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Believe It: A Puerto Rico Muni ETF May Debut


No need to do a double take. Market Vectors, the issuer behind several successful municipal bond ETFs, may introduce a fund with heavy exposure to controversial munis issued by the Commonwealth of Puerto Rico.

A Securities and Exchange Commission filing indicates Market Vectors filed for the Market Vectors Puerto Rico Municipal Index ETF in August, reports Brian Chappatta for Bloomberg.

Jim Colby, a senior municipal strategist at Van Eck, told Bloomberg the ETF could debut later this year or next, depending on feedback from the SEC. Puerto Rico munis have risen to infamy this year as the S&P Municipal Bond Puerto Rico Index is flirting with a year-to-date loss of 20% compared to a decline of around 1% for the S&P Municipal Bond Index.

Puerto Rico, a territory of the U.S., has $70 billion in munis outstanding and those bonds have the lowest possible investment grade rating.  [BlackRock Cautious on Muni Bond ETFs]

The commonwealth’s bonds have rallied since officials gave a webcast briefing for investors on Oct. 15 in which they said the territory has sufficient funding to avoid borrowing before June 30, according to Bloomberg.

The Market Vectors ETF, assuming it comes to market, would track the Barclays Plc’s Custom Puerto Rico Municipal Composite Index.  In addition to Puerto Rico, American Samoa, Guam, the Northern Mariana Islands and the Virgin Islands could be represented in the ETF, though the bulk of the fund’s assets would be allocated to Puerto Rico, Bloomberg reported.

The PowerShares Insured New York Municipal Bond Portfolio (PZT) , which has a 30-day SEC yield of almost 4.1%, holds several Puerto Rican muni issues, including two among its top-10 holdings.  The $792.7 million Market Vectors High-Yield Municipal Index ETF (HYD) allocates a small percentage of its weight across several Puerto Rico muni issues as well.

Market Vectors High-Yield Municipal Index ETF

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.