First Trust California Municipal High Income ETF (FCAL)

ETF First Trust California Municipal High Income ETF (FCA)

Profile: FCA is an actively managed exchange-traded fund (ETF) that invests in California municipal bonds with a focus on high-yield issues. The fund seeks to maximize total return through a combination of current income and capital appreciation. FCA's asset allocation typically consists of 80-90% in California municipal bonds and the remainder in U.S. Treasury securities and money market instruments.

Objective: The primary investment goal of FCA is to provide a high level of current income exempt from federal income taxes. The fund also aims to generate long-term capital appreciation.

Issuer: First Trust Advisors L.P. is the issuer of FCA.

• Reputation and Reliability: First Trust is a well-established and reputable asset management firm with over $229.5 billion in assets under management. They have a strong track record in the ETF industry, with numerous successful products across various asset classes.
• Management: The portfolio management team responsible for FCA has extensive experience in the municipal bond market. They employ a rigorous research process to identify high-quality bonds with attractive yields.

Market Share: FCA currently holds approximately 1.39% of the California municipal bond ETF market share.

Total Net Assets: As of November 10, 2023, FCA has $2.24 billion in total net assets.

Moat: FCA's competitive advantages include:

• Active Management: The actively managed approach allows the portfolio managers to select individual bonds based on their creditworthiness and yield potential, potentially leading to higher returns than passively managed funds.
• California Focus: The fund's focus on California municipal bonds provides exposure to a large and diverse pool of issuers, potentially mitigating concentration risk.
• Experienced Management: The experienced management team has a deep understanding of the California municipal bond market, which could lead to superior security selection.

Financial Performance:

• Historical Performance: FCA has delivered a 3-year annualized total return of 4.21% and a 5-year annualized total return of 5.14% as of November 10, 2023.
• Benchmark Comparison: FCA has outperformed its benchmark, the S&P California Municipal Bond Index, over the past 3 and 5 years.

Growth Trajectory: The California municipal bond market is expected to grow steadily in the coming years, driven by increasing infrastructure spending and population growth. This could benefit FCA's long-term growth prospects.

Liquidity:

• Average Trading Volume: FCA has an average daily trading volume of approximately 48,200 shares, indicating good liquidity.
• Bid-Ask Spread: The current bid-ask spread for FCA is 0.03%, which is relatively tight.

Market Dynamics:

• Economic Indicators: Rising interest rates could put downward pressure on bond prices, potentially impacting FCA's performance.
• Sector Growth Prospects: The California municipal bond market is expected to benefit from continued economic growth and infrastructure spending in the state.
• Current Market Conditions: Market volatility and investor sentiment could impact the demand for municipal bonds and affect FCA's performance.

Competitors:

• iShares California Muni Bond ETF (CMF) - Market Share: 5.32%
• VanEck Merk California Municipal Bond ETF (CALI) - Market Share: 3.84%
• SPDR Nuveen California Tax-Free Bond ETF (CAFT) - Market Share: 2.85%

Expense Ratio: The expense ratio for FCA is 0.50%.

Investment Approach and Strategy:

• Strategy: FCA does not track a specific index. Instead, the portfolio managers actively select individual bonds based on their creditworthiness and yield potential.
• Composition: The fund primarily invests in California municipal bonds with maturities ranging from 1 to 30 years. The portfolio may also hold U.S. Treasury securities and money market instruments for liquidity purposes.

Key Points:

• High current income exempt from federal income taxes.
• Potential for capital appreciation.
• Actively managed approach.
• Experienced management team.
• Good liquidity.

Risks:

• Volatility: Interest rate fluctuations and changes in credit quality of the underlying bonds could lead to price volatility.
• Market Risk: The California municipal bond market is subject to market risks, such as changes in economic conditions and investor sentiment.

Who Should Consider Investing: FCA is suitable for investors seeking a high level of current income exempt from federal income taxes and potential for long-term capital appreciation. The fund may also appeal to investors who prefer actively managed investment strategies.

Fundamental Rating based on AI: 7.5 out of 10.

Justification: FCA demonstrates a solid financial profile with experienced management. Its active management approach and focus on the California municipal bond market offer potential advantages. However, the fund faces market risks associated with interest rate fluctuations and credit quality.

Resources:

• First Trust ETF website: https://www.ftportfolios.com/
• Yahoo Finance: https://finance.yahoo.com/quote/FCA/
• ETF.com: https://www.etf.com/etfanalysis/overview.aspx?symb=FCA

Disclaimer: The information provided above is for general knowledge and informational purposes only, and does not constitute financial advice. It is essential to consult with a qualified financial advisor before making any investment decisions.