The fund will combine the income potential of high-yield corporate bonds with the interest rate hedging capability offering by shorting Treasury notes, according to Market Vectors.
Fran Rodilosso, fixed income portfolio manager with Market Vectors, believes that it is not question of if investors will see rising interest rates, but simply when. “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,” said Rodilosso.
The long positions in THHY’s underlying index are comprised of U.S. below-investment grade corporate bonds, denominated in U.S. dollars. Qualifying securities must have a below-investment grade rating (based on an average rating of 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 do not currently use any swaps or derivatives.
More information is at http://www.vaneck.com/funds/THHY.aspx.