Market Vectors Rolls Out Short-Term High-Yield Muni ETF

Although investors in municipal bond exchange traded funds have recently faced headwinds at the hands of deepening public pension crises across the U.S., the Detroit bankruptcy and financial distress in Puerto Rico, some market participants still believe there is room for munis in the portfolios of conservative, income-minded investors.

“Detroit and Puerto Rico make for rousing headlines, but they simply do not characterize the broader municipal market. To be sure, trouble spots exist, but we see many more areas of opportunity,” noted BlackRock last month. [Looking at Munis in 2014]

Some issuers are even bring new muni ETFs to market as Market Vectors did today with the debut of the Market Vectors Short High-Yield Municipal Index ETF (SHYD) . SHYD could be perceived as a short-duration equivalent to the popular Market Vectors High Yield Municipal Index ETF (HYD) . With $816.1 million in assets under management, HYD is one of the dominant names among high-yield muni ETFs. However, its effective duration of nearly11 years makes it vulnerable to rising Treasury yields.

On the other hand, SHYD looks to seize upon a now prominent theme among bond ETF investors: The rush to lower duration fare. While SHYD is not a pure ultra-low duration product, it tracks the Barclays Municipal High Yield Short Duration Index, which features issues with maturities ranging from one to 10 years. [Short-Duration ETF Showdown]

SHYD also features a portfolio that is 25% allocated to bonds rated BBB, or investment grade, to enhance liquidity. SHYD has a yield to worst of 5.35% and an annual expense ratio of 0.35%. SHYD’s index covers wide range of muni sectors and securities with historically low default rates, according to Market Vectors. No individual holding accounts for more than 4.63% of the ETF’s weight and the top-10 holdings combine for 31.5% of the fund’s weight.

SHYD is the seventh Market Vectors municipal bond ETF and 53 rd ETF in the fund family.

ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of HYD.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.