August 06, 2012 at 08:45 AM EDT
Market Vectors’ Fran Rodilosso on “Fallen Angels” and “Rising Stars” in the U.S. High-Yield Corporate Bond Universe

Market Vectors’ international high-yield corporate bond portfolio manager Fran Rodilosso today commented on what he sees as the major themes and trends shaping the “fallen angels” segment of the U.S. high-yield corporate bond space. “Fallen angel” is a term used to describe a bond that was rated as investment grade at the time of its original issuance, but which has since lost its investment grade status. Currently, fallen angels account for approximately 15 percent of the U.S. dollar denominated high yield bond universe.

“We have already seen some high-profile fallen angels ‘re-ascend’ this year, known as ‘rising stars,’ including $8 billion in Ford Motor bonds and $700 million in Pioneer Natural Resources bonds,” said Rodilosso. “Rising Star” is the opposite of fallen angel, and describes a bond with a credit rating that has been upgraded and has the potential of becoming investment grade. “The overall ratio of upgrades to downgrades has decreased over the course of 2012, but we have not seen explosive growth in the number of bonds moving into the fallen angel category, at least not yet.”

“While I believe that we could see growth in the BofA Merrill Lynch U.S. Fallen Angel High Yield Index (H0FA), which underlies our Market Vectors Fallen Angel High Yield Bond ETF (ANGL), over the next six to twelve months,” continued Rodilosso, “I also think that if overall credit quality remains strong, the index has the potential to perform well relative to high-yield and crossover investment alternatives.”

Rodilosso pointed to the fact that in recent months some large U.S. banks, such as Bank of America and Citibank, have tendered for and called a significant amount of Tier 1 capital issues that were fallen angels ahead of regulatory changes taking effect next year. “I believe that these calls reflect the U.S. banks’ improving balance sheets,” he added.

“Still, according to Merrill Lynch, as of July 2012, there is $73 billion of investment grade bonds with a rating in the lowest investment grade category that are on negative outlook, i.e. fallen angel candidates,” continued Rodilosso. “That is almost twice the number of ‘rising star’ candidates. But despite the shift towards downgrades, default rates among all high yield issuers still remain far below the 4.5 percent historical average, though I believe they could tick up to the 3.0-3.5 percent range by the end of the year.”

Mr. Rodilosso, who joined the Market Vectors team earlier this year, has more than 20 years of senior level experience in emerging markets, high-yield debt research and portfolio management. He currently manages three Market Vectors high-yield corporate bond ETFs, Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL), International High Yield Bond ETF (NYSE Arca: IHY) and Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM).

Van Eck Associates Corporation does not provide tax, legal or accounting advice. Investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service.

Please note that the information herein represents the opinion of the author and these opinions may change at any time and from time to time. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

About Market Vectors ETFs
Market Vectors exchange-traded products have been offered since 2006 and span many asset classes, including equities, fixed income (municipal and international bonds) and currency markets. The Market Vectors family currently totals $23.6 billion in assets under management, making it the fifth largest ETP family in the U.S. and eighth largest worldwide as of June 30, 2012.

Market Vectors ETFs are sponsored by Van Eck Global. Founded in 1955, Van Eck Global was among the first U.S. money managers helping investors achieve greater diversification through global investing. Today, the firm continues this tradition by offering innovative, actively managed investment choices in hard assets, emerging markets, precious metals including gold, and other alternative asset classes. Van Eck Global has offices around the world and manages approximately $32 billion in investor assets as of June 30, 2012.

There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. Debt securities carry interest rate and credit risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer's financial health. The Funds' underlying securities may be subject to call risk, which may result in the Funds having to reinvest the proceeds at lower interest rates, resulting in a decline in the Funds' income.

The Funds, as they invest in high yield securities, may also be subject to a greater risk of loss of income and principal than higher rated securities. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict and social instability. The prices of high yield securities are likely to be more sensitive to adverse economic changes or individual issuer developments than higher rated securities. The secondary market for high yield securities may be less liquid than the market for higher quality securities and, as such, may have an adverse effect of market prices of certain securities. As the Fund may invest in securities denominated in foreign currencies and some of the income received by the Fund will be in foreign currency, changes in currency exchange rates may negatively impact the Fund’s return. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict and social instability. Investors should be willing to accept a high degree of volatility and the potential of significant loss. For a more complete description of these and other risks, please refer to the Fund’s prospectus and summary prospectus. The Fund may loan its securities, which may subject it to additional credit and counterparty risk.

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Fund shares are not individually redeemable and will be issued and redeemed at their NAV only through certain authorized broker-dealers in large, specified blocks of shares called “creation units” and otherwise can be bought and sold only through exchange trading. Creation units are issued and redeemed principally in kind. Shares may trade at a premium or discount to their NAV in the secondary market.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 888.MKT.VCTR or visit vaneck.com/etf. Please read the prospectusand summary prospectus carefully before investing.

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