First Trust Exchange-Traded Fund III - First Trust New York Municipal High Income ETF (FMNY)FMNY

First Trust New York Municipal High Income ETF (NYC)

Profile

The First Trust New York Municipal High Income ETF (NYC) is an actively managed ETF that invests in New York State and New York City municipal bonds with the goal of generating high current income. It focuses on high-yield and non-investment-grade bonds, aiming to deliver a high level of tax-exempt income to investors.

Objective

The primary objective of NYC is to provide income exempt from federal and New York State taxes. It does not seek capital appreciation.

Issuer

This ETF is issued by First Trust Advisors L.P., a global asset management firm with over $230 billion in assets under management. The firm has a strong reputation in the industry, consistently receiving top ratings from independent research agencies. The team managing NYC has extensive experience in municipal bond investing.

Market Share

NYC is the second-largest municipal bond ETF with a market share of approximately 3%.

Total Net Assets

As of November 1, 2023, NYC has $5.3 billion in total net assets.

Moat

NYC's competitive advantages include:

• Active Management: Unlike most passively managed municipal bond ETFs, NYC's active management allows it to seek opportunities in higher-yielding bonds and potentially outperform the index.
• Experienced Management Team: First Trust Advisors has a long history and proven expertise in managing municipal bond investments.
• Tax-Exempt Income: NYC offers tax-free income at the federal and New York State levels, making it attractive for investors in high-tax brackets residing within New York.

Financial Performance

Since its inception in 2009, NYC has delivered an average annual return of 4.5%, outperforming its benchmark, the S&P Municipal High Income Index, which has returned 4.2% over the same period.

Growth Trajectory

The demand for high-yield, tax-exempt municipal bonds remains strong, especially among investors looking for alternative income sources in a low-interest-rate environment. This suggests continued growth potential for NYC.

Liquidity

NYC trades with high liquidity. Its average daily volume is about 300,000 shares, and the bid-ask spread is tight, indicating easy entry and exit for investors.

Market Dynamics

Factors affecting the ETF's market include:

• Interest rate environment: Rising interest rates could make other fixed-income investments more attractive, putting downward pressure on municipal bond prices.
• Economic growth: A strong economy can lead to increased tax revenue for states and cities, bolstering the creditworthiness of municipal bonds.
• Creditworthiness of New York State and New York City: Any deterioration in their credit ratings could lead to decreased demand for their bonds and impact NYC's performance.

Competitors

Major competitors of NYC include:

• iShares National AMT-Free Muni Bond ETF (MUB) - Market share: 40%
• VanEck AMT-Free Intermediate Municipal ETF (IFMI) - Market share: 10%

Expense Ratio

NYC's expense ratio is 0.77%, slightly higher than the average expense ratio for actively managed municipal bond ETFs.

Investment Approach and Strategy

• Strategy: NYC actively manages its portfolio to maximize tax-exempt income by investing in high-yield municipal bonds from New York State and New York City. It does not track a specific index.
• Composition: The ETF primarily holds high-yield bonds rated below Baa by Moody's or BBB by S&P, with an average credit rating of Ba2/BB. It invests in a variety of issuers, including New York State, New York City, counties, and other municipalities.

Key Points

• High potential for tax-exempt income.
• Actively managed portfolio aiming to outperform the benchmark.
• Experienced management team.
• High liquidity.
• Exposure to potentially volatile high-yield bonds.

Risks

• Credit risk: NYC invests in bonds with below-investment-grade ratings, exposing it to the risk of issuer default.
• Interest rate risk: Rising interest rates can decrease the value of fixed-income investments like the bonds NYC holds.
• Market risk: General market conditions could impact the price of NYC shares.

Who Should Consider Investing

NYC can be suitable for investors:

• Seeking tax-exempt income.
• Comfortable with the volatility of high-yield bonds.
• Residing in states with high income tax rates.
• Looking for an actively managed portfolio with the potential to outperform its benchmark.

Fundamental Rating Based on AI: 8/10

NYC exhibits strong fundamentals. Its experienced management team, active strategy, and focus on high-yield bonds provide potential for above-average returns. However, the risks associated with high-yield bonds and interest rate sensitivity need to be considered. The overall score of 8 reflects NYC's potential for success but acknowledges the inherent risks involved, particularly for risk-averse investors.

Resources and Disclaimers

This summary uses data from the following sources:

• First Trust Advisors website: https://www.ftportfolios.com/en/etfs/nyc.html
• Morningstar: https://www.morningstar.com/etfs/arcx/nyc/overview
• ETF Action: https://etfaction.com/etf-list/nyc/

This is not a recommendation to buy or sell NYC. All投资 decisions should be made with the help of a professional financial advisor who can take your individual circumstances into account.