High Yield Fallen Angel Bonds BB

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High Yield Fallen Angel Bonds BB

Postby LH » Fri Apr 05, 2013 9:54 am

http://etfdb.com/2013/fallen-angel-bond ... -disguise/

http://etfdb.com/etf/ANGL/fact-sheet/

Has anyone invested in Fallen Angel Bonds? Those that are BB, but were investment grade?

The expected Returns book author, brought them up as a potential high yield bond class, that like SCV, for whatever reason, seems to outperform HY bonds in general?

http://www.amazon.com/Expected-Returns- ... 1119990726

Down the road (like year(s)), I may invest some in HY, and it may be in the BB segment of HY.

Was wondering if the above ETF, would best represent the BB HY class, or if there are others. its ER is 0.4%

They would be considered part of my stock allocation if I ever use them.

thanks,

LH
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Re: High Yield Fallen Angel Bonds BB

Postby mass_biker » Fri Apr 05, 2013 10:24 am

Few things to consider about bbs:

- if "fallen angels" or former ig rated bonds, they typically have weaker or no covenants; if these get primed or crammed in a leveraging transaction (on the rise these days), they will likely lose value as their perceived risk will increase
- bbs tend to be more rate sensitive then lower tiers of the HY market; their rate sensitivity is a consideration if you think treasuries are going to increase in yield
- all in yields for highest quality HY are very low; attractive spreads (because of ultra low tsy yields) have propped up demand and the entire HY mkt trades at a large premium
- equity sponsors/companies are using low bond yields to fund share buy backs and dividends; be aware of where we are in the credit cycle and on what side of the balance sheet you want to be on.
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Re: High Yield Fallen Angel Bonds BB

Postby Valuethinker » Fri Apr 05, 2013 10:32 am

LH wrote:http://etfdb.com/2013/fallen-angel-bonds-high-yield-in-disguise/

http://etfdb.com/etf/ANGL/fact-sheet/

Has anyone invested in Fallen Angel Bonds? Those that are BB, but were investment grade?

The expected Returns book author, brought them up as a potential high yield bond class, that like SCV, for whatever reason, seems to outperform HY bonds in general?

http://www.amazon.com/Expected-Returns- ... 1119990726

Down the road (like year(s)), I may invest some in HY, and it may be in the BB segment of HY.

Was wondering if the above ETF, would best represent the BB HY class, or if there are others. its ER is 0.4%

They would be considered part of my stock allocation if I ever use them.

thanks,

LH


The strategy is right (an apparent anomaly, created by the fact that many bond investors cannot hold sub investment grade, so sub BBB- bonds or ones headed that way, are dumped, creating an opportunity). Of course you have to believe in inefficient markets (to some extent).

However Rick Ferri and others have warned about the problems with corporate bond ETFs, and that is worth reading around.

The ideal way of playing this would be a 'go for it' active credit manager, running a closed end fund. AFAIK such have way too high fees. But you want someone who is promiscuous across credit, looking for anomalies: CLOs, the right Residential MBS, Commercial MBS, Fallen Angels, Mezzanine Loans, Eurozone periphery etc. A 'credit strategy' fund. Basically buy whatever the market is dumping on.

The Closed End Fund would get out of the illiquidity problem in the underlying assets. A hedge fund with restricted liquidity could do the same.
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Re: High Yield Fallen Angel Bonds BB

Postby Cyclone » Fri Apr 05, 2013 11:07 am

I liked the book Expected Returns as well.

I don't know how to post the graph here, but if you go to Bigcharts.com and compare ANGL with HYG, over the past 12 months ANGL is very slightly ahead. One year is a short comparison time, however.
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