Van Eck Junk Bond ETFs Near Launch

April 05, 2012


Van Eck Global, the fund company behind the Market Vectors brand of exchange-traded funds, filed updated regulatory paperwork with the U.S. Securities and Exchange Commission, indicating it is close to launching two high-yield corporate bond ETFs with exposure to developed as well as developing countries.

The two ETFs, their tickers and expense ratios are as follows:


The two corporate ETFs speak to an investor appetite for income at a time when yields in debt markets, particularly in developed economies, are rather low. A handful of U.S.-focused high-yield bond ETFs are on the market today, and Van Eck is just one of a number of firms looking to expand high-yield offerings—among them iShares, Guggenheim, Invesco PowerShares, State Street Global Advisors, and Pimco—and Van Eck isn’t the only ETF firm trying to expand that roster.

The Fallen Angel Bond ETF will invest in U.S. dollar-denominated corporate debt that was rated investment grade at the time of issuance but that has since been downgraded to junk status. The fund will be based on the BofA Merrill Lynch US Fallen Angel High Yield Index.

The Emerging Markets High Yield Bond ETF will focus on nonsovereign credits issued outside the so-called Group of Ten, according to the prospectus.

The underlying BofA Merrill Lynch High Yield US Emerging Markets Liquid Corporate Plus Index includes 261 below-investment-grade securities of 162 issuers, and approximately 86.2 percent of the index comprises Rule 144A and Regulation S securities.

Van Eck said that each of the funds will normally invest at least 80 percent of their total assets in securities that comprise their respective indexes, and that it will rely on a representative sampling strategy—meaning it will not own all of the securities in the respective indexes.

As such, the Fund may purchase a subset of the bonds in the index in an effort to hold a portfolio of bonds with generally the same risk-and-return characteristics of the Index.

Van Eck already offers a dozen fixed-income ETFs that canvass corporate, equity income, international bond and municipal bond markets. But its only high-yield-focused fund is the Market Vector High Yield Municipal ETF (NYSEArca: HYD), which has gathered some $492 million since it came to market in 2009.


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