First Trust launched a new actively managed municipal bond ETF to help investors access more attractive income opportunities.
First Trust Advisors rolled out the active First Trust Municipal High Income ETF (NasdaqGM: FMHI), which has a 0.55% expense ratio.
Tom Futrell, Senior Vice President and Portfolio Manager of First Trust, and Johnathan N. Wilhelm, Senior Vice President and Portfolio Manager of First Trust, will both serve as portfolio managers for the new fund.
“We believe federal and state tax increases implemented in recent years, coupled with favorable historical risk-adjusted total returns, have boosted the demand for tax exempt investments. At the same time, some municipalities have faced increasing economic challenges, which we believe has raised the importance of active credit analysis and municipal bond expertise. Unlike index-based ETFs that may simply rely on rating agencies for credit analysis, we believe it is critical to understand an issuer’s ability to meet its financial obligations. Active portfolio management allows the fund managers to make portfolio adjustments as conditions change,” Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust, said in a note.
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The new ETF uses a disciplined approach that incorporates a combination of quantitative analysis and fundamental research. In seeking attractive income, the active fund will focus on non-rated bonds, lower investment-grade bonds and speculative-grade or “high yield” municipal bonds, while offering daily liquidity and full transparency of underlying holdings.
The Municipal High Income ETF will seek to provide federally tax-exempt income and long-term capital appreciation by investing in municipal lease obligations, municipal general obligation bonds, municipal revenue bonds, municipal notes, municipal cash equivalents, private activity bonds ,and pre-refunded and escrowed to maturity bonds. The portfolio will hold at least 50% of municipal securities rated below investment grade or more commonly known as junk or high-yield debt, along with up to 10% of assets in distressed municipal securities. The fund expects the weighted average maturity to be less than or equal to 14 years.
For more information on new fund products, visit our new ETFs category.