With yields around 7%, fallen angel ETFs have outperformed — but come with risks

iShares Fallen Angels USD Bond ETF Dividend Announcement

• Dividend Declaration: The iShares Fallen Angels USD Bond ETF (NASDAQ: FALN) has declared a monthly dividend of $0.1424 per share.
• Payment Details: This dividend is payable on September 5, with shareholders of record as of September 2. The ex-dividend date is also September 2.

Investment Insights

• Reasons to Invest: There are three compelling reasons highlighted for considering investment in this high-yield bond ETF, suggesting potential benefits for investors.
• Quant Rating: Seeking Alpha has provided a Quant Rating for the iShares Fallen Angels USD Bond ETF, indicating a structured evaluation of its performance and investment potential.
• Dividend Scorecard: The ETF's dividend scorecard offers insights into its dividend performance, which is crucial for income-focused investors.

• FALN Stock Performance: FALN's stock has a 52-week low of $24.82 and a high of $27.43, with the last trade recorded at $26.82.

• Market Insights: The article mentions other ETFs that have recently crossed above their 200-day moving average, indicating potential market trends.

• Junk Bonds Performance: Junk bonds have performed well due to a strong economy and falling interest rates, with the largest junk-bond ETF returning 14% over the past year. However, the share of "fallen angels" in the market has dropped to a record low of 4.2%, indicating fewer opportunities for investors to buy relatively healthy high-yielding debt.

• Future Outlook for Investors: The decline in fallen angels may signal lower future returns for junk bonds, as they typically outperform original high-yield issues. Investors are advised to consider targeting funds focused on fallen angels or maintaining a broad-based bond portfolio amidst narrow spreads.

• Overview of Fallen Angels Bonds:
  • "Fallen angels" bonds are those downgraded from investment grade to high yield, currently outperforming.
  • Only two ETFs invest in this space: iShares Fallen Angels USD Bond ETF (FALN) and VanEck Fallen Angel High Yield Bond ETF (ANGL).
• Investment Opportunities:
  • Supply-demand imbalance due to forced selling by institutional investors can present opportunities for investors.
  • Fallen angel bonds have historically outperformed high yield and investment-grade bonds over time.
• Performance and Tracking:
  • FALN and ANGL are part of Bank of America's dynamic prudent yield strategy, showing better backtested returns.
  • These bonds are currently above the 10-month moving average and have been performing well.
• Risks and Considerations:
  • Fallen angel portfolios are higher quality but face risks of further credit downgrades and interest rate risks.
  • Historical data shows volatility in performance compared to other bond funds during market corrections.
• Recommendations:
  • Suggested small allocation to fallen angels for portfolio diversification rather than a significant investment.

• Overview of Fallen Angels Bonds:
  • These bonds are downgraded from investment grade to high yield.
  • Only two ETFs, FALN and ANGL, invest in this space.
  • Supply-demand imbalance causes short-term price drops.
• Performance and Strategy:
  • Bank of America's prudent yield strategy includes these bonds.
  • Fallen angels have outperformed U.S. Aggregate Bond Index and Treasurys this year.
• Tracking and Historical Data:
  • FALN and ANGL track different indexes.
  • Historical data shows higher annualized returns for fallen angels compared to high yield and investment-grade bonds.
• Risks and Considerations:
  • Fallen angel portfolios are higher quality but face credit downgrade risks.
  • Longer duration and interest rate risk associated with fallen angels.
• Recommendations:
  • Advised to allocate a small portion to fallen angels for portfolio diversification.
  • Fallen angel funds can be riskier and more volatile than core bond funds.