Invesco PowerShares has launched a US high yield 'Fallen Angels' bond exchange-traded fund (ETF) in partnership with Citi.
The vehicle, the US High Yield Fallen Angels Ucits ETF, is the firm’s first offering for fixed income ETF investors in Europe. It physically replicates the Citi Time-Weighted US Fallen Angel Bond Select index, and is domiciled in Ireland.
‘Fallen angels’ are bonds recently downgraded from investment grade to junk. Invesco Powershares says they can be oversold by investors as a result, but can bounce back significantly.
Bryon Lake, head of Invesco PowerShares Europe, Middle East and Africa, said fallen angel bonds “more often than not” recover significantly, and offer “good” price appreciation.
“The idea is when others are selling, we are buying, so this is akin to value investing in bonds,” he added.
“We do not only participate in price appreciation, but receive approximately the same yield as a traditional high yield product, and the bonds' ratings tend to be at the higher end of high yield."
The fund overweights bonds that have been downgraded most recently. Issuer weights are capped at 5%.
A spokesperson for the firm said it had back-tested performance of the index between January 2000 and June 2016 and found that on an annualised basis, the Fallen Angels index returned 11.1% over the period, while the US High-Yield Market index produced 6.8%.
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