ETF provider Invesco Powershares has announced the launch of a new Fallen Angels ETF, aimed at offering investors exposure to recently downgraded bonds.
The fund, which is Ucits compliant, has now been been listed on London Stock Exchange and Irish Stock Exchange, it tracks the Citi Time-Weighted US Fallen Angel Bond Select Index.
The index targets bonds which were previously rated investment-grade but were subsequently downgraded to high-yield, such “fallen angels” will be held in the index for a period of 60 months from inclusion provided they continue to meet the inclusion criteria.
Bryon Lake, head of Invesco PowerShares EMEA explains: “With the ‘fallen angel’ phenomenon there are two things going on that are pushing the bond price down. First leading up to the downgrade you tend to see prices begin to drop as investors position themselves for the downgrade. Secondly, after the downgrade there are large asset owners, usually institutional in nature, that are forced to sell what were investment grade bonds but are now high yield due to their strict mandated rules.”
“This forced selling creates a phenomenon where the bond can become oversold, which creates an opportunity to buy the bonds at their existing market value. This overselling – more often than not – is followed by a rebound in the bonds prices, potentially creating a unique opportunity and in a number of instances the bond even returns to investment grade” Lake adds.
The Fallen Angels ETF is set to be listed on Borsa Italiana, Deutsche Börse, Euronext Paris and Six Swiss exchange next week.