From the July 2012 issue of Research Magazine • Subscribe!

A Play for High Yield

Van Eck Global introduced a new fund called the Market Vectors Emerging Markets High Yield Bond ETF (HYEM), which is linked to high yield emerging market corporate bonds. HYEM tracks the BofA Merrill Lynch High Yield US Emerging Markets Liquid Corporate Plus Index and is composed of U.S. dollar-denominated bonds issued by non-sovereign emerging market issuers that are rated below investment grade.

“This corner of the high-yield debt market has grown significantly in recent years and investor exposure may not have kept pace,” said Francis Rodilosso, portfolio manager with Market Vectors. “For investors seeking yield this is significant as USD-denominated EM high yield corporate bonds are currently generating higher yields than USD-denominated EM high-yield sovereign bonds and U.S. high-yield corporates.” In addition to their competitive yields, EM corporate high-yield bonds have had historically lower default rates than similar debt instruments issued in the U.S., added Mr. Rodilosso.

In order to qualify for inclusion in the index, the bond issuer must have risk exposure to countries other than members of FX G10, defined as including Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States, as well as all Western European countries and territories of the U.S. and Western European countries.

“Existing EM high-yield bond ETFs tend to focus on sovereign debt. With HYEM, the emphasis is on USD-denominated corporate debt, which now accounts for over 10% of the global high-yield corporate bond market,” said Edward Lopez, marketing director with Market Vectors. “Through this fund, investors now have a simple, transparent way to add targeted exposure to this segment of the high-yield market.”

HYEM joins a series of innovative Market Vectors ETFs focused on underrepresented areas of the high-yield bond market including International High Yield Bond ETF (IHY) and Fallen Angel High Yield Bond ETF (ANGL). These ETFs allow investors to gain exposure to important segments of the high-yield market that, in the past, may have been difficult to access.

The EM high-yield bond market has grown 265% since 2003, according to data from Bank of America Merrill Lynch. HYEM, Market Vectors’ 49th ETF, has a net expense ratio of 0.40%, which is capped at least until Sept. 1, 2013. The cap excludes certain expenses, such as interest.

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