A taste for high yield and rare earth metals is apparent in the three VanEck ETFs with the highest inflows over the past week. With the Federal Reserve opting to keep interest rates unchanged, fixed income investors are seeking alternative forms of high yield.
Source: Rare Metals & High Yield: Investors Flocking to 3 VanEck ETFs
One strategy is to take on riskier debt via funds like the VanEck Vectors EM High Yield Bond ETF (HYEM).
HYEM seeks to replicate the ICE BofAML Diversified High Yield US Emerging Markets Corporate Plus Index, which is comprised of U.S. dollar-denominated bonds issued by non-sovereign emerging market issuers that have a below investment grade rating and are issued in the major domestic and Eurobond markets.
- Focuses solely on the non-sovereign segment of the high yield emerging markets bond market
- Currently lower average duration versus high yield U.S. corporate bonds
- Lower historical default rates compared to high yield U.S. corporate bonds
Another high yield option takes a different angle. The VanEck Vectors Fallen Angel High Yield Bond ETF (BATS: ANGL) seeks to replicate as closely as possible the price and yield performance of the ICE BofAML US Fallen Angel High Yield Index, which is comprised of below investment grade corporate bonds denominated in U.S. dollars that were rated investment grade at the time of issuance.
The fund focuses on debt that has fallen out of investment-grade favor and is now repurposed for high yield returns with the downgraded-to-junk status. ANGL gives investors exposure to:
- Higher-Quality High Yield: Fallen angels, high yield bonds originally issued as investment grade corporate bonds, have had historically higher average credit quality than the broad high yield bond universe
- Outperformance in the Broad High Yield Bond Market: Fallen angels have outperformed the broad high yield bond market in 12 of the last 16 calendar years
- Higher Risk-Adjusted Returns: Fallen angels have historically offered a better risk/reward trade off than found with the broad high yield bond market
Lastly, a fund that’s up almost 100% the past year is the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX). REMX seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® Global Rare Earth/Strategic Metals Index.
The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index. The index includes companies primarily engaged in a variety of activities that are related to the producing, refining, and recycling of rare earth and strategic metals and minerals.
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