First Trust Municipal High Income ETF (FMHI)

ETF First Trust Municipal High Income ETF (FMHI)

Profile:

• Focus: High-yield municipal bonds
• Asset allocation: 99.7% Municipal bonds, 0.3% Cash & Equivalents
• Investment Strategy: Actively managed, invests in investment-grade and below investment-grade municipal bonds to maximize current income

Objective:

• Generate high current income exempt from federal and most state income taxes

Issuer:

• Company: First Trust Advisors L.P.
• Reputation and Reliability:
  • Established asset manager with over $232.3 billion in assets under management (as of November 7, 2023)
  • Strong track record in managing fixed income ETFs, including municipal bond funds
  • Well-regarded by industry analysts and investors
• Management: Experienced portfolio management team with expertise in municipal bond investing

Market Share:

• 31.49% market share in the Municipal High Yield bond ETF category
• 4th largest ETF in the category
• Total Net Assets: $12.68 billion (as of November 7, 2023)

Moat:

• Experience and expertise: First Trust's long history and dedicated team of fixed income specialists provide an edge
• Active management: The fund seeks to outperform the benchmark through active security selection
• Tax-exempt income: High-yield municipal bonds offer attractive yields while remaining tax-exempt for many investors

Financial Performance:

• Historical: 3-year annualized return of 4.77% (as of November 7, 2023)
• Benchmark Comparison: Outperformed the S&P Municipal High Yield Bond Index (HIG) by 0.32% over the past 3 years
• Growth Trajectory: Positive outlook due to rising interest rates and continued demand for tax-exempt income

Liquidity:

• Average Trading Volume: 387,883 shares per day
• Bid-Ask Spread: 0.02%

Market Dynamics:

• Economic Indicators: Rising interest rates could benefit the fund as yields on municipal bonds tend to increase
• Sector Growth Prospects: The municipal bond market is expected to grow as state and local governments continue to issue debt
• Current Market Conditions: Volatility in the broader market could impact the fund's performance

Competitors:

• iShares National Muni Bond ETF (MUB): 36.32% market share
• SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF (HYMB): 16.49% market share
• VanEck High-Yield Municipal Bond ETF (HYD): 6.75% market share

Expense Ratio: 0.55%

Investment Approach and Strategy:

• Strategy: Actively managed to outperform the ICE BofA ML High Yield Municipal Index
• Composition: Primarily invests in high-yield municipal bonds issued by various state and local governments

Key Points:

• High current income with tax-exempt status for most investors
• Actively managed portfolio seeking to outperform the market
• Experienced portfolio management team with a strong track record
• Significant market share and liquidity

Risks:

• Volatility: High-yield municipal bonds are more volatile than investment-grade bonds
• Market risk: Interest rate increases or changes in the creditworthiness of issuers could impact the fund's value
• Call risk: Some bonds in the portfolio may be called back by the issuer before they mature

Who Should Consider Investing:

• Investors seeking tax-exempt income from a diversified portfolio of high-yield municipal bonds
• Investors comfortable with moderate volatility and risk
• Investors with a long-term investment horizon

Fundamental Rating Based on AI:

8/10

FMHI scores highly due to its experienced manager, strong performance track record, and tax-exempt income generation. The expense ratio is slightly above average, but the active management and potential for outperformance justify it. However, investors should be aware of the risks associated with high-yield municipal bonds.

Resources and Disclaimers:

• Data sources: Morningstar, First Trust website
• Disclaimer: This information is for educational purposes only and does not constitute financial advice. Please consult with a qualified financial advisor before making any investment decisions.