An actively managed ETF that seeks to provide
federal and California tax-exempt income
First Trust Advisors L.P. (“First Trust”), a leading
exchange-traded fund (“ETF”) provider and asset manager, announced
today that it has launched a new actively managed ETF, the First
Trust California Municipal High Income ETF (NASDAQ: FCAL)
(the “fund”). The fund seeks to provide income that is exempt from
regular federal income taxes and California state income taxes with
long-term capital appreciation as a secondary objective. The fund
will seek to achieve its investment objectives by investing
primarily in municipal debt securities issued by the state of
California. The fund may also invest in municipal securities issued
by territories or possessions of the U. S. (including, but not
limited to, Puerto Rico, the U.S. Virgin Islands and Guam.)
The fund is managed by the First Trust Municipal Securities Team
using a disciplined approach that applies both quantitative
analysis and fundamental research to seek higher-yielding
undervalued bonds within the municipal market. In choosing the
bonds, the portfolio managers seek to take advantage of municipal
market inefficiencies through an investment process that practices
diligent credit analysis of individual issuers coupled with a
thorough understanding of the major opportunities and risks within
municipal sectors. They also apply a quantitative total return
scenario analysis using multiple interest rate assumptions over
different time horizons.
The First Trust Municipal Securities Team sees ample
opportunities in municipal bonds. In their view, credit
fundamentals are improving for many municipal bond issuers and
taxable equivalent yields are attractive relative to other fixed
income asset classes. Given the potential for interest rates to
continue to rise as a result of stronger economic growth, the team
believes that in the current market, the fund’s intermediate
duration* focus, coupled with including bonds with lower investment
grade ratings and high-yield bonds, provides investors less
interest rate sensitivity than longer duration portfolios.
Johnathan N. Wilhelm, Senior Vice President and Tom Futrell,
CFA, Senior Vice President at First Trust, serve as senior
portfolio managers of the fund. The two will share responsibilities
for the day-to-day management of the fund’s investment
portfolio.
For more information about First Trust, please contact Ryan
Issakainen of First Trust at (630) 765-8689 or
RIssakainen@FTAdvisors.com.
About First Trust
First Trust Advisors L.P., along with its affiliate First Trust
Portfolios L.P., are privately held companies which provide a
variety of investment services, including asset management and
financial advisory services, with collective assets under
management or supervision of approximately $107 billion as of May
31, 2017, through unit investment trusts, exchange-traded funds,
closed-end funds, mutual funds, variable annuities and separately
managed accounts. First Trust is based in Wheaton, Illinois. For
more information, visit http://www.ftportfolios.com.
You should consider the fund’s investment objectives, risks,
and charges and expenses carefully before investing. Contact First
Trust Portfolios L.P. at 1-800-621-1675 to obtain a prospectus or
summary prospectus which contains this and other information about
the fund. The prospectus or summary prospectus should be read
carefully before investing.
ETF Characteristics
The fund lists and principally trades its shares on The NASDAQ
Stock Market LLC.
Investors buying or selling fund shares on the secondary market
may incur customary brokerage commissions. Market prices may differ
to some degree from the net asset value of the shares. Investors
who sell fund shares may receive less than the share’s net asset
value. Shares may be sold throughout the day on the exchange
through any brokerage account. However, unlike mutual funds, shares
may only be redeemed directly from the fund by authorized
participants, in very large creation/redemption units. If the
fund's authorized participants are unable to proceed with
creation/redemption orders and no other authorized participant is
able to step forward to create or redeem, fund shares may trade at
a discount to the fund's net asset value and possibly face
delisting.
Risk Considerations
The fund's shares will change in value and you could lose money
by investing in the fund. The fund is subject to management risk
because it is an actively managed portfolio. In managing the fund's
investment portfolio, the advisor will apply investment techniques
and risk analyses that may not have the desired result. There can
be no assurance that the fund's investment objectives will be
achieved.
The fund is subject to market risk. Market risk is the risk that
a particular security owned by the fund or shares of the fund in
general may fall in value. The values of municipal securities held
by the fund may be adversely affected by local political and
economic conditions and developments. Events in California,
including economic or political policy changes, tax base erosion,
budget deficits and other financial difficulties, and changes in
the credit ratings assigned to municipal issuers of California, are
likely to affect the fund’s investments and its performance.
Because the fund primarily purchases municipal bonds from
California and may also purchase municipal bonds from U.S.
territories, such as Puerto Rico, it is more susceptible to adverse
economic, political or regulatory changes affecting municipal bond
issuers in those locations. The Puerto Rican economy is reliant on
manufacturing, services and tourism, and its economy and financial
operations parallel the economic cycles of the United States.
Current economic difficulties in the United States are likely to
have an adverse impact on the overall economy of Puerto Rico. The
fund will be less diversified geographically than a fund investing
across many states.
Municipal bonds are subject to numerous additional risks,
including credit risk, income risk, interest rate risk, call risk
and zero coupon bond risk. Credit risk is the risk that an issuer
of a security will be unable or unwilling to make dividend,
interest and/or principal payments when due and that the value of a
security may decline as a result. Income risk is the risk that
income from the fund's fixed income investments could decline
during periods of falling interest rates. Interest rate risk is the
risk that the value of the securities in the fund will decline
because of rising market interest rates. Call risk is the risk that
performance could be adversely impacted if an issuer calls
higher-yielding debt instruments held by the fund. Zero coupon bond
risk is the risk that zero coupon bonds may be highly volatile as
interest rates rise or fall because they do not pay interest on a
current basis.
The fund is subject to industrial development bond risk which is
the risk that to the extent that the industrial development sector
continues to represent a significant portion of the fund, the fund
will be sensitive to changes in, and its performance may depend to
a greater extent on, the overall condition of the industrial
development sector.
The payment of principal and interest of a pre-refunded bond is
funded from securities held in a designated escrow account where
such securities are obligations of and carry the full faith and
credit of the U.S. Treasury. The securities held in the escrow fund
do not guarantee the price of the bond.
Private activity bonds, issued by municipalities or other public
authorities, can have a substantially different credit profile than
the municipality or public authority and may be negatively impacted
by conditions affecting either the general credit of the use of the
private activity project or the project itself.
Income from municipal bonds could be declared taxable because
of, among other things, unfavorable changes in tax laws, adverse
interpretations by the Internal Revenue Service or state tax
authorities, or noncompliant conduct of a bond issuer. The fund has
no limit as to the amount that can be invested in alternative
minimum tax bonds. All or a portion of the fund's otherwise
exempt-interest dividends may be taxable to those shareholders
subject to the federal and state alternative minimum tax.
An investment in inverse floaters typically will involve greater
risk than an investment in a fixed rate municipal bond. Investments
in inverse floaters create effective leverage. In addition,
distributions paid to the fund on its inverse floaters will be
reduced or even eliminated as short-term municipal interest rates
rise and will increase as short-term municipal interest rates
fall.
High yield securities, or “junk” bonds, are subject to greater
market fluctuations and risk of loss than securities with higher
ratings, and therefore, are considered to be highly speculative.
Distressed municipal securities are speculative and involve
substantial risks in addition to the risks of investing in high
yield securities that are not in default.
Inventories of municipal securities have decreased in recent
years, lessening the ability to make a market in these securities.
This reduction in market making capacity has the potential to
decrease the fund’s ability to buy or sell municipal securities,
and increase price volatility and trading costs.
Custodial receipt trusts may issue inverse floater securities in
which the fund may invest. Inverse floater securities may be
leveraged and their market values may be more volatile than other
types of fixed-income instruments. An investment in inverse
floaters typically will involve greater risk than an investment in
a fixed rate municipal bond.
As the use of Internet technology has become more prevalent in
the course of business, the fund has become more susceptible to
potential operational risks through breaches in cyber security.
Such events could cause the fund to incur regulatory penalties,
reputational damage, additional compliance costs associated with
corrective measures and/or financial loss.
If the fund has lower average daily trading volumes, it may rely
on a small number of third-party market makers to provide a market
for the purchase and sale of shares. Any trading halt or other
problem relating to the trading activity of these market makers
could result in a dramatic change in the spread between the fund’s
net asset value and the price at which the fund’s shares are
trading.
The fund may invest in distressed municipal securities and many
distressed securities are illiquid or trade in low volumes and thus
may be more difficult to value.
Participation interests in municipal leases pose special risks
because many leases and contracts contain "non-appropriation"
clauses that provide that the governmental issuer has no obligation
to make future payments under the lease or contract unless money is
appropriated for this purpose by the appropriate legislative
body.
The fund will, under most circumstances, effect a portion of
creations and redemptions for cash, rather than in-kind securities.
As a result, the fund may be less tax-efficient.
The fund currently has fewer assets than larger funds, and like
other relatively new funds, large inflows and outflows may impact
the fund's market exposure for limited periods of time.
The fund is classified as "non-diversified" and may invest a
relatively high percentage of its assets in a limited number of
issuers. As a result, the fund may be more susceptible to a single
adverse economic or regulatory occurrence affecting one or more of
these issuers, experience increased volatility and be highly
concentrated in certain issuers.
The information presented is not intended to constitute an
investment recommendation for, or advice to, any specific person.
By providing this information, First Trust is not undertaking to
give advice in any fiduciary capacity within the meaning of ERISA
and the Internal Revenue Code. First Trust has no knowledge of and
has not been provided any information regarding any investor.
Financial advisors must determine whether particular investments
are appropriate for their clients. First Trust believes the
financial advisor is a fiduciary, is capable of evaluating
investment risks independently and is responsible for exercising
independent judgment with respect to its retirement plan
clients.
First Trust Advisors L.P. is the adviser to the fund. First
Trust Advisors L.P. is an affiliate of First Trust Portfolios L.P.,
the fund’s distributor.
*Duration is a measure of a bond's sensitivity to interest rate
changes that reflects the change in a bond's price given a change
in yield.
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version on businesswire.com: http://www.businesswire.com/news/home/20170621006301/en/
First TrustRyan Issakainen(630)
765-8689RIssakainen@FTAdvisors.com
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