Fallen Angels

Abstract

From Benjamin Graham's day to the present, market participants have debated the relative investment merits of fallen angels and original issue high yield bonds. Analysis over the most recent complete cycle indicates that fallen angels have performed better, under both bull and bear market conditions. The edge is not attributable to the fallen angels' higher ratings or longer average maturities. By a commonly applied standard, fallen angels constitute a separate asset class capable of contributing diversification, as well as superior risk-adjusted returns, in a multi-asset portfolio.