Daily ETF Watch: Short Maturity Fund Debuts

New ETF is actively managed, invests in short-duration fixed-income issues.

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Reviewed by: Heather Bell
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Edited by: Heather Bell

New ETF is actively managed, invests in short-duration fixed-income issues.

First Trust is today rolling out the First Trust Enhanced Short Maturity ETF (FTSM), according to a Nasdaq communique. The actively managed fund will invest mainly in investment-grade, short-term bonds selected from a wide range of asset classes with an eye to preserving investor capital and maintaining liquidity.

The press release noted that the fund would also use a laddering strategy and could rotate strategically among sectors as needed. The launch is certainly timely, as investors look to trim duration exposure ahead of higher rates. As an example, just a few days ago, Pimco’s Bill Gross made the widely reported argument that the only “safe haven” place for investors right now is on the short end of the yield curve.

“Over the past few years, in this low interest rate environment, investors in short-term bonds have often been faced with a choice between losing purchasing power safely in high quality bonds with negative real returns, or seeking higher returns from securities that are below investment-grade,” First Trust Senior Vice President and ETF Strategist Ryan Issakainen said in the release.

He went on to note that the fund’s goal is to bridge the “middle ground” between the two choices, providing current income while limiting risk.

FTSM’s prospectus said that it is expected to have a duration under one year and a maturity of less than three years under normal circumstances. The fund comes with a net annual expense ratio of 0.35 percent after the application of a fee waiver of 10 basis points.

FTSM’s closest competitor looks to be the iShares Short Maturity Bond ETF (NEAR | B). Like FTSM, NEAR is actively managed, has a focus on income and invests primarily in U.S.-dollar-denominated, investment-grade short-term debt. NEAR comes with an expense ratio of 0.25 percent, and currently has $344 million in assets under management. It launched in September of last year.

 

Heather Bell is a former managing editor of etf.com. She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.