First Trust launches actively managed municipal bond ETF

May 15th, 2014 | By | Category: Fixed Income

First Trust, a leading provider of exchange-traded funds, has unveiled an actively managed ETF providing exposure to tax-exempt municipal debt securities, while offering daily liquidity and full transparency of holdings and pricing.

First Trust launches actively managed municipal bond ETF

First Trust has unveiled an actively managed municipal bond ETF listed on the Nasdaq Stock Market. (File image © Copyright 2014, The NASDAQ OMX Group, Inc.)

Listed on Nasdaq, the First Trust Managed Municipal ETF (FMB) seeks to generate current income that is exempt from regular US federal income taxes, with a secondary objective of achieving long-term capital appreciation, by investing in a portfolio of primarily investment grade municipal bonds.

Historically, risk-adjusted returns of tax-exempt municipal bonds have been attractive when compared to other major asset classes on a taxable equivalent yield basis. In addition, returns of municipal bonds have historically had a low correlation to other asset classes. First Trust believes these factors make tax-exempt municipal bonds an asset class investors should consider as part of a well-diversified portfolio.

The fund’s launch comes at a time when recent tax increases have boosted the demand for tax-exempt investments, while at the same time some municipalities have been facing tough economic challenges, raising the importance of active credit analysis and municipal bond expertise.

Unlike passive index-based fixed income ETFs that may simply rely on third-party rating agencies for credit analysis, First Trust believes it is critical to understand an issuer’s ability to meet its financial obligations to make portfolio adjustments, as necessary, as conditions change.

John Wilhelm and Tom Futrell, members of First Trust’s Municipal Securities Team, 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.

The pair 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 potential for rising interest rates 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, coupled with including bonds with lower investment grade ratings, provides investors less interest rate sensitivity than longer duration portfolios.

Commenting on the launch, Ryan Issakainen, ETF strategist and senior vice president at First Trust Portfolios, said: “We are thrilled to list the First Trust Managed Municipal ETF (FMB) on the Nasdaq Stock Market, where we can explore countless opportunities in municipal bonds. 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.”

Dave LaValle, head of exchange-traded product listings at Nasdaq OMX, added: “We are pleased to launch FMB in conjunction with our good partners at First Trust. We appreciate First Trust’s confidence in choosing the Nasdaq marketplace. We are committed to increasing the value of our partnership by continuing to fuel innovation in the listing and trading of exchange-traded products and acting as thought leaders and pioneers in the industry.”

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