Market Vectors High-Yield Muni ETF Tops $1B in AUM

The Market Vectors High-Yield Municipal Index ETF (NYSE:HYD) has become the first high-yield municipal bond ETF to top the $1 billion in assets under management watermark, the firm said. HYD, which debuted in February 2009, had $1.07 billion in AUM as of December, according to Market Vectors data.

HYD carries an overall four-star rating from Morningstar as well as a three-year four-star rating. Home to 307 holdings, HYD has a 30-day SEC yield of 4.47 percent and a trailing 12-month yield of 4.86 percent, according to Market Vectors data. The fund allocates almost 21.8 percent of its weight to California muni bonds. New York is next at almost 10 percent of the fund's weight.

Twenty-five percent of HYD's holdings are rated BAA and 29.6 percent are rated B. Nearly 24.5 percent are not rated.

Despite fears of rising municipal defaults at the start of 2012, a scenario that did come to pass, municipal bond ETFs have soared this year. That indicates investors have been willing to overlook an increased number of defaults in favor of gaining yield and the tax benefits offered by municipal bonds. As a result, HYD has gained almost 12.1 percent year-to-date.

"High yield is far more than a niche in the municipal bond market as it enables traditional as well as certain for-profit issuers to access capital at a lower cost than they otherwise could in the taxable market," said James Colby, Portfolio Manager and Senior Municipal Strategist with Market Vectors ETFs, in a statement. "More significantly, it isan attractive source of tax-free yield for investors who seek to augment their income streamin a yield constrained market."

Since the Sixteenth Amendment of the Constitution was adopted almost 100 years ago, the government has opted not to tax interest on tax-exempt muni issues.

HYD is just the fourth municipal bond ETF to top $1 billion in AUM. The iShares S&P National AMT-Free Municipal Bond Fund (NYSE:MUB) is the largest municipal bond ETF with over $3.5 billion in assets under management.

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