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A Distressed Debt ETF in the Works


With investors regaining their appetite for risk, Van Eck Global , the sponsor behind the Market Vectors exchange traded funds, is collaborating with a NYU professor to launch a potentially high risk/high reward fund product that focuses on distressed debt.

Ed Altman, director of research in credit and debt markets at the New York University Salomon Center for the Study of Financial Institutions, is working on the new Market Vectors-Altman Default & Distressed Bond ETF, reports Emily Glazer for the Wall Street Journal.

Altman is behind the so-called Z-Score formula that predicts the likelihood of a bankruptcies. Additionally, the professor created the Altman-Kuehne Defaulted Bond Index, which tracks defaulted bond performance.

“I’ve oftentimes been asked ‘Why not make the index into a product that people can trade?’” Altman said in the article. “For the first time, we’re going to make an attempt at it.”

The proposed Market Vectors ETF will hold half distressed bonds and half defaulted.

Distressed debt investments in either distressed or defaulted bonds can potentially generate robust returns in short periods. For example, the investments would benefit if a company quickly bounces back after a bankruptcy. On the flip side, it is a very risky investment approach.

A prospectus was filed with the SEC in November 2012, and Altman says the finished product is still several months away.

For more information on new fund products, visit our new ETFs category.

Max Chen contributed to this article.

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.