WHEATON, Ill.--(BUSINESS WIRE)--First Trust Advisors L.P. (“First Trust”), a leading ETF provider and asset manager, expects to launch a new actively managed exchange-traded fund (“ETF”), the First Trust Managed Municipal ETF (NASDAQ: FMB) (the “fund”). The new fund is expected to begin trading on The NASDAQ Stock Market on May 15, 2014.
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 disciplined approach that focuses on a combination of quantitative analysis and fundamental research.
Recent tax increases have boosted the demand for tax-exempt investments. At the same time, some municipalities have been facing increasing economic challenges, raising the importance of active credit analysis and municipal bond expertise. Unlike index-based ETFs that may simply rely on rating agencies for credit analysis, First Trust believes 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 necessary, as conditions change. FMB provides access to a portfolio of primarily investment grade municipal bonds, while offering daily liquidity and full transparency of holdings and pricing.
The First Trust Municipal Securities Team, the fund’s portfolio management 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 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.
Tax-exempt municipal bonds may provide significant tax savings for certain investors. 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.
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 of First Trust 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 $91 billion as of April 30, 2014 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 will list and principally trade 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.
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 investment advisor will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that the fund will meet its investment objectives.
Risk Considerations
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. Municipal bonds are subject to numerous risks, including credit risk, income risk, interest rate risk, call risk and zero coupon bond 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 the related risk that the value of a security may decline because of concerns about the issuer’s ability to make such payments. 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 if an issuer calls higher-yielding debt instruments held by the fund, performance could be adversely impacted. Zero coupon bond risk is the risk that because zero coupon bonds do not pay interest on a current basis, they may be highly volatile as interest rates rise or fall.
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. Therefore, 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.
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. 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 currently intends to effect a significant portion of creations and redemptions for cash, rather than in-kind securities. As a result, the fund may be less tax- efficient than if it were to sell and redeem its shares principally in-kind.
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.” A non-diversified fund generally may invest a larger percentage of its assets in the securities of a smaller number of issuers. As a result, the fund may be more susceptible to the risks associated with these particular issuers, or to a single economic, political or regulatory occurrence affecting these issuers.
