First Trust launches California municipal high income ETF

Jun 22nd, 2017 | By | Category: Fixed Income

First Trust Advisors has launched the First Trust California Municipal High Income ETF (Nasdaq: FCAL), providing income that is exempt from regular federal income taxes and California state income taxes with long-term capital appreciation as a secondary objective.

First Trust launches California municipal high income ETF

The First Trust California Municipal High Income ETF provides a high level of current income while seeking capital appreciation as a secondary objective.

The actively managed fund invests primarily in municipal debt securities issued by the state of California but may also invest in municipal securities issued by territories or possessions of the US (including, but not limited to, Puerto Rico, the US Virgin Islands and Guam.)

The fund is managed by the First Trust Municipal Securities Team using both quantitative analysis and fundamental research to select higher-yielding undervalued bonds within the municipal market. In choosing the bonds, the portfolio managers seek to take advantage of municipal market inefficiencies through credit analysis of individual issuers coupled with considerations for the major opportunities and risks within municipal sectors. They also apply a quantitative total return scenario analysis using multiple interest rate assumptions over different time horizons.

The First Trust Municipal Securities Team 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 interest rates to continue to rise as a result of stronger economic growth, the team believes that in the current market, the fund’s intermediate duration focus, coupled with including bonds with lower investment grade ratings and high-yield bonds, provides investors less interest rate sensitivity than longer duration portfolios.

Johnathan Wilhelm and Tom Futrell, senior vice presidents 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.

The ETF has a total expense ratio of 0.50% due to a contractual fee waiver in place until at least June 2019. It has a gross expense ratio of 0.65%.

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