A fallen angel is a bond that has been reduced to junk status due to the issuer's financial distress. These bonds usually have the lowest credit rating possible and offer higher returns than investment-grade bonds, but with a much greater level of risk.

The term "fallen angel" relates to the initial high credit rating of the bond, before it entered into financial trouble. The issuer of the bond may have lost its investment-grade status by defaulting on its loans; by being downgraded after a high-yield bond offering; or in the event of a bankruptcy, restructuring, dividend suspension, or financial restructuring.

Despite the higher risk associated with fallen angels, many investors view these bonds as attractive investments. For an investor, the appeal of these investments lies in the higher yield and the potential to take advantage of higher-yield options in a sector that might otherwise not be available.

Most often, fallen angels are held by funds and ETFs that specialize in high-yield bonds. These funds and ETFs are typically offered by companies that are experienced in managing distressed debt. They are actively managed and use a variety of techniques to analyze risk and determine which bonds present the least risk for investors.

Investors should be aware that investing in fallen angels carries an additional level of risk due to the high degree of financial distress. Default risk is higher than investment-grade bonds, and the potential for restructuring of the bond's terms is a real possibility. As a result, investors should take caution when considering fallen angel bonds.

Overall, investments in fallen angels provide investors with the opportunity to access higher-yield investments. These investments carry an additional level of risk and should be approached with caution. Before investing in fallen angels, investors should research the company, the bond, and the risks involved. With the right research, investors should be able to make the most of the potential return while minimizing risks.