Smart beta specialist First Trust is listing two actively managed muni bond ETFs that offer maturity and duration management. Municipal bonds are bonds issued by local US governments, the income payments of which are federal income tax exempt.
First Trust Short Duration Managed Municipal ETF (FSMB)
First Trust Enhanced Short Maturity Municipal ETF (FUMB)
FSMB will create a portfolio targeting a weighted average duration of 1-3 years. Duration is a mathematical calculation of the average life of a debt security that serves as a measure of its price risk. In general, each year of duration represents an expected 1% change in the value of a security for every 1% immediate change in interest rates.
In picking bonds, First Trust will focus on securities that meet infrastructure needs. FSMB will picks bonds from "at least 13 different states, with an emphasis on states with growing populations and healthy employment trends," the prospectus says. The fund will primarily invest in investment grade bonds, but may invest up to 35% in junk. The fund can invest in almost every type of municipal
FUMB will target a duration of less than one year "and the weighted average maturity of the Fund's portfolio is expected to be less than three years," the prospectus says. As with FSMB, this fund will pick bonds from states with strong economies that have been issued, as much as possible, for crucial infrastructure. It will invest at least 80% in investment grade bonds and may invest up to 20% in junk bonds.