First Puerto Rico ETF still planned by Van Eck amid market flux

Van Eck Associates Corp. is moving ahead with an exchange-traded fund focused on Puerto Rico and other U.S. territories, the first of its kind, even amid the biggest losses for the island’s securities since at least 1999.

Oct 18, 2013 @ 1:12 pm (Updated 1:12 pm) EST

Jim Colby of Van Eck
Jim Colby of Van Eck

Van Eck Associates Corp. is moving ahead with an exchange-traded fund focused on Puerto Rico and other U.S. territories, the first of its kind, even amid the biggest losses for the island’s securities since at least 1999.

The New York-based company registered the Market Vectors Puerto Rico Municipal Index ETF with the Securities and Exchange Commission in August, regulatory filings show. Jim Colby, a senior municipal strategist at Van Eck who would co- manage the fund, said it may debut this year or in 2014, depending on feedback from the SEC.

“A product like this takes away the individual security risk and adds an element of liquidity,” Mr. Colby said in an interview. “In this circumstance with this particular product, my guess is we will have a little bit of pushback” given its unique nature, he said.

John Nester, an SEC spokesman in Washington, declined to comment on the filing.

Puerto Rico securities have lost about 19% this year through Oct. 17, the worst performance since at least 1999 and more than six times the drop in the $3.7 trillion market, Standard & Poor’s index data show.

Though 77% of muni mutual funds hold bonds from the commonwealth, Van Eck’s ETF would be the first of its kind to focus primarily on Puerto Rico, according to Morningstar Inc.

The ETF would replicate Barclays Plc’s Custom Puerto Rico Municipal Composite Index by investing at least 80% of assets in tax-free debt sold within Puerto Rico, Guam, the Virgin Islands, American Samoa and the Northern Mariana Islands, the SEC filing said. A “substantial percentage” of assets would be from Puerto Rico.

The PowerShares Insured New York Municipal Bond Portfolio has the highest exposure to Puerto Rico of any ETF, at 15%, said Michael Rawson, an ETF analyst at Morningstar.

In the SEC filing, the company cited 19 risks of investing in the fund, including that “several key economic indicators have begun to indicate a significant slowing of economic activity” in Puerto Rico.

A Puerto Rico Government Development Bank index measuring the self-governing commonwealth’s economic activity fell 5.4% in August from a year earlier, the most since 2010.

(Bloomberg News)

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