Nadig: My Biggest 2016 ETF Surprises

December 23, 2016

By any measure, 2016 was a momentus year. We lost Bowie, Prince and Cohen. We got the best Star Wars movie since 1977. And of course, there was an election cycle unlike anything we’ve ever seen. 

But while the ETF market may not catch the eyes of the TMZ reporters all that often, it’s still capable of making me think, “Huh, well how about that?” every so often.

Here were my two big “huhs” for the 2016:

VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL)
The junk bond market has been a fantastic growth story or ETFs, not just this year, but in general. So far this year, the segment has taken in almost $5 billion in new money, dominated by two giants: the $18 billion iShares iBoxx $ High Yield Corporate Bond ETF (HYG), and the nearly-identical-but-for-details $12 billion SPDR Bloomberg Barclays High Yield Bond ETF (JNK). Those two funds combined pulled in $3.7 billion so far this year.

And yet, from both a “do I believe the story?” perspective and a “show me the money” perspective, there’s been a much better choice for the past three to four years, and it may finally be getting its moment in the sun: the VanEck Vectors Fallen Angel High Yield ETF (ANGL).

ANGL’s pitch is simple: Instead of just hunting for junk, it specifically looks for bonds that became junk later in life, but were issued as investment grade. 

The idea is that these companies aren’t in desperately troubled sectors of the economy, have good bones and simply hit some level of hard times that caused their ratings to fall. Companies that downgraded often get severely punished by the markets, making for opportunities for contrarian buyers—like ANGL. 

The resulting portfolio, to be impolite, has beaten the pants off not only the traditional big players, but upstart alternatives like the PowerShares Fundamental High Yield Corporate Bond Porfolio (PHB)another fund whose methodology I really like, but that just hasn’t cut the mustard on performance:

 

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