First Trust has announced the release of their newest ETF that invests in corporate bonds with limited duration in a press release. The First Trust Limited Duration Investment Grade Corporate ETF seeks to provide current income in investment-grade bonds while maintaining a portfolio with a weighted average duration within one year of the U.S. Corporate Bond 1-5 Year Index.
By investing in shorter-term duration bonds, the fund could provide less volatility in interest rates compared to longer duration bonds. Duration is important within the bond space because it measures the price sensitivity compared to interest rate changes.
First Trust believes that investing in short maturity, investment-grade corporate bonds offer diversification and income potential for an investor’s portfolio. With the central bank looking to raise interest rates next year and thereby suppress yield, these particular kinds of bonds would be a good opportunity for investors seeking income. Short maturity, investment-grade bonds strike a good balance between moving further out on the maturity curve or reducing credit quality too much to provide income.
“We believe an allocation to actively managed, short-duration investment-grade credit is timely given the expectation for both continued inflationary pressure and higher interest rates going forward. Investors looking to balance yield and duration exposure, while core bonds and other long-duration fixed income asset classes are under pressure, may find short duration investment-grade corporate bonds provide a smart and durable solution in this environment,” said William Housey, CFA, managing director of fixed income, senior portfolio manager at First Trust and a portfolio manager of FSIG.
Debt securities that FSIG primarily invests in are corporate bonds that are investment grade with a rating of Baaa3 or BBB- and above by at least one of the nationally recognized statistical rating organizations. The advisor constructs the portfolio through a bottom-up fundamental credit analysis that utilizes a risk management framework by analyzing a company’s ability to maintain stable cash flow throughout an economic cycle, companies whose valuations support their debt balances, as well as companies with a solid management team that has proven positive performance.
The advisor takes into account yield curve management, portfolio diversification, relative value, issuer liquidity, and monitoring the fund through active management to align the portfolio with the duration goal of 1 year more or less than the U.S. Corporate Bond 1-5 Year Index.
FSIG carries an expense ratio of 0.45%.
For more information, visit http://www.ftportfolios.com.