First Trust, the eighth-largest U.S. issuer of exchange traded funds, plans to launch an actively managed municipal bond fund next week.
The Illinois-base company said it expects to launch the First Trust Managed Municipal ETF on May 15. The new ETF will trade on the Nasdaq under the ticker “FMB.”
“The fund seeks to generate current income that is exempt from regular federal income taxes. Long-term capital appreciation is a secondary objective. Under normal market conditions, the fund will seek to achieve its investment objectives by investing at least 80% of its net assets (including investment borrowings) in municipal debt securities. The fund is managed by First Trust using a discipline approach that focuses on a combination of quantitative analysis and fundamental research,” according to a statement issued by First Trust.
Muni debt default rates are still historically low. The overall muni bond default rate was 0.107% in 2013, down from 0.144% in 2012. In comparison, U.S. junk bond default rates were 2.1% for 2013. [Time to Look at Muni Bond ETFs]
Recent changes to the U.S. tax code have boosted the allure of tax-advantaged muni bonds. First Trust notes that economic challenges faced by municipalities across the U.S. bolsters the argument for active management with munis.
Investors’ renewed appetite for muni bonds munis comes after last year’s Detroit bankruptcy, the largest U.S. municipal bankruptcy, Puerto Rico’s financial woes and a spate of municipal bankruptcies in California caused by crushing public pension obligations. [Investors Return to High-Yield Muni ETFs]
Johnathan N. Wilhelm, Senior Vice President and Tom Futrell, CFA, Senior Vice President at First Trust, serve as senior portfolio managers of FMB, according to the statement.
First Trust has had success with actively managed ETFs, including the First Trust North American Energy Infrastructure Fund (NYSEArca: EMLP), which has accumulated over $651 million in assets in less than two years of trading. The First Trust Senior Loan ETF (NasdaqGM: FTSL) has brought in $180.8 million in just over a year on the market.
ETF Trends editorial team contributed to this post.