First Trust Flexible Municipal High Income ETF (MFLX)MFLX

First Trust Flexible Municipal High Income ETF (FMHI) Analysis

Profile: FMHI is an exchange-traded fund (ETF) that invests primarily in high-yield municipal bonds. Its target sector is the municipal bond market, and its strategy involves actively selecting bonds to maximize tax-exempt income while managing credit and market risks.

Objective: The primary investment goal of FMHI is to provide current income exempt from federal income taxes, with secondary emphasis on capital appreciation.

Issuer: First Trust Advisors L.P. is the ETF's issuer.

• Reputation and Reliability: First Trust Advisors is a renowned asset management firm with over two decades of experience and over $128 billion in assets under management.
• Management: The ETF is managed by a team of experienced portfolio managers with expertise in fixed income investing.

Market Share: As of October 26, 2023, FMHI has approximately 2.5% market share in the high-yield municipal bond ETF category.

Total Net Assets: The ETF currently has over $2.4 billion in total net assets.

Moat:

• Active Management: FMHI benefits from active management, allowing portfolio managers to select individual bonds based on their creditworthiness and market outlook.
• High Yield Focus: The focus on high-yield bonds generates potentially greater tax-exempt income compared to lower-yielding municipal bond ETFs.

Financial Performance:

• Year-to-date (YTD) return: as of October 26, 2023, FMHI has generated a YTD return of around 2.5%, outperforming the Bloomberg Barclays Municipal Bond Index.
• Historically: FMHI has a track record of delivering competitive returns compared to its benchmark.

Growth Trajectory: The growth trajectory of FMHI is tied to the performance of the high-yield municipal bond market. While historical trends provide some insight, future performance will depend on market conditions and economic factors.

Liquidity:

• Average Trading Volume: FMHI has an average daily trading volume of approximately 50,000 shares, indicating good liquidity.
• Bid-Ask Spread: The current bid-ask spread is minimal, suggesting low transaction costs.

Market Dynamics: Several factors can influence FMHI's market environment:

• Interest rates: Rising interest rates typically lead to lower bond prices.
• Economic growth: A robust economy can positively affect the demand for municipal bonds.
• Investor sentiment: Changes in investor confidence towards high-yield bonds impact market performance.

Competitors:

• VanEck High-Yield Muni ETF (HYD): Market Share 3.2%
• SPDR Nuveen Bloomberg Barclays High Yield Muni Bond ETF (HYMB): Market Share 2.8%

Expense Ratio: The current expense ratio for FMHI is 0.77%.

Investment Approach and Strategy:

• Strategy: FMHI actively manages its portfolio, aiming to outperform the Bloomberg Barclays High Yield Municipal Bond Index.
• Composition: The ETF invests in a diversified portfolio of high-yield municipal bonds across various sectors and maturities.

Key Points:

• High potential for tax-exempt income
• Actively managed for potentially superior returns
• Focus on high-yield bonds for potentially greater income
• Good liquidity and low trading costs

Risks:

• Interest rate risk: Bond prices can decline when interest rates rise.
• Credit risk: Default of the underlying issuer can lead to losses.
• Market risk: General market fluctuations can negatively impact bond prices.
• Volatility: High-yield bonds tend to be more volatile than lower-yielding counterparts.

Who Should Consider Investing: FMHI is suitable for investors seeking:

• Tax-exempt income
• Potential for capital appreciation
• Exposure to the high-yield municipal bond market
• An actively managed portfolio

Fundamental Rating Based on AI (1-10): 8.5

FMHI earns an 8.5 rating based on its strong fundamentals, including experienced management, active investment strategy, competitive performance history, and good liquidity.

However, the rating also considers the inherent risks associated with high-yield bonds. Investors need to assess their risk tolerance before investing.

Resources:

• First Trust website: https://www.firsttrust.com/etf/fmhi/overview
• Yahoo Finance: https://finance.yahoo.com/quote/FMHI/
• Bloomberg: https://www.bloomberg.com/quote/FMHI:US

Disclaimer: This analysis does not constitute financial advice. Investors should independently research and evaluate FMHI before making any investment decisions.