First Trust, the sixth-largest U.S. issuer of exchange traded funds, adds another new ETF to its lineup today with the debut of the First Trust Enhanced Short Maturity ETF (FTSM) .
The actively managed FTSM invests in short-duration, investment-grade securities with the objective of delivering current income while providing capital preservation.
“FTSM seeks to achieve its objectives by strategically laddering highly liquid investments over the near-term horizon. As market conditions change, the portfolio managers have the flexibility to strategically rotate among various market sectors while maintaining a focus on preservation of capital and liquidity,” according to a statement issued by First Trust.
The timing of FTSM’s launch could prove to be fortunate as investors continue pour capital into short-term bond ETFs in preparation of rising interest rates. In 2013, short-term bond funds added $36 billion in new assets, whereas long-term funds saw $8.7 billion in outflows. Over the first five months this year, short-term debt ETFs attracted $9.4 billion as well. [Bond ETFs Beloved in 2014]
“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.
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