Van Eck Global Launches Market Vectors High Yield Municipal ETF (HYD)

Submitted By Trader Mark
I am in no way associated with Van Eck nor benefit from this post, but I do know from emails that quite a few readers delve into the closed end funds or ETFs of similar nature so I thought I'd pass along an interesting i nstrument that just launched.

Van Eck Global Launched the first Municipal Bond fund that focus on high yield. Sort of a junk bond for munis. The full product page can be found here, but the story here is at current rates you can get 9%+ tax free assuming a flood of defaults does not happen. Obviously the higher your tax bracket the more interesting this becomes. Expense ratio is 0.35%. BBB bonds make up 25% of the product, BB 22% and then the quality drops from there.

The default rate for munis is by multiple degrees lower than corporate bonds, and if worse comes to worse in the states I can only assume the Federal Reserve will come on its white horse and backstop the entire muni market. And then you are truly "risk free" as long as you keep your full faith in the US government/dollar. ;) In fact one of my 2009 Outlier Events [Dec 16: 13 Outlier 2009 Predictions] was this sort of backstop action would indeed occur this year. But for now we are 'saved' by $180 Billion of dollars printed out of thin air being sent to the state in New Deal 2.0 aka Stimulus.

Van Eck also launched a "pre funded" muni bond ETF (PRB) last week as well, which should (in theory) be among the safest instruments on the planet.

These guys should be paying me for this free exposure ;)

Here are some snippets from the press release announcing the launch

New York-based asset manager Van Eck Global today launched Market VectorsTM High-Yield Municipal Index ETF (NYX: HYD), the nation’s first ETF to focus on the high-yield segment of the municipal bond market.
HYD represents an advantageous means of accessing high-yield municipal bonds. It affords convenient “one-trade” access to a basket of these securities, makes no use of leverage and offers portfolio and price transparency. Investors are generally unable to capture all these benefits at once when purchasing individual high-yield munis or investing in high-yield muni mutual funds or closed-end funds. At 0.35%, HYD’s total net expenses are also significantly lower than those of most high-yield muni mutual and closed-end funds.
HYD seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Barclays Capital Municipal Custom High Yield Composite Index (ticker: LMEHTR). The index has a 25% weighting in investment-grade triple-B bonds and a 75% weighting in below-investment grade bonds
LMEHTR provides exposure to a diverse array of high-yield muni sectors, including health care, industrial development, special tax and airports, which had weightings of 21.4%, 14.7%, 13.5% and 13.5%, respectively, as of December 31, 2008. The credit quality breakdown of the index as of December 31 is shown in the table below. As of January 31, 2009, LMEHTR had a market yield of 9.5%, versus 4.0% for the muni market as a whole.

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