First Trust has launched two new actively managed fixed income ETFs in the US providing intermediate-duration exposure to bonds from US corporate and government issuers.
Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust.
The First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG US) and First Trust Intermediate Government Opportunities ETF (MGOV US) have been listed on NYSE Arca with expense ratios of 0.65% and 0.68%, respectively.
Ryan Issakainen, Senior Vice President and ETF Strategist at First Trust, commented: “We are thrilled to expand First Trust’s robust line-up of actively managed fixed income ETFs. FIIG and MGOV provide investment professionals with fresh tools to access the deep expertise of skilled portfolio management teams with proven track records of success.”
The First Trust Intermediate Duration Investment Grade Corporate ETF invests primarily in investment-grade corporate debt securities while maintaining a dollar-weighted average duration within 1.5 years of the benchmark Bloomberg US Credit Corp 5-10 Year Index. Up to 20% of the portfolio may be allocated to bonds with high yield credit ratings.
In selecting constituents for the ETF, First Trust favours companies with relatively stable cash flows, valuations that are supportive of their debt balances, and strong management teams.
Key considerations of portfolio construction include yield curve management (monitoring macro factors that drive interest rates), relative value assessments (an internal process of evaluating investment opportunities on a relative basis), portfolio diversification, issuer liquidity, and continuous monitoring.
William Housey, Managing Director of Fixed Income, Senior Portfolio Manager at First Trust, commented: “We believe an allocation to actively managed, intermediate-duration investment-grade credit is timely as income and duration risk appear much more balanced following the Fed’s 525 basis points of interest rate increases from March 2022 to July 2023. Investors looking to take advantage of elevated yields for a longer period of time may find that intermediate-duration investment-grade corporate bonds provide a compelling solution in the current environment.”
The First Trust Intermediate Government Opportunities ETF, meanwhile, invests primarily in investment-grade debt securities issued or guaranteed by the US government, its agencies, or government-sponsored entities.
US Treasuries, mortgage-backed securities, pass-through securities, collateralized mortgage obligations, and commercial mortgage-backed securities are all eligible for inclusion, as well as “to-be-announced” transactions such as mortgage dollar rolls.
The fund seeks to maintain a dollar-weighted portfolio duration of three to eight years, while up to 20% of the portfolio may be allocated to securities with high yield credit ratings.
According to First Trust’s Government and Securitized Products Group, “MGOV provides investors with a broad array of income opportunities at attractive levels for the current environment. Further, the minimal credit risk, along with the quantitative strategies deployed may maximize total return opportunities within today’s less conventional, inverted yield curve environment.”