Market Vectors Index Solutions, the indexing arm of the ninth-largest U.S. issuer of exchange traded funds, launched the Market Vectors-Altman Default & Distressed Bond Index (MVRCOV) on Wednesday.
The index is designed to track the performance of the defaulted and distressed bond markets in the U.S. and Canada and is denominated in U.S. dollars.
Market Vectors worked in conjunction with Ed Altman, director of research in credit and debt markets at the New York University Salomon Center for the Study of Financial Institutions, on the new index. The issuer previously filed plans for the Market Vectors-Altman Default & Distressed Bond ETF. [Distressed Debt ETF in the Works]
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.
The index currently holds 162 defaulted or distressed bonds, with 153 hailing from U.S. issuers. Financial services is the index’s largest sector weight at 27.3% with communications and consumer discretionary combining for another 34.4%, according to Market Vectors data.
Duration, yield to worst and average years to maturity data are not currently available. About 31% of the index’s holdings have maturities ranging from three to five or five to seven years.
Altman notes a combination of distressed junk and defaulted bonds has outperformed most asset classes over long and medium-term time frames while being negatively correlated to high-yield corporates and government bonds.
The index will be rebalanced monthly with target allocations to be reviewed on a quarterly basis. A statement issued by Market Vectors did not comment on when the related ETF will debut.
High-yield bond offerings from Market Vectors on the market today include the Market Vectors Emerging Markets High Yield Bond ETF (NYSEArca: HYEM) and the Market Vectors International High Yield Bond ETF (NYSEArca: IHY).
ETF Trends editorial team contributed to this post.