Why I Can't Stop Buying This Ultra-High-Yielding ETF

All right, I confess. I've spent much of my investing life glossing over bonds. That 60% stocks/40% bonds investment combo that the experts talked about for decades? Not for me. Try 100% stocks. However, with age comes wisdom -- and the need to reduce portfolio risk.

So when interest rates surged a few years ago, I figured it'd be an opportune time to at least evaluate some fixed income exchange-traded funds (ETFs) for possible inclusion in my individual retirement account (IRA).

I also knew that I wanted higher levels of income, so my search was confined to junk bond funds. That led me to the VanEck Fallen Angel High Yield Bond ETF (NASDAQ: ANGL) -- an ETF of which I remain a dedicated buyer. Here's why.

Why I fell for this angel

Yes, this $3.07 billion ETF is a high-yield or junk bond ETF, and investors are compensated for the risks associated with lower-quality corporate bonds with a 6.20% 30-day SEC yield. That's well in excess of what's found on aggregate or investment-grade corporate bond ETFs.

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Alone, that's a selling point, but there's more to the story with this ultra-high-yielding ETF. Fallen angels aren't the same as standard junk bonds. The former are born as investment-grades and later stripped of that label. That sounds bad, and it is for the investors holding the bonds when the downgrades happen.

By the time fallen angels matriculate to products like this VanEck ETF, much of the price deterioration has waned. That's just the beginning of the perks for long-term investors -- the perspective that should be applied with bonds. Investment-grade corporates that are later banished to junk territory have delivered better over the long term than both high-quality and junk-rated corporate debt.

This bond fund offers other sources of allure. Notably, fallen angels typically sport higher credit ratings than counterparts born with junk status, meaning credit risk is lower. Second, fallen angels are less correlated to stocks than traditional high-yield bonds are, meaning this VanEck ETF can add higher levels of diversification to portfolios than a run-of-the-mill junk bond fund.

Don't forget the upgrade kicker

Combine the aforementioned factors, and there's a solid case for this ETF. Throw in the fact that fallen angels beat junk bonds in the third quarter as the Federal Reserve rolled out its first rate cut of 2025, and the story gets even better. But it's not over.

Another reason I continue adding to my position in this bond ETF is a point any interested investor should acknowledge: Its holdings stand a better chance of becoming "rising stars" -- the term for a high-yield bond gaining investment-grade classification -- than debt born directly in junk territory.

Those upgrades can create price appreciation for the affected bonds, and that's one more reason to love this fallen angel ETF.

Todd Shriber has positions in VanEck ETF Trust-VanEck Fallen Angel High Yield Bond ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.