First Trust Debuts 2 Funds

November 03, 2017

Yesterday, First Trust rolled out two very different ETFs. The First Trust Municipal High Income ETF (FMHI) and the First Trust SMID Cap Rising Dividend Achievers ETF (SDVY) both list on the Nasdaq and target the municipal bond and high-dividend spaces, respectively.

Muni Fund

FMHI is an actively managed fund and comes with an expense ratio of 0.55%. It invests in a wide range of municipal debt that is exempt from regular federal income taxes. The fund has no target duration, but the prospectus notes it will look to maintain a weighted average maturity of 14 years or less.

The document also notes the fund will typically invest at least 40% of its assets in issuances with at least $50 million in debt outstanding.

Also, at least half the portfolio will be rated below investment grade. That half of the portfolio can include debt that is already in default, with up to 10% of the portfolio able to be allocated to distressed debt. No more than half of the portfolio may be invested in investment-grade debt.

Dividend Fund

SDVY comes with an expense ratio of 0.60% and tracks an index of 100 small- and midcap equities that have a history of growing dividends with expectations for them to continue doing so in the future.

The index selects its components from the bottom 25% of the Nasdaq US Benchmark Index. In addition to dividends, the methodology also considers earnings growth and levels of cash held.

Component companies must have market capitalizations of at least $500 million and meet liquidity requirements. They must also have grown their 12-month trailing dividend over a three- and five-year period. Earnings per share must have grown over a three-year period, while the cash-to-debt ratio must be more than 25%. Finally, a company’s stock must have a trailing 12-month payout ratio of 65% or less, the prospectus says.

The index had a market-capitalization range from $801 million to $16.2 billion as of the end of September, with significant concentrations in the consumer discretionary, financials and industrials sectors, according to the document.

Contact Heather Bell at [email protected]

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