“Over the past few years, in this low interest rate environment, investors in short-term bonds have often been faced with a choice between losing purchasing power safely in high quality bonds with negative real returns, or seeking higher returns from securities that are below investment-grade,” said Ryan Issakainen, Senior Vices President and ETF Strategist at First Trust, in the statement. “The idea behind this actively managed ETF is to provide a middle ground by investing in a diversified portfolio of primarily investment-grade, short-duration securities that may offer a higher level of income, while still focusing on capital preservation and daily liquidity.”
Short-term bond ETFs are also gaining favor as alternatives to money markets as regulators implement new requirements on money market accounts. Specifically, the new rules require institutional prime money market funds to float their net asset value, which will allow the daily share price of the funds to fluctuate along with changes in the market-based value of fund assets, essentially breaking the so-called buck, or constant share price of $1.00, that many have come to expect. [New Money Market Fund Rules, a Boon for Ultra-Short-Term ETFs]
FTSM is the eighth new ETF introduced by First Trust this year. The fund will be the tenth actively managed offering from Illinois-based First Trust.
ETF Trends editorial team contributed to this post.