Van Eck, the parent company of the Market Vectors ETF business, has filed plans with the Securities and Exchange Commission to possibly introduce the Market Vectors-Altman Defaulted & Distressed Bond ETF. The passively managed fund will track the Market Vectors-Altman Defaulted & Distressed Bond Index and trade on the New York Stock Exchange.
A ticker and expense ratio were not included in the filing.
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The index includes both U.S. and foreign bonds and to be included in the index, bonds must have below investment-grade ratings. Van Eck warned of the risks associated with these bonds in the filing. The index is comprised of bonds with no less than a 10 percent spread to comparable U.S. Treasuries. Issuers are capped at five percent in the index.
"Defaulted and distressed bonds are subject to greater risk of loss of income and principal than higher rated securities and are considered speculative. The prices of defaulted and distressed bonds are likely to be more sensitive to adverse economic changes or individual issuer developments than higher rated securities. During an economic downturn or substantial period of rising interest rates, distressed security issuers may experience financial stress that would adversely affect their ability to service their principal and interest payment obligations, to meet their projected business goals or to obtain additional financing. In the event of a default, the Fund may incur additional expenses to seek recovery," according to the filing.
The firm also noted the fund "expects to effect a portion of its creations and redemptions for cash," meaning the ETF could be less tax efficient than traditional ETFs.
Market Vectors has introduced several new ETFs this year with exposure to high-yield bonds including the Market Vectors Fallen Angel High Yield Bond ETF (NYSE:ANGL), the Market Vectors High Yield Bond Emerging Markets ETF (NYSE:HYEM) and the Market Vectors International High Yield Bond ETF (NYSE:IHY).
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