Fallen Angel Bonds: Higher Quality High Yield>

Fallen angel high yield bonds are part of the overall high yield universe but unique in that they were originally issued with investment grade ratings and later downgraded to non-investment grade, or high yield. Fallen angel bonds provide a distinct value proposition that sets them apart from the broad high yield market. ¹  The distinction between the high yield bond market and the much larger investment grade market, with unique investor bases and issuers, creates a structural inefficiency when a bond crosses over from one category to the other. Historically, bonds have declined in price prior to being downgraded to high yield, and recovered following the downgrade. Systematically investing in these undervalued bonds has been a source of outperformance for fallen angel investors historically, while also resulting in unique sector exposures and higher overall credit quality ²  relative to the broad high yield market as measure by ICE BofA High Yield Index. Learn more about how the VanEck Fallen Angel High Yield Bond ETF (ANGL ^® ) can offer investors an efficient way to access this unique segment.

High Yield Bonds Through the Cycle

The unique performance drivers of fallen angel bonds (systematically buying oversold bonds, differentiated sector exposure and higher credit quality) have driven outperformance versus the broad high yield in 14 out of the last 19 years. ³  This outperformance has occurred in different market environments, illustrating an attractive consistency of outperformance. Further, fallen angels have historically outperformed in environments with both rising and declining interest rates, and in widening and very tight spread environments. This all-weather outperformance is a result of the different role each performance driver can play in various stages of a market cycle.

Fallen Angel High Yield Bond Batting Average Increases with Time (1/31/2004 – 12/31/2022)

Source: Morningstar. Past performance is not indicative of future results. See disclaimers and index descriptions at the end of this presentation. Fallen Angel U.S. High Yield by the ICE US Fallen Angel High Yield 10% Constrained Index (H0CF) and Broad U.S. High Yield by ICE BofA High Yield Index (H0A0). Fallen Angel U.S. High Yield index data on and prior to February 28, 2020 reflects that of the ICE BofA US Fallen Angel High Yield Index (H0FA). From February 28, 2020 forward, the Fallen Angel U.S. High Yield index data reflects that of the Fund's underlying index, the ICE US Fallen Angel High Yield 10% Constrained Index (H0CF). Fallen Angel U.S. High Yield index data history which includes periods prior to February 28, 2020 links H0FA and H0CF and is not intended for third party use.

Batting Average is measured by dividing the number of periods a portfolio or investment strategy outperforms a benchmark by the total number of periods.

Not All High Yield Bonds Are Created Equal

Fallen angels stand apart from original-issue high yield bonds, offering a higher quality, high yield bond strategy that has historically outperformed the broad high yield bond market, including actively managed funds. Fallen angel high yield bonds, historically, tend to be issued by larger, more established companies, have a higher rate of upgrades to investment grade ⁴  and offer a contrarian approach to investing in bonds exposed to heavy selling.

Fallen Angel Bonds vs. Broad High Yield Bonds Returns

Source: ICE and Morningstar. Data as of 12/31/2022. This chart is for illustrative purposes only. Index performance is not illustrative of fund performance. Fund performance current to the most recent month end is available by visiting vaneck.com. Historical information is not indicative of future results; current data may differ from data quoted. Indexes are unmanaged and are not securities in which an investment can be made. Current data may differ from data quoted. Past performance is no guarantee of future results; VanEck Fallen Angel High Yield Bond ETF commenced on 4/10/2012. An investor cannot invest directly in an index. The results assume that no cash was added to or assets withdrawn from the Index. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown. Broad high yield bond market and active managers are represented by the ICE BofA US High Yield Index and Morningstar High-Yield Bond category average, respectively. See disclaimers and index descriptions at the end of this presentation.

Fallen Angel U.S. High Yield is represented by the ICE US Fallen Angel High Yield 10% Constrained Index (H0CF) and the Broad U.S. High Yield by ICE BofA High Yield Index (H0A0). Fallen Angel U.S. High Yield index data on and prior to February 28, 2020 reflects that of the ICE BofA US Fallen Angel High Yield Index (H0FA). From February 28, 2020 forward, the Fallen Angel U.S. High Yield index data reflects that of the Fund's underlying index, the ICE US Fallen Angel High Yield 10% Constrained Index (H0CF). Fallen Angel U.S. High Yield index data history which includes periods prior to February 28, 2020 links H0FA and H0CF and is not intended for third party use.

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