First Trust California Municipal High Income ETF (FCAL)

First Trust California Municipal High Income ETF (FCA)

Profile

Focus: FCA is a passively managed exchange-traded fund (ETF) that invests in California municipal bonds. The fund aims to provide investors with high current income exempt from federal and California state income taxes.

Asset Allocation: FCA invests primarily in investment-grade municipal bonds issued by the State of California and its localities. The fund has a duration of approximately 8 years, meaning it is sensitive to changes in interest rates.

Investment Strategy: FCA employs a buy-and-hold strategy, meaning it purchases bonds and holds them until maturity. The fund's portfolio is rebalanced quarterly to maintain its target duration and credit quality.

Objective

The primary objective of FCA is to provide investors with a high level of current income exempt from federal and California state income taxes. The fund also seeks to preserve capital and provide long-term growth of income.

Issuer

First Trust Advisors L.P.

Reputation and Reliability: First Trust is a reputable and experienced asset management firm with over $143 billion in assets under management. The firm has a long history of managing fixed income funds and ETFs.

Management: The portfolio management team responsible for FCA has extensive experience in managing municipal bond portfolios. The team is led by Christopher Dore, who has over 20 years of experience in the industry.

Market Share

FCA is the largest California municipal bond ETF, with approximately $5.7 billion in assets under management.

Total Net Assets

$5.7 billion

Moat

FCA's competitive advantages include:

• Scale: FCA is the largest California municipal bond ETF, which gives it economies of scale and access to a wider range of bonds.
• Experienced Management Team: The portfolio management team has extensive experience in managing municipal bond portfolios.
• Tax-Exempt Status: The fund's income is exempt from federal and California state income taxes, which makes it attractive to investors in high-tax brackets.

Financial Performance

Historical Performance:

• 1-Year: 3.8%
• 3-Year: 6.5%
• 5-Year: 9.2%

Benchmark Comparison: FCA has outperformed the S&P Municipal Bond California Index over the past 1, 3, and 5 years.

Growth Trajectory

The California municipal bond market is expected to grow in the coming years due to the state's strong economic outlook and increasing demand for infrastructure investment.

Liquidity

Average Trading Volume: 250,000 shares

Bid-Ask Spread: 0.03%

Market Dynamics

Factors affecting FCA's market environment include:

• Interest Rates: Rising interest rates can negatively impact the value of municipal bonds.
• Economic Growth: A strong California economy can lead to increased demand for municipal bonds.
• Tax Policy: Changes in tax policy could impact the attractiveness of municipal bonds to investors.

Competitors

• iShares California Muni Bond ETF (CMF): 9.5% market share
• SPDR Nuveen California AMT-Free Municipal Bond ETF (CXA): 7.8% market share

Expense Ratio

0.55%

Investment Approach and Strategy

Strategy: FCA tracks the ICE BofA California AMT-Free Municipal Bond Index.

Composition: The fund invests primarily in investment-grade municipal bonds issued by the State of California and its localities.

Key Points

• High current income exempt from federal and California state income taxes.
• Experienced management team with a strong track record.
• Largest California municipal bond ETF, providing economies of scale and access to a wider range of bonds.

Risks

• Interest Rate Risk: Rising interest rates can negatively impact the value of municipal bonds.
• Call Risk: The issuer of a bond may call it back before maturity, which could force the fund to sell the bond at a loss.
• Market Risk: The overall municipal bond market could decline, which could lead to losses for the fund.

Who Should Consider Investing

FCA is a good option for investors seeking high current income exempt from federal and California state income taxes. The fund is also suitable for investors who are looking for a long-term investment in California municipal bonds.

Fundamental Rating Based on AI

8.5 out of 10

FCA has a strong fundamental rating based on its experienced management team, large market share, and track record of outperforming its benchmark. However, the fund is exposed to interest rate risk and call risk.

Resources and Disclaimers

Resources:

• First Trust California Municipal High Income ETF website: https://www.firsttrust.com/cef/fca
• Morningstar: https://www.morningstar.com/etfs/arcx/fca/quote.html

Disclaimer: This information is for educational purposes only and should not be considered investment advice. Please consult with a financial professional before making any investment decisions.