Van Eck Files Two New Fixed Income ETFs

by on March 4, 2010 | ETFs Mentioned:

Van Eck, an ETF issuer specializing in hard asset and international equity funds, has registered two new fixed income ETFs with the SEC. Both of the new funds are relatively unique; the Market Vectors Emerging Markets Local Currency Debt ETF would join only a handful of products offering U.S. investors exposure to international debt markets, while the Market Vectors Investment Grade Floating Rate ETF would represent a new innovation in the fixed income space. 

The local currency debt ETF will focus on fixed-rate sovereign debt, supranational issues, and corporate bonds with at least a year to maturity and a minimum outstanding value equivalent to $100 million. Meanwhile, the floating rate ETF will focus on investment-grade bonds with at least one year to maturity at the time of each rebalancing. Both funds will use derivatives such as options, swaps and futures, in order to accomplish their objectives. Although Van Eck has several country-specific equity ETFs and municipal bond funds, the emerging markets local currency fund will be the company’s first foray into international bond markets.

U.S. investors currently have two options for gaining exposure to emerging markets debt, including the PowerShares Emerging Markets Sovereign Debt Portfolio (PCY) and the iShares JP Morgan Emerging Bond Fund (EMB). Both funds have posted big gains over the past year, as each is up at least 28%. The proposed Van Eck fund would be the first denominated in local currencies instead of U.S. dollars.

Based on the relative number of product offerings (the ETF screener currently shows 681 equity ETFs and only 103 bond ETFs) and obvious investor interest in achieving fixed income investing through ETFs (bond funds saw more than $42 billion of cash inflows in 2009), this corner of the ETF market figures to expand significantly going forward.

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Disclosure: Eric is long PCY