An ETF that is actively managed using a
rigorous, disciplined approach and active credit analysis to
provide the potential for tax-exempt income and long-term capital
appreciation
First Trust Advisors L.P. (“First Trust”) announced today that
they have launched a new actively managed exchange-traded fund
(“ETF”), the First Trust Municipal High Income ETF (Nasdaq: FMHI)
(the “fund”). By investing primarily in municipal debt securities,
the fund seeks to provide federally tax-exempt income with a
secondary objective of long-term capital appreciation. The fund is
managed by First Trust using a disciplined approach that focuses on
a combination of quantitative analysis and fundamental research. In
seeking attractive income, the fund will focus on non-rated bonds,
lower investment-grade bonds and below investment-grade or “high
yield” municipal bonds, while offering daily liquidity and full
transparency of holdings.
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.
“Our experienced municipal securities team at First Trust employs a
rigorous, disciplined approach to managing risk, while seeking to
capitalize on opportunities,” said Ryan Issakainen, CFA, Senior
Vice President, ETF Strategist at First Trust. “Investor demand for
tax-free income continues to grow, even as interest rates remain
stubbornly low. For investors willing to take additional credit
risk in pursuit of higher levels of tax-free income, we believe
that active management is paramount.”
The municipal securities team at First Trust sees ample
opportunities in municipal bonds. In their view, credit
fundamentals are improving for many municipal bond issuers and
taxable equivalent yields are attractive relative to other fixed
income asset classes. Given the rising interest rate environment as
a result of stronger economic growth, they believe that, in the
current market, positioning the fund along the intermediate portion
of the yield curve provides investors less interest rate
sensitivity than longer duration portfolios.
Johnathan N. Wilhelm, Senior Vice President and Tom Futrell,
CFA, Senior Vice President at First Trust, serve as senior
portfolio managers of the fund. The two will share responsibilities
for the day-to-day management of the fund’s investment
portfolio.
For more information about First Trust, please contact Ryan
Issakainen at (630) 765-8689 or RIssakainen@FTAdvisors.com.
About First Trust
First Trust Advisors L.P., along with its affiliate First Trust
Portfolios L.P., are privately held companies which provide a
variety of investment services, including asset management and
financial advisory services, with collective assets under
management or supervision of approximately $111 billion as of
September 30, 2017 through unit investment trusts, exchange-traded
funds, closed-end funds, mutual funds and separate managed
accounts. First Trust is based in Wheaton, Illinois. For more
information, visit http://www.ftportfolios.com.
You should consider the fund’s investment objectives, risks,
and charges and expenses carefully before investing. Contact First
Trust Portfolios L.P. at 1-800-621-1675 to obtain a prospectus or
summary prospectus which contains this and other information about
the fund. The prospectus or summary prospectus should be read
carefully before investing.
ETF Characteristics
The fund lists and principally trades its shares on The Nasdaq
Stock Market LLC.Investors buying or selling fund shares on the
secondary market may incur customary brokerage commissions. Market
prices may differ to some degree from the net asset value of the
shares. Investors who sell fund shares may receive less than the
share’s net asset value. Shares may be sold throughout the day on
the exchange through any brokerage account. However, unlike mutual
funds, shares may only be redeemed directly from the fund by
authorized participants, in very large creation/redemption units.
If the fund's authorized participants are unable to proceed with
creation/redemption orders and no other authorized participant is
able to step forward to create or redeem, fund shares may trade at
a discount to the fund's net asset value and possibly face
delisting.
Risk Considerations
The fund's shares will change in value and you could lose money
by investing in the fund. The fund is subject to management risk
because it is an actively managed portfolio. In managing the fund's
investment portfolio, the advisor will apply investment techniques
and risk analyses that may not have the desired result. There can
be no assurance that the fund's investment objectives will be
achieved.
The fund is subject to market risk. Market risk is the risk that
a particular security owned by the fund or shares of the fund in
general may fall in value. The values of municipal securities held
by the fund may be adversely affected by local political and
economic conditions and developments.
Municipal bonds are subject to numerous additional risks,
including credit risk, income risk, interest rate risk, call risk,
zero coupon bond risk, and political and economic risk. Credit risk
is the risk that an issuer of a security will be unable or
unwilling to make dividend, interest and/or principal payments when
due and that the value of a security may decline as a result.
Income risk is the risk that income from the fund's fixed income
investments could decline during periods of falling interest rates.
Interest rate risk is the risk that the value of the securities in
the fund will decline because of rising market interest rates. Call
risk is the risk that performance could be adversely impacted if an
issuer calls higher-yielding debt instruments held by the fund.
Zero coupon bond risk is the risk that zero coupon bonds may be
highly volatile as interest rates rise or fall because they do not
pay interest on a current basis. Political and economic risk is the
risk that the values of municipal securities held by the fund may
be adversely affected by local political and economic conditions
and developments. Adverse conditions in an industry significant to
a local economy could have a correspondingly adverse effect on the
financial condition of local issuers.
Income from municipal bonds held by the fund could be declared
taxable because of, among other things, unfavorable changes in tax
laws, adverse interpretations by the Internal Revenue Service or
state tax authorities, or noncompliant conduct of a bond issuer.
The fund has no limit as to the amount that can be invested in
alternative minimum tax bonds. All or a portion of the fund's
otherwise exempt-interest dividends may be taxable to those
shareholders subject to the federal alternative minimum tax.
Inventories of municipal securities have decreased in recent
years, lessening the ability to make a market in these securities.
This reduction in market making capacity has the potential to
decrease the fund’s ability to buy or sell municipal securities,
and increase price volatility and trading costs.
Custodial receipt trusts may issue inverse floater securities in
which the fund may invest. Inverse floater securities may be
leveraged and their market values may be more volatile than other
types of fixed-income instruments.
As the use of Internet technology has become more prevalent in
the course of business, the fund has become more susceptible to
potential operational risks through breaches in cyber security.
Such events could cause the funds to incur regulatory penalties,
reputational damage, additional compliance costs associated with
corrective measures and/or financial loss.
If the fund has lower average daily trading volumes, it may rely
on a small number of third-party market makers to provide a market
for the purchase and sale of shares. Any trading halt or other
problem relating to the trading activity of these market makers
could result in a dramatic change in the spread between the fund’s
net asset value and the price at which the fund’s shares are
trading.
The fund is subject to industrial development bond risk which is
the risk that to the extent that the industrial development sector
continues to represent a significant portion of the fund, the fund
will be sensitive to changes in, and its performance may depend to
a greater extent on, the overall condition of the industrial
development sector.
Inventories of municipal securities have decreased in recent
years, lessening the ability to make a market in these securities.
This reduction in market making capacity has the potential to
decrease the fund’s ability to buy or sell municipal securities,
and increase price volatility and trading costs.
The payment of principal and interest of a pre-refunded bond is
funded from securities held in a designated escrow account where
such securities are obligations of and carry the full faith and
credit of the U.S. Treasury. The securities held in the escrow fund
do not guarantee the price of the bond.
Private activity bonds, issued by municipalities or other public
authorities, can have a substantially different credit profile than
the municipality or public authority and may be negatively impacted
by conditions affecting either the general credit of the use of the
private activity project or the project itself.
An investment in inverse floaters typically will involve greater
risk than an investment in a fixed rate municipal bond. Investments
in inverse floaters create effective leverage. In addition,
distributions paid to the fund on its inverse floaters will be
reduced or even eliminated as short-term municipal interest rates
rise and will increase as short-term municipal interest rates
fall.
The fund may invest in distressed municipal securities and many
distressed securities are illiquid or trade in low volumes and thus
may be more difficult to value.
High-yield securities, or “junk” bonds, are subject to greater
market fluctuations and risk of loss than securities with higher
ratings, and therefore, may be highly speculative. These securities
are issued by companies that may have limited operating history,
narrowly focused operations, and/or other impediments to the timely
payment of periodic interest and principal at maturity. The market
for high-yield securities is smaller and less liquid than that for
investment-grade securities.
Participation interests in municipal leases pose special risks
because many leases and contracts contain “non-appropriation”
clauses that provide that the governmental issuer has no obligation
to make future payments under the lease or contract unless money is
appropriated for this purpose by the appropriate legislative
body.
The fund will, under most circumstances, effect a portion of
creations and redemptions for cash, rather than in-kind securities.
As a result, the fund may be less tax-efficient.
The fund currently has fewer assets than larger funds, and like
other relatively new funds, large inflows and outflows may impact
the fund's market exposure for limited periods of time.
The fund is classified as “non-diversified” and may invest a
relatively high percentage of its assets in a limited number of
issuers. As a result, the fund may be more susceptible to a single
adverse economic or regulatory occurrence affecting one or more of
these issuers, experience increased volatility and be highly
concentrated in certain issuers.
The information presented is not intended to constitute an
investment recommendation for, or advice to, any specific person.
By providing this information, First Trust is not undertaking to
give advice in any fiduciary capacity within the meaning of ERISA
and the Internal Revenue Code. First Trust has no knowledge of and
has not been provided any information regarding any investor.
Financial advisors must determine whether particular investments
are appropriate for their clients. First Trust believes the
financial advisor is a fiduciary, is capable of evaluating
investment risks independently and is responsible for exercising
independent judgment with respect to its retirement plan
clients.
First Trust Advisors L.P. is the adviser to the fund. First
Trust Advisors L.P. is an affiliate of First Trust Portfolios L.P.,
the fund's distributor.
Source: First Trust Advisors L.P.
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version on businesswire.com: http://www.businesswire.com/news/home/20171102005863/en/
Ryan IssakainenFirst Trust(630)
765-8689RIssakainen@FTAdvisors.com
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