First Trust, the eighth-largest U.S. issuer of exchange traded funds, today introduced the First Trust Managed Municipal ETF (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.
The actively managed FMB charges 0.65% per year and holds 39 issues, according to First Trust data. FMB’s top-10 holdings combine for about 37% of the new ETF’s weight.
“Given the potential for rising interest rates as a result of stronger economic growth, we believe that in the current market, positioning the fund along the intermediate portion of the yield curve, coupled with including bonds with lower investment grade ratings, provides investors less interest rate sensitivity than longer duration portfolios,” said First Trust ETF Strategist and Senior Vice President Ryan Issakainen in a statement.
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.
FMB is not First Trust’s first foray into actively managed ETFs. In fact, the new ETF is the issuer’s ninth actively managed fund. The First Trust North American Energy Infrastructure Fund (EMLP) and the First Trust Senior Loan ETF (FTSL) are two of the issuers most successful actively managed products with nearly $912 million in combined assets under management .
ETF Trends editorial team contributed to this post.
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