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 it is not a 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,” Rodilosso said.
The long positions in THHY’s underlying index are composed 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 use any swaps or derivatives.
More information is here.