First Trust Expands Income Options with Active CEF-Based ETFs
First Trust has rolled out two new actively managed exchange traded funds that target closed-end funds focused on income generation.
First Trust recently launched the First Trust CEF Income Opportunity ETF (NasdaqGM: FCEF) and First Trust Municipal CEF Income Opportunity ETF (NasdaqGM: MCEF). FCEF has a 2.5% total expense ratio and MCEF has a 1.91% total expense ratio.
The two new active funds invest in a broad range of CEFs, which First Trust believes may provide more stable income than other managed investment products.
Closed-end funds are organized as a publicly traded investment company by the Securities and Exchange Commission. Similar to traditional open-end funds, a CEF is a pooled investment vehicle with a manager overseeing the allocations. However, CEFs raise a fixed amount of capital through an initial public offering, so their share price can trade a premium or discount to net asset value, and they trade like a stock on a stock exchange.
Since a CEF’s share price can deviate from its NAV, First Trust believes an active manager may be able to capitalize on inefficiencies and opportunities present in the CEF space.
“Advisors and their investors have been underserved when it comes to actively managed solutions in the closed-end fund space. We believe through our rigorous proprietary model and years of experience in the CEF space that we can provide advisors and their investors with a better overall experience,” Ken Fincher, Senior Vice President at First Trust and FCEF and MCEF’s portfolio manager, said in a press release.
When selecting holdings, Fincher will utilize various market metrics and economic factors, including fund size, duration, leverage ratio, average maturity, earnings rate, undistributed net investment income, distribution rate, premium or discount, net asset value and share price returns, sponsor and distribution policies.
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FCEF will include exposure to U.S. and non-U.S. equity securities, U.S. and non-U.S. government debt, corporate debt, municipal securities, commodities, preferred securities, convertible securities, high yield securities, master limited partnerships and senior loans.
MCEF will provide exposure to municipal securities of any credit quality, including high yield securities.
For more information on new fund products, visit new ETFs category.
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