3 Underrated Bond ETFs For Your Income Portfolio

I write a ton of words every week on the topic of building income portfolios using exchange-traded funds. Some articles are purely an exercise in research and education, while others are directed towards real-world concepts that we are implementing for clients of our firm.

It’s through this process that I often dive into a new fund or sector and compare it to an established group of peers. It’s also refreshing to see funds that I have reviewed favorably in the past live up to (or exceed) their lofty expectations. 

In both instances, I am drawn to funds that set themselves apart through a dynamic index strategy, low cost structure, or unique value-add. Anyone can go buy the iShares Investment Grade Corporate Bond ETF (LQD) or the Vanguard Total Bond Market ETF (BND). Those are the bland, boring benchmarks. What interests me is finding tools to replace or supplement those vehicles to create a well-rounded income portfolio with market-beating potential.

Below are a few off-the-beaten-track bond ETFs with world-class qualities.

VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL)

If you are looking for a high yield bond fund to round out the credit side of your portfolio, ANGL may be one to consider. This index of 234 domestic fixed-income securities sets itself apart by owning credits rated below-investment grade in today’s market that were considered investment grade at the time of issuance.

The “fallen angels” moniker is quite appropriate in this instance because these once highly touted corporate bonds have slipped down the credit rating ladder.

 

ANGL has $912 million in total assets, a 30-day SEC yield of 4.95%, and charges a net expense ratio of 0.35%. For the sake of comparison, the mega iShares iBoxx $ High Yield Corporate Bond ETF (HYG) carries an expense ratio of 0.49% and sports a similar yield.

The ANGL portfolio has also bested HYG significantly on three and five-year time frames. This ETF has gained +26.16% and +44.39% in total return (dividends and capital appreciation) over those periods. That contrasts sharply with the +9.45% and +26.99% gains of HYG during that span.

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Disclaimer: FMD Capital Management, its executives, and/or its clients may hold positions in the ETFs, mutual funds or any investment asset mentioned in this post. The commentary does not ...

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