Each week, I scan the ETF marketplace to identify my top ideas - one from each of 10 different segments of the market - that present opportunities you should be aware of for the coming week. These are a few of the ideas that are available to ETF Focus subscribers.
The Fixed Income ETF Idea
I made the case at the beginning of the year for the VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL) as one of my top ideas for 2018, and I think it's worth pounding the table again. As a refresher, ANGL invests in bonds that were issued as investment-grade notes, but have since fallen into the junk category. The objective of the fund is to capture those beaten-up bonds that could rebound back into the investment-grade category once again.
During 2016-2017, ANGL was a stellar performer, returning more than 37% during a time when the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) returned about 20% and the iShares Core U.S. Aggregate Bond ETF (AGG) returned about 6%. In 2018, the fund has slightly underperformed its peers, but it still looks like it's in pretty good shape looking forward.
ANGL has a couple of things going for it. First, you've got energy as the top sector holding. Energy has been beaten down for some time, so you've seen a lot of these bonds pouring into this fund. Since the middle of last year, we've seen the price of WTI crude rise from around $45/barrel up to $65, but the Energy Select Sector SPDR ETF (XLE) has only risen about 7%. There's more upside to be had if the stock prices of these companies catch up to the relative rise of energy prices. Second, there's a strong economic backdrop here. Energy prices are rising, demand is still strong and you've got the tailwind of corporate tax cuts adding a lot of liquidity. That's a solid recipe to start pushing some of these names back towards the investment-grade category. If they can get there, then some of the big bond index funds would need to sweep in and buy in order to add them to their indexes.
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