First Trust Portfolios, the Il-based sixth largest US issuer of exchange-traded funds, recently unveiled the First Trust Enhanced Short Maturity ETF (FTSM) to give investors exposure in the short-end of the duration curve with the aim of protecting client-capital while providing current income.
The actively-managed fund invests in short-duration and investment-grade debt securities that are primarily denominated in US dollars. Duration is a measure of interest rate risk. Securities with higher duration experience wide price changes for small change in interest rates. FTSM has a weighted-average effective duration of 0.27 years and a weighted-average maturity of 0.77 years, indicating low interest-rate risk.
The fund is well-diversified across a broad range of fixed-income securities. However, the fund is tilted toward money market securities (with maturity of less than one-year) with nearly two-thirds of fund allocation. Asset/Mortgage Backed Securities (ABS/MBS) get 12.78 percent allocation while floating-rate corporate bonds get 10.06 percent. Government notes/bonds and floating-rate loans are allocated less than 5 percent each.
FTSM’s portfolio consists of 32 securities, and the fund attempts to outperform the Bank of America Merrill Lynch 0-1 year US Treasury Index. Individually, Arrow Electronics Inc (8.99 percent), Hawaiian Electric Inds (8.66 percent) and DCP Midstream LLC (8.52 percent) are top three holdings.
FTSM is likely to face stiff competition from the two well-entrenched players in the short-duration ETF space – the PIMCO Enhanced Short Maturity Exchange-Traded Fund (MINT) and the Guggenheim Enhanced Short Duration ETF (GSY). MINT is the biggest product in this niche with an asset base of nearly $4 billion. The fund has an effective duration of 0.49 year and an effective maturity of 0.53 year.
GSY, on the other hand, has an asset base of $702 million with an weighted-average duration of 0.47 years.
FTSM has an annual expense ratio of 0.35 percent.
Disclosure: No holdings