Market Vectors' Treasury-Hedged High Yield Bond Fund protects against future interest-rate hikes

By Toni Weeks

San Luis Obispo, Calif., March 22 - Market Vectors ETF Trust has launched the Treasury-Hedged High Yield Bond Fund ETF, an exchange-traded fund designed to combine the income potential of high-yield corporate bonds with interest-rate hedging capability offered by shorting Treasury notes.

The new ETF seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors U.S. Treasury-Hedged High Yield Bond index. It will normally invest at least 80% of its total assets in securities that comprise the index, which was designed to provide exposure to below-investment-grade, dollar-denominated corporate bonds and, through the use of Treasury notes, to hedge against rising interest rates.

The fund's shares trade on the NYSE Arca under the symbol "THHY."

"I believe it is not a question of if, but rather when, we will begin to see rising interest rates. Predicting when rates will ascend again is obviously the hard part," portfolio manager Fran Rodilosso said in a press release. "With THHY, investors have the ability to better position their bond portfolios now for a rising interest-rate environment, but they can do so while still earning income on the fund and even have upside potential during a low interest-rate environment."

The long positions in the underlying index are comprised of U.S. high-yield, dollar-denominated corporate bonds. Qualifying securities must have a below-investment-grade rating based on average ratings by Moody's, S&P and/or Fitch and at least one year remaining to final maturity, a fixed-coupon schedule and a minimum amount outstanding of $500 million. The short positions in the index are composed of current five-year U.S. Treasury notes in the equivalent dollar amount of the long high-yield positions at every rebalance date. The fund and its underlying index currently do not use any swaps or derivatives.

Michael F. Mazier and Francis G. Rodilosso are the portfolio managers, according to a previous 497 filing with the Securities and Exchange Commission.

There are no shareholder fees. Including a 0.45% management fee and including the effects of a fee waiver agreement with the adviser, annual fund operating expenses will be about 1.45%.

New York-based Van Eck Associates Corp. will be the investment adviser.

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