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SHYD: Shorten Up for Rising Rates

Introducing SHYD: Market Vectors Short Municipal High-Yield Index ETF

JIM COLBY: I'm Jim Colby, senior municipal strategist and portfolio manager for the Market Vectors suite of municipal bond ETFs. On January 13, we launched SHYD, our sixth municipal bond ETF. One of the compelling features of SHYD, which stands for "Short High-Yield" Municipal Index ETF, is that it is uniquely positioned to deal with some of the problems that investors are facing in today's markets.

Why High-Yield Municipal Bonds?

COLBY: Investors may consider municipal high-yield for a couple of very important reasons. Number one: implicit default rates are very low compared to their corporate counterparts. When investors take a close look at these numbers, they often are surprised at the attractiveness of municipal high-yield compared to corporate high-yield.

In the current municipal marketplace, high-yield municipal bonds are delivering in some instances 2-3% more yield per bond than investment-grade municipal bonds. In this low interest rate environment, that's a significant difference. With the costs associated with investing in individual bonds, the low cost and the yield available in high-yield municipal bonds make a compelling argument.

Shortening Duration

COLBY: Another important consideration for high yield, and specifically our new ETF, SHYD, is its positioning on the yield curve. SHYD will invest in bonds with maturities of 10 years and less. That means a reduced exposure to changes in interest rates. As fixed-income investments are subject to rising rates, their principal is reduced the further out on the yield curve, or the longer the maturity structure that exists in those particular portfolios. SHYD was specifically designed to reduce the impact of rising rates over the long term.

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Municipal bonds are subject to risks related to litigation, legislation, political changes, local business or economic conditions, conditions in underlying sectors, bankruptcy or other changes in the financial condition of the issuer, and/or the discontinuance of the taxation supporting the project or assets or the inability to collect revenues for the project or from the assets. Bonds and bond funds will decrease in value as interest rates rise. The Fund may also be subject to credit risk, interest rate risk, call risk, lease obligations, tax risk, and risks associated with non-investment grade securities. The market for municipal bonds may be less liquid than for taxable bonds. There is no guarantee that the Fund’s income will be exempt from federal or state income taxes. Federal or state changes in income or alternative minimum tax rates or in the tax treatment of municipal bonds may make them less attractive as investments and cause them to lose value. Capital gains, if any, are subject to capital gains tax. For a more complete description of these and other risks, please refer to each Fund’s prospectus.

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Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. Please read the prospectus and summary prospectus carefully before investing.

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