Van Eck Associates Corp. is moving ahead with an exchange-tradedfund (ETF) focused on Puerto Rico and other U.S. territories—thefirst of its kind—even amid the biggest losses for the island'ssecurities since at least 1999.

The New York-based company registered the Market Vectors PuertoRico Municipal Index ETF with the U.S. Securities and ExchangeCommission (SEC) in August, regulatory filings show. Jim Colby, asenior municipal strategist at Van Eck who would co-manage thefund, said it may debut this year or in 2014, depending on feedbackfrom the SEC.

“A product like this takes away the individual security risk andadds an element of liquidity,” Colby said in an interview. “In thiscircumstance, with this particular product, my guess is we willhave a little bit of pushback” given its unique nature, hesaid.

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

Even after a rebound this week, Puerto Rico securities havestill lost about 19 percent this year through Oct. 17, the worstperformance since at least 1999 and more than six times the drop inthe $3.7 trillion market, Standard & Poor's index datashow.

The island's bonds have rallied since commonwealth officialsgave a webcast briefing for investors on Oct. 15 in which they saidthe territory has sufficient funding to avoid borrowing before June30. S&P's Puerto Rico index jumped 2.1 percent yesterday, thebiggest one-day increase since December 2008.

Though 77 percent of muni mutual funds hold bonds from thecommonwealth, Van Eck's ETF would be the first of its kind to focusprimarily on Puerto Rico, according to Morningstar Inc. Puerto Ricoborrowings are tax-exempt in all states.

While ETFs are similar to mutual funds that track an index ofequities, bonds, or commodities, they can be bought and soldthroughout the trading day.

The ETF would replicate Barclays Plc's Custom Puerto RicoMunicipal Composite Index by investing at least 80 percent ofassets in tax-free debt sold within Puerto Rico, Guam, the VirginIslands, American Samoa, and the Northern Mariana Islands, the SECfiling said. A “substantial percentage” of assets would be fromPuerto Rico.

The PowerShares Insured New York Municipal Bond Portfolio hasthe highest exposure to Puerto Rico of any ETF, at 15 percent, saidMichael Rawson, an ETF analyst at Morningstar.

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

A Puerto Rico Government Development Bank index measuring theself-governing commonwealth's economic activity fell 5.4 percent inAugust from a year earlier, the most since 2010.

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