Invesco has changed the methodology of its fallen angels ETF in a bid to boost its liquidity and reduce the concentration of individual issuers.
In a shareholder notice, the asset manager said the $190m Invesco High Yield Fallen Angel UCITS ETF (HYFA) will see its minimum issue size increased from $250m to $300m, while reducing the weight cap for constituents from 5x to 3x their market value.
In addition, the ETF will upgrade the minimum credit rating from C to B- as it looks to remove issuers that are “unlikely to recover and maybe heading for default”.
Paul Syms, head of EMEA ETF fixed income product management at Invesco, said: “We regularly review the indices tracked by our ETFs to ensure that they remain suitable to meet their objectives and continue to have the appropriate characteristics for use as an ETF benchmark.
“Fallen angels strategies are designed to capture the performance of bonds whose price has been depressed due to them being downgraded from investment grade to high yield and, due to the nature of this opportunity, our ETF tracks an index with an innovative time-weighted methodology.”
HYFA, which tracks the FTSE Time-Weighted US Fallen Angel Bond Select index, assigns higher weights to bonds that have more recently become fallen angels, as opposed to their market cap value.
The strategy aims to capture the potential price rebound effect fallen angels experience soon after their downgrade to high yield. Constituents in HYFA are currently capped at 5%.
The ETF had an estimated yield to maturity of 7.1%, as at January.
The attractive yields on offer has led to growing demand for fixed income ETFs this year. In particular, the iShares Core € Corporate Bond UCITS ETF (IEAC) has seen $1.2bn inflows, the most across all European-listed ETFs, according to data from ETFLogic.
Within fallen angels ETFs, the US-listed VanEck Fallen High Yield Bond ETF (ANGL) has captured $171m net new assets in 2023, as at 20 January.
Earlier this month, Invesco launched the Invesco Global High Yield Corporate Bond ESG UCITS ETF (GBHY) in response to investor demand.
The updates to HYFA will take place on 1 February.