On Wednesday, First Trust added to its expansive ETF library by releasing the First Trust Commercial Mortgage Opportunities ETF (NYSE Arca: CAAA) and the First Trust Structured Credit Income Opportunities ETF (NYSE Arca: SCIO).
Mortgage-Backed Securities
CAAA has an expense ratio of 0.55% and focuses investment on commercial mortgage-backed securities. The fund is actively managed and prioritizes long-term returns. According to the fund prospectus, CAA primarily holds CMBS. The vast majority of those securities are expected to possess an “AAA” rating. CAAA mainly invests in non-agency CMBS, the fund document said, but can hold other types.
It cannot invest in any security rated below A-. However, the prospectus noted that the fund can continue to hold security already in the portfolio if it is downgraded below that minimum requirement.
“Investors looking for fundamentally different sources of competitive, high-quality income can now look to CAAA. With CAAA’s expectation to own a portfolio of 90% AAA CMBS bonds, the strategy accesses income from a sector more heavily owned by banks and institutional investors: commercial mortgages. Undoubtedly the commercial real estate sector is undergoing an evolution that is not without concern,” First Trust Portfolio Manager Owen Aronson noted.
“We believe that by coupling AAA CMBS bonds that have a senior claim on already senior commercial mortgages with active portfolio management, the fund presents a compelling solution,” he added.
Structured Credit Investments
Meanwhile, SCIO has an expense ratio of 0.95% and invests the majority of its assets in structured credit investments. Like CAAA, SCIO is also actively managed but instead prioritizes long-term income. The portfolio’s holdings can include residential mortgage-backed securities, CMBS, collateralized loan obligations, and asset-backed securities among other vehicles. Additionally, the fund prospectus notes that SCIO may also invest in other funds that hold structured credit investments.
“As we continue to round out First Trust’s actively managed fixed income ETF lineup, we are so excited to offer investors a compelling solution in the structured credit market with SCIO. Investors will have access to the types of opportunistic yields long held by the private fund markets. First Trust’s deep bench of talent, record of success in the space, and disciplined approach to risk management make SCIO a compelling solution for well diversified portfolios,” First Trust Senior Portfolio Manager Jeremiah Charles stated.
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