Can including fallen angels enhance returns?

What is a fallen angel? In theological terms, a fallen angel is one who has rebelled and been exiled from heaven.

In this article we focus on the design of a sterling fallen angel index as well as highlighting the benefits of combining it with investment grade indices.

In many cases these bonds are issued by very well-known companies who you may not necessarily associate with high yield issuers (e.g. Tesco, Telecom Italia). When a bond is downgraded (either by S&P/Moody’s/Fitch1) it often implies that the business is suffering in some shape or form, either from a weakening financial position, or a loss in revenues and/or market share that could have an impact on the issuer’s ability to service their debt. When a company’s debt is downgraded below investment grade, it no longer remains a constituent of investment grade benchmarks.