The money manager launched the new fund as advisors and investors have started to diversify their fixed-income allocations to create layered risk levels in their portfolios, spiking the demand for alternative fixed-income funds.
The Market Vectors Emerging Markets High Yield Bond ETF (HYEM) will track the BofA Merrill Lynch High Yield U.S. Emerging Markets Liquid Corporate-Plus Index, which comprises of 272 US-dollar denominated non-investment grade bonds issued by 162 non-sovereign emerging market issuers including corporate from Argentina, Azerbaijan, Barbados, Brazil, Chile, China, Colombia, Egypt, El Salvador, Hong Kong, India, Indonesia, Israel, Jamaica, Kazakhstan, Mexico, Nigeria, Oman, Peru, the Philippines, Poland, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Turkey, Ukraine, United Arab Emirates and Venezuela.
Average maturity of securities is estimated at six years while average coupon comes at 8.3 percent. Nearly all issuers of the index are rated at BB1 or lower, closer to the high-end of the junk bond spectrum. Van Eck research found that emerging market junk bonds, constituting 10 percent of global high-yield fixed-income markets, historically had a lower default rate than their US counterparts, though they yielded more. The index is heavy on industrials, followed by financials and utilities.
This ETF will follow a capitalization-weighted investment strategy, with a 10 percent country and 2 percent issuer cap. HYEM has an expense ratio of 0.40 percent at least through Sep. 1, 2013.
However, before you decide to take exposure in high-yield bond funds, please bear in mind that the risk of principal and interest loss is higher than investment-grade instruments. High-yield bonds also tend to be more volatile (higher annualized standard deviation) than investment-grade bond funds due to lower credit quality and liquidity.
And, as importantly, as a trend follower you want to see some historical performance so that momentum comparisons in bullish and bearish environments can be made. With this ETF only having a few trading days under its belt, I will revisit it again later on this year.
Disclosure: No holdings