VanEck Vectors Global Fallen Angel High Yield Bond UCITS ETF
| Issuer: Van Eck |
| Asset Class: Fixed Income |
| TER: 40bps |
| Trading Currency: USD |
| Pays Income: False |
| Listing Date: 23 Mar 2018 |
| Ticker: GFA |
| ISIN: IE00BF540Z61 |
This investment strategy focuses on a unique segment of the corporate bond market known as 'fallen angels'. These are bonds originally issued with an investment-grade credit rating that have subsequently been downgraded to high-yield or 'junk' status. The downgrade is often the result of a specific event, a challenging period for the issuer, or a broader economic downturn, rather than an irreversible decline in the company's fundamental credit quality. This event-driven downgrade frequently triggers forced selling by institutional investors who are mandated to hold only investment-grade securities, creating a potential pricing anomaly and an opportunity for discerning investors.
The investment case for fallen angels is built on their historical tendency to outperform the broader high-yield bond market. This potential for outperformance stems from two key dynamics. Firstly, the forced selling pressure can depress bond prices below their intrinsic value at the time of the downgrade, allowing investors to purchase them at a discount. Secondly, the issuers of fallen angel bonds are often larger, more established companies than typical high-yield issuers. This can give them a greater capacity to address their financial challenges, improve their credit profile, and potentially regain their investment-grade status, becoming 'rising stars' and delivering significant capital appreciation.
This fund provides investors with systematic and diversified exposure to a global portfolio of these fallen angel corporate bonds. By tracking a rules-based index, it captures the unique risk and return characteristics of this niche market segment. For investors seeking to enhance the yield and total return potential of their fixed-income allocation, this strategy offers a compelling, contrarian approach. It aims to capitalize on the market inefficiencies that arise during credit rating downgrades, providing a distinct source of returns compared to traditional corporate bond investments.
