Fallen Angels Hidden OTC Stock Secrets

What Are Fallen Angels?

Fallen Angel is a term in the investment world that refers to bonds that initially had investment grade but were later downgraded to junk bond status due to the worsening financial condition of the issuer. This term can also be used to describe a stock that has fallen precipitously from its all-time high.

Explanation of Fallen Angels

Fallen angel bonds have experienced downgrades by major rating agencies such as Standard & Poor's, Fitch, and Moody's Investors Service. This could be the debt of a company, city, or country experiencing financial difficulties.

Important point:

Fallen Angel: A bond that is downgraded to junk status because the issuer is experiencing financial difficulties.

High Yield: These bonds offer higher yields than investment-quality bonds, but are riskier.

Focus Funds and ETFs: Some bond funds and ETFs specifically invest in fallen angels.

Reasons for Ranking Depreciation

Rating downgrades are often caused by a decline in earnings, which jeopardizes the issuer's ability to pay interest on its bonds. If a decline in earnings is accompanied by an increase in debt, the potential for a rating downgrade will increase drastically.

Junk and Sale Status

The downgrade to junk status prompted greater selling pressure, especially from funds that are only allowed to hold investment-grade debt. This could make fallen angel bonds attractive to investors who see an opportunity in this situation, assuming the issuer has a reasonable chance of recovering.

Fallen Angel Fund

There are special funds that invest in fallen angel bonds. For example:

VanEck Vectors Fallen Angel High Yield Bond ETF: Only invests in bonds that have been downgraded.

iShares USD Fallen Angels ETF: Invest in dollar-denominated fallen angels.

Risks of Investing in Fallen Angels

Investing in fallen angels is high risk. For example, oil companies experiencing a decline in oil prices may see their bonds downgraded to junk status due to the increased risk of default.

Other Risks:

Municipal Bonds: Cities with declining tax revenues could see their bonds lowered.

Not All Come Back: Some fallen angels may not recover, especially if the company fails to innovate or faces strong competition.

Source:

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