Webinar | Fallen Angels spread their wings

Watch the replay of our Fallen Angels Webinar to learn how investing in fallen angel bonds could present attractive opportunities for fixed income investors. 

Our investment team managing our fallen angels recovery strategy, CIO, Yannik Zufferey, along with Ashton Parker, Lead PM and Head of Credit Research, and Anando Maitra, PM and Head of Systematic Research,  discussed all there is to know about fallen angels bonds. The topics covered included the performance engines of this compelling pocket of the high-yield market, and how rigorous credit analysis helps to maximise potential.

Questions raised by the audience included:

• What is the flow of downgraded bonds entering the fallen-angels universe? Historically, has there been a period without any downgrades from investment grade to high yield? The flow of fallen angels typically corresponds to the credit/default cycle. A significant flow of fallen angels in 2008-09, 2011-12, 2015-16 and 2020 coincided with a default/downgrade wave. In the interim period, the supply of fallen angels was generally much lower, although never zero. The scarcest supply of fallen angels has been in low-volatility periods such as during 2017 and 2021.
   
• Is it worth timing the entry into the fallen-angels space? Structurally fallen angels outperform when there is a large supply of new fallen angels on the back of a downgrade wave that coincides with the bottom of the credit cycle. Therefore, timing fallen angels is similar to timing credit exposures but in practice investors are often conservative in such periods. Tactically it is easier to invest in fallen angels during a relative underperformance of BB-rated bonds as fallen angels are primarily BB-rated. Such underperformance occurs earlier in a credit selloff as investors reduce risk through the more liquid BB segment as seen at the start of the Covid-19 crisis and also during the current Russia-Ukraine crisis.

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