Research report

The Fed and fallen angels: Steer clear, or follow suit?

We examine an opportunity in credit markets recently impacted by action from the Federal Reserve.

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April 24, 2020 | 8 minute read

As markets continue to grapple with the economic fallout from the COVID-19 outbreak, the Federal Reserve has been quick to implement unprecedented levels of stimulus. Just recently, the Fed announced on April 9 a new mandate allowing it to purchase fallen angels, companies downgraded from investment-grade rated to below investment-grade rated, a previous source of consternation.

In this note we discuss the opportunity, even without Fed intervention, that we see in fallen angels and assert that they are not the demonic risk that many may believe.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Robert Hoffman, CFA

Managing Director, Credit Wealth Solutions

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