Fixed-income exchange-traded fund investors are turning to debt assets battered by the coronavirus pandemic as the vaccine rollout helps fuel demand for riskier assets.
the iShares US Fallen Angels USD Bond ETF (NASDAQ: FALN), which tracks the Bloomberg Barclays US High Yield Fallen Angel 3% Capped Index of high yield US dollar-denominated corporate bonds that were previously rated investment grade, just enjoyed a weekly net inflow of $ 478 million and an additional $ 93 million in inflows at the start of this week, more than doubling the fund’s assets under management to more than $ 1 billion, according to Bloomberg.
In 2020, there were twice as many downgrades to American companies as in 2019, after the pandemic brought to a halt large swathes of the economy.
However, investors are returning to areas of the market that took the shock of the past year, which includes Rotten Bonds and so-called Fallen Angels, which suffer mechanical sell-off after being demoted from high indices. quality, according to Peter Tchir of the Academy. Securities.
“Buy anything with a Covid discount that’s always built in – which should wear off over time. The fallen angel may cause forced sells originally depending on the odds, and there was real fear, so they had a lot of leeway to outperform, ”Tchir told Bloomberg, adding that if the rally has been “ impressive ” so far, there is still room. go.
With the resumption of vaccine roll-out, investors are returning to reflation and looking for more attractive returns in a low interest rate environment. Wells Fargo Investment Institute argues that this has increased the attractiveness of the recently downgraded debt.
“The whole scenario was reversed in early November,” Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute, told Bloomberg. “Investors are betting that a reopening of the global economy, along with the reflation trends we are seeing, will lead to tightening spreads and improving credit ratings.”
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