Fallen Angel High Yield Bond ETF includes bonds from well-established companies that have faced downgrades. These can include:

• Energy companies impacted by volatile oil prices
• Telecommunications firms adjusting to competitive pressures
• Consumer goods companies dealing with changing consumer preferences

Typically, these bonds will re-enter investment-grade status over time or continue to offer substantial yields as high-yield securities.

Pros of ANGL

Higher Yield Potential

One of the most significant advantages of ANGL is its higher yield compared to more conservative bond ETFs. Because fallen angels were investment-grade bonds prior to their downgrade, they often offer better yields to attract investors post-downgrade.

Price Appreciation Potential

Should any of the fallen angels regain their investment-grade status, there is a potential for their prices to increase, providing capital gains in addition to the high yields.

Diversification

ANGL provides the diversification of a mutual fund while targeting a specific niche market. This approach minimizes risk related to individual bond defaults or sector-specific downturns.

Lower Expected Default Rates

Given that these bonds were originally high-quality (investment-grade), they tend to have lower default rates compared to original issue high-yield bonds. This results in a somewhat safer investment within the high-yield space.

Cons of ANGL

Higher Risk

As with any high-yield investment, ANGL comes with higher risk. The very fact that these bonds are termed "junk" reflects their higher default risk compared to investment-grade bonds.

Interest Rate Sensitivity

ANGL is also subject to interest rate risk. Rising interest rates can lead to falling bond prices, which can affect the ETF's performance negatively.

Sector Concentration

While diversified, ANGL tends to have heavy sectoral concentrations, particularly in sectors like energy and telecommunications, making it vulnerable to sector-specific downturns.

Lower Liquidity

Compared to some more prominent ETFs, ANGL may have lower liquidity, potentially impacting the ease of buying and selling shares at favorable prices.

ANGL Investment Strategies

ANGL offers unique opportunities but entails specific risks that need nuanced strategies to mitigate. Below are some strategies to consider:

Long-term Investment Strategy

Given its high-yield characteristic, ANGL is better suited for long-term investors willing to stomach higher volatility for potentially greater returns. By holding onto this ETF for the long haul, investors can ride out market fluctuations and capitalize on higher interest payments over time.

Diversification

ANGL should be part of a broader diversified portfolio. Incorporating other asset classes like equities, safer bonds, and even other high-yield ETFs can balance out the inherent risks associated with fallen angel bonds.

Dollar-Cost Averaging

Investing a fixed dollar amount in ANGL at regular intervals regardless of its share price can be a wise approach. This strategy, known as dollar-cost averaging, helps mitigate the impact of volatility and reduces the risk of entering the market at a peak.

Tactical Allocation

Investors can use ANGL dynamically by adjusting their allocation based on market conditions. During times of economic recovery or stability, increasing exposure to high-yield bonds like ANGL can be beneficial. Conversely, during economic downturns, reducing exposure can help safeguard the portfolio.

Conclusion

ANGL is an intriguing ETF that offers high yields and diversification advantages, catering to investors willing to accept a higher level of risk for potentially better returns. This ETF's focus on fallen angel bonds can play a valuable role in a diversified investment strategy, especially for those with a long-term horizon. Before diving into ANGL, it's crucial to weigh the pros and cons and design a strategy aligned with your financial goals and risk tolerance.