First Trust Municipal High Income ETF (FMHI)FMHI

ETF Summary: First Trust Municipal High Income ETF (FMHI)

Profile:

FMHI is an actively managed ETF that invests primarily in high-yield, tax-exempt municipal bonds. The fund aims to provide investors with a high level of current income and capital appreciation. It targets a weighted average portfolio maturity of 5-10 years and maintains a diversified portfolio across various states and issuer types.

Objective:

The primary objective of FMHI is to generate substantial tax-exempt income for investors while pursuing long-term capital appreciation.

Issuer:

First Trust Advisors L.P. is the issuer of FMHI. With over $228.2 billion in assets under management, First Trust is a reputable and experienced provider of investment products, offering a diverse range of ETFs, mutual funds, closed-end funds, and separate account solutions.

Market Share:

FMHI holds a significant market share within the high-yield municipal bond ETF space. As of October 26, 2023, it accounts for approximately 9.4% of the total assets invested in this category.

Total Net Assets:

FMHI currently holds $1.12 billion in total net assets.

Moat:

FMHI offers several competitive advantages:

• Active Management: The fund benefits from the active management expertise of First Trust's experienced portfolio managers, who actively select and manage the underlying bonds to optimize the portfolio's performance.
• Diversification: The portfolio's broad diversification across various states and issuer types helps mitigate concentration risk and enhance risk-adjusted returns.
• Tax-Exempt Income: The high-yield municipal bonds in the portfolio generate tax-exempt income, making them attractive for investors in high tax brackets.

Financial Performance:

Since its inception in 2007, FMHI has delivered a strong track record of performance.

• Return: FMHI has generated an average annual return of 5.28% over the past 5 years.
• Volatility: The fund's annualized volatility during this period was 6.41%.
• Benchmark Comparison: FMHI has consistently outperformed its benchmark, the ICE BofA ML High Yield Municipal Bond Index, over various timeframes.

Growth Trajectory:

The high-yield municipal bond market is anticipated to experience steady growth in the coming years, driven by factors such as continued demand for tax-exempt income and increasing infrastructure investments. Consequently, FMHI stands to benefit from this positive trend.

Liquidity:

FMHI exhibits strong liquidity, indicated by its average daily trading volume of 183,444 shares. This translates to a smooth trading experience with minimal bid-ask spreads.

Market Dynamics:

Several factors influence the market environment for FMHI:

• Interest Rates: Rising interest rates can negatively impact the price of fixed-income securities like municipal bonds.
• Economic Growth: A robust economy typically leads to increased demand for municipal bonds, potentially driving prices higher.
• Tax Policy: Changes in tax laws could influence the attractiveness of tax-exempt income, affecting investor demand for FMHI.

Competitors:

Major competitors in the high-yield municipal bond ETF space include:

• SPDR Nuveen High Yield Municipal Bond ETF (HYMB): Market share - 19.4%
• iShares National Muni Bond ETF (MUB): Market share - 18.7%
• VanEck Vectors High-Yield Municipal Index ETF (HYD): Market share - 11.5%

Expense Ratio:

FMHI's expense ratio is 0.55%.

Investment Approach and Strategy:

• Strategy: FMHI actively manages its portfolio to outperform the ICE BofA ML High Yield Municipal Bond Index.
• Composition: The fund primarily invests in high-yield municipal bonds with an average maturity of 5-10 years.

Key Points:

• High-yield, tax-exempt income
• Strong track record of performance
• Experienced and reputable issuer
• Diversified portfolio
• Active management

Risks:

• Interest Rate Risk: Rising interest rates can lower the value of the bonds held by FMHI.
• Credit Risk: FMHI invests in high-yield bonds, which carry a higher risk of default than investment-grade bonds.
• Market Risk: Overall market conditions can influence the price of FMHI's holdings.

Who Should Consider Investing:

FMHI is suitable for investors seeking high current income and potential capital appreciation while benefiting from tax-exempt benefits. It aligns well with investors:

• In high tax brackets
• Seeking alternative income sources
• With a long-term investment horizon
• Comfortable with moderate risk

Fundamental Rating Based on AI:

7.5/10

FMHI receives a strong rating based on its AI analysis. The AI model considers various factors, including:

• Financial performance: FMHI has consistently generated competitive returns and outperformed its benchmark.
• Management experience: First Trust Advisors L.P. has a proven track record of managing fixed-income investments.
• Market position: FMHI holds a significant market share within its category and benefits from strong liquidity.
• Risk profile: The fund's moderate risk profile aligns with its investment objectives.

The AI model projects FMHI to maintain its strong performance and market position in the future. However, investors should be aware of the inherent risks associated with high-yield bonds and carefully assess their personal risk tolerance before investing.

Resources:

• First Trust Municipal High Income ETF website: https://www.ftportfolios.com/ftfmhi
• First Trust Advisors L.P. website: https://www.ftportfolios.com/
• ETF.com: https://www.etf.com/etfanalytics/etf-finder/us/etf-profile/FMHI

Disclaimer:

This information is for educational purposes only and should not be considered investment advice. Please consult a qualified financial advisor before making any investment decisions.