6 The average of all 2020 fallen angels is about 12%, which is above the historical average. Kraft, Ford and the new energy fallen angels have averaged a 19.36% price return since index entry. 5 Accordingly, this year’s outperformance thus far is coming from the BB allocation, which has contributed to more than 100% of its return while other credit quality allocations have detracted performance.

Higher relative credit quality: New fallen angels have been rated BB, increasing the index’s BB exposure to 92.78% vs 56.58% in the broad high yield market.

Fallen angels’ overweight to energy has contributed 1.57% to outperformance this year versus the High Yield Broad Market Index and has returned 42.57% since (as of ).

Contrarian sector approach: The recovery of the energy sector helps demonstrate this.

From Februforward, the index data reflects that of the ICE US Fallen Angel High Yield 10% Constrained Index (H0CF). Index data on and prior to Februreflects that of the ICE BofA US Fallen Angel High Yield Index (H0FA). Data is based on bond constituents of the ICE BofA US Fallen Angel High Yield Index that were downgraded to high yield and entered the index in 2004 or later. Past performance is not indicative of future results. This chart is for illustrative purposes only. 3 Within six months of entering the index, the new fallen angel bonds prices tend to recover and usually go back to where they were six months before entering the index.Īverage Fallen Angel Bond Cumulative Return: 6 Months Before to 6 Months After Entering the Index

The fallen angel technical effect: This has been more pronounced this year as the average six-month price return prior to entering the index for all 2020 fallen angels YTD is ~-18%, which is more than twice the historical average (~-7%).

There are three main explanations for this outperformance: It is calculated by summing the three factors: allocation, security and interaction effects. Contribution to outperformance represents the opportunity cost of an investment manager’s investment decisions relative to the overall benchmark. Top 5 contributors to outperformance vs broad high yield market: – 2įrom an issuer standpoint, four of the top five contributors have entered this year, including Occidental Petroleum, Ford and Kraft Heinz. With over $140B of new fallen angels so far this year, it is already a record year, and we expect more fallen angel volume going forward. As we have noted previously, outperformance versus the broad high yield market historically follows periods of high fallen angel volume, and this year has not been an exception. 1 This year’s new fallen angels are the primary drivers.

high yield market, as represented by the ICE BofA High Yield Index (“High Yield Index”), year-to-date by 5.23% as of July 31, 2020. Fallen angel bonds, as represented by the ICE US Fallen Angel High Yield 10% Constrained Index (“Fallen Angel Index”), are outperforming the broad U.S.

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